As filed with the Securities and Exchange Commission on May 23, 1996
Registration No. 33-65816
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 7
TO
FORM S-11
AND FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC.
(Exact name of registrant as specified in governing charter)
DELAWARE 13-3411414
State of Incorporation IRS Employer Identification Number
245 Park Avenue
New York, New York 10167
(212) 272-2000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
---------------------
William J. Montgoris
Treasurer and Secretary
Bear Stearns Commercial Mortgage Securities Inc.
245 Park Avenue
New York, New York 10167
(212) 272-2000
(Name and address of agent for service)
---------------------
Copy to:
Richard L. Fried
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ X ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Proposed Proposed
maximum maximum
offering aggregate Amount of
Title of Securities Amount being price offering registration
being registered registered per Unit(1) price(1) fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage
Pass-Through $1,000,000,000 100% $1,000,000,000 $344,795.50(2)
===================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee on
the basis of the proposed maximum aggregate offering price.
(2) $200,112.50 of which was paid previously. The additional registration
fee of $144,683 is being paid concurrently herewith.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
ITEM AND CAPTION IN FORM S-3 LOCATION IN PROSPECTUS PROSPECTUS SUPPLEMENT
<C> <C> <C>
1. Forepart of Registration Forepart of Registration Outside Front Cover Page
Statement and Outside Statement and Outside
Front Cover Page of Front Cover Page
Prospectus....................
2. Inside Front and Outside Inside Front Cover Page, Inside Front Cover Page,
Back Cover Pages of Outside Back Cover Page Outside Back Cover Page
Prospectus....................
3. Summary Information, Risk * Summary of Terms,
Factors and Ratio of Earnings Risk Factors
to Fixed Charges..............
4. Use of Proceeds............... Use of Proceeds Use of Proceeds
5. Determination of Offering * *
Price.........................
6. Dilution...................... * *
7. Selling Security * *
Holders.......................
8. Plan of Distribution.......... Method of Distribution Plan of Distribution
9. Description of Securities Outside Front Cover Page; Outside Front Cover Page;
to be Registered.............. Description of the Certifi- The Trust Fund; Description
cates; The Trust Fund; of the Certificates; Yield,
Certain Legal Aspects of Prepayment and Maturity
the Mortgage Loan; and Considerations; Certain
Leases; Certain Federal Federal Income Tax Con-
Income Tax Consequences sequences; Certificate
Ratings
10. Interests of Named Experts * *
and Counsel...................
11. Material Changes.............. * *
12. Incorporation of Certain Incorporation of Certain *
Information by Reference Documents by Reference
13. Disclosure of Commission * *
Position on Indemnification
for Securities Act
Liabilities...................
</TABLE>
- --------------------
* Answer negative or Item inapplicable.
<PAGE>
PROSPECTUS SUPPLEMENT *
(TO PROSPECTUS DATED ____________, 199_)
$------------
(APPROXIMATE)
BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC.
DEPOSITOR
[ ]
Master Servicer
[ ]
Special Servicer
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-_
The Mortgage Pass-Through Certificates, Series 199_-_ (collectively, the
"Certificates"), consist of all Classes identified in the chart below [(the
"Offered Certificates") as well as certain additional Classes of Certificates,
as more fully described herein, that are not being offered for sale hereunder].
The original principal amount of one or more Classes of Certificates may be
increased or decreased by up to [ ]% prior to their issuance, depending on the
Mortgage Loans actually delivered to the Trustee named herein and to obtain the
required ratings on the Certificates. It is a condition to their issuance that
each Class of Certificates receive the respective ratings (set forth under
"Summary of Terms--Ratings" of each of [ ] and [ ]. (See "Rating" herein).
The Certificates will represent, in the aggregate, the entire beneficial
ownership interest in a trust fund (the "Trust Fund") consisting primarily of a
segregated pool (the "Mortgage Pool") of adjustable or fixed rate, amortizing or
balloon payment, recourse or non-recourse, newly originated or seasoned mortgage
loans secured by first liens on fee simple or leasehold interests in commercial
real estate properties, multifamily residential [rental] properties,
[cooperatively owned multifamily properties] [consisting of five or more
dwelling units], and mixed residential/commercial properties (the "Mortgage
Loans"). The Mortgage Pool will also include [participation interests in such
types of Mortgage Loans,] [installment contracts for the sale of, and] Mortgage
Loans secured by junior liens (where the first lien may or may not also be
included in the Mortgage Pool) on, such types of properties [and mortgage
pass-through certificates. [The Trust Fund will also consist of [a reserve fund]
[insurance policies on the Mortgage Loans] [a letter of credit] [certificate
guarantee insurance] [other enhancement device] as set forth in "The Trust
Fund."] [The Class A-3A, Class A-3B and Class A-4 Certificates do not represent
a beneficial ownership interest in any Mortgage Loans other than certain
multifamily loans included in the Trust Fund.] The Mortgage Loans were
originated by various Sellers (as defined herein) and subsequently purchased by
BSCMSI.
(cover continued on next page)
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN BSCMSI,
THE MASTER SERVICER, THE SPECIAL SERVICER, THE TRUSTEE, OR ANY OF THEIR
RESPECTIVE AFFILIATES. [EXCEPT AS PROVIDED HEREIN,] NEITHER THE CERTIFICATES NOR
THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
ENTITY, BSCMSI, THE MASTER SERVICER, THE SPECIAL SERVICER, OR ANY OF THEIR
AFFILIATES, OR ANY OTHER PERSON. DISTRIBUTIONS ON THE CERTIFICATES WILL BE
PAYABLE SOLELY FROM THE ASSETS TRANSFERRED OR PLEDGED TO THE TRUST FUND FOR THE
BENEFIT OF CERTIFICATEHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
$__________ ____% Class A-1A Certificates
$__________ ____% Class A-1B Certificates
$__________ ____% Class A-1R Certificates
$__________ (1) Class A-2 Certificates
$__________ ____% Class A-3A Certificates
$__________ ____% Class A-3B Certificates
$__________ (2) Class A-4 Certificates
$__________ ____% Class B Certificates
$__________ ____% Class C Certificates
(1) The Class A-2 Certificates will bear interest at a rate of __% per annum
during their first [ ] Interest Accrual Periods (as defined herein). During
each Interest Accrual period thereafter, the Class A-2 Certificates will
bear interest, subject to a maximum rate of __% per annum [and a minimum
rate of __% per annum], at a rate per annum equal to __% in excess of the
London interbank offered rate for one- month U.S. dollar deposits
("LIBOR"), as more fully described herein.
(2) The Class A-4 Certificates will bear interest at a rate of __% per annum
during their first [ ] Interest Accrual Periods. During each Interest
Accrual Period thereafter, the Class A-4 Certificates will bear interest,
subject to a maximum rate of __% per annum [and a minimum rate of __% per
annum], at a rate per annum equal to __% in excess of LIBOR, as more fully
described herein.
SEE "RISK FACTORS" ON PAGE S-__ FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
[OFFERED] CERTIFICATES.
The [Offered] Certificates will be purchased by Bear, Stearns & Co. Inc.
(the "Underwriter") from BSCMSI and will be offered by the Underwriter from time
to time in negotiated transactions at varying prices to be determined at the
time of sale. Proceeds to BSCMSI are expected to be approximately _____% of the
aggregate principal balance of the Certificates plus accrued interest thereon at
the applicable interest rate from ______1, 199_ for all Classes, except from
_______ 25, 199_ for the Class A-2 and Class A-4 Certificates, to but not
including the Closing Date but before deducting expenses payable by BSCMSI,
estimated to be $_________.
The [Offered] Certificates are offered by the Underwriter when, as and if
issued, delivered to and accepted by the Underwriter and subject to certain
other conditions. It is expected that delivery of the Class A-1R Certificates
will be made against payment therefor at the offices of Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167, and that delivery of the other
[Offered] Certificate will be made in book entry form only, through the Same Day
Funds Settlement system of The Depository Trust Company, in each case on or
about __________, 199_.
Bear, Stearns & Co. Inc.
The date of this Prospectus Supplement is ____________, 199_
- ---------------
* This Registration Statement includes a Prospectus and an
illustrative form of Prospectus Supplement. As described in the Prospectus, each
transaction may have Classes of Certificates with various characteristics,
Mortgage Loans with various characteristics, various forms and terms of credit
enhancement, one or more Master Servicers, various underwriting and servicing
standards with respect to the Mortgage Loans, various tax consequences, and
various other characteristics.
(cover continued from previous page)
Principal and interest on the Certificates are payable on the [25th] day of
each month or, if such day is not a business day, then on the next succeeding
business day, beginning in __________ 199_ (each, a "Distribution Date").
Interest payments on the Mortgage Loans will be passed through to the holders of
the Certificates at the Pass-Through Rate set forth or described above.
Distributions of principal among the Certificates will be made as described
herein. See "Description of the Certificates-- Distributions--Allocation Among
Classes" herein. Realized Losses (as defined herein) on the Mortgage Loans to
the extent not otherwise covered by credit enhancement will be allocated to the
Certificates as described herein. See "Description of the
Certificates--Allocation of Losses" herein.
There is currently no secondary market for the Certificates and there can
be no assurance that one will develop. Bear, Stearns & Co. Inc. intends to
establish a market in the [Offered] Certificates [(other than the Class [ ]
Certificates)], but is not obligated to do so. There is no assurance that any
such market, if established, will continue.
THE YIELD TO INVESTORS IN THE CERTIFICATES WILL BE SENSITIVE IN VARYING
DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON
THE MORTGAGE LOANS[, WHICH GENERALLY MAY BE PREPAID IN FULL OR IN PART AT ANY
TIME WITHOUT PENALTY]. SEE "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS"
HEREIN. IN ADDITION, THE YIELD ON THE CLASS A-2 AND CLASS A-4 CERTIFICATES WILL
BE SENSITIVE TO THE LEVEL OF LIBOR. THE YIELD TO INVESTORS IN THE CERTIFICATES
ALSO WILL BE ADVERSELY AFFECTED BY INTEREST SHORTFALLS (AS DEFINED HEREIN) AND
BY REALIZED LOSSES. NO REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OF
PREPAYMENTS ON THE MORTGAGE LOANS, THE LEVEL OF LIBOR, THE AMOUNT AND TIMING OF
INTEREST SHORTFALLS OR REALIZED LOSSES OR AS TO THE RESULTING YIELD TO MATURITY
OF ANY CLASS OF CERTIFICATES.
As described herein, a real estate mortgage investment conduit ("REMIC")
election will be made in connection with the Trust Fund for federal income tax
purposes. As described more fully herein and in the Prospectus, all of the
Certificates other than the Class A-1R Certificates will be designated as
"regular interests" in the REMIC and the Class A-1R Certificates will represent
the "residual interest" in such REMIC. See "Certain Federal Income Tax
Consequences" in the Prospectus. The Class A-1R Certificates will be subject to
certain restrictions on transfer. See "Restrictions on Purchase and Transfer of
the Class A-1R Certificates" herein.
In connection with purchasing the Mortgage Loans, BSCMSI received from the
sellers thereof (each a "Seller") certain representations and warranties
concerning the Mortgage Loans. In connection with selling the Mortgage Loans to
the Trust Fund, BSCMSI will assign to the Trust Fund such representations and
warranties, along with the related remedies in the event of a breach thereof.
Such remedies generally are limited to requiring the related Seller to
repurchase [or substitute for] a Mortgage Loan as to which a breach has occurred
and is continuing. Although the Master Servicer may be obligated to enforce such
repurchase [or substitution] obligations, neither the Master Servicer nor BSCMSI
will be obligated to repurchase [or substitute for] a Mortgage Loan if the
related Seller defaults on such obligation, unless such breach also constitutes
a breach of the representations and warranties of the Master Servicer or the
BSCMSI, as the case may be. The repurchase [and substitution] obligation will
constitute the sole remedy available to Certificateholders with respect to a
breach of any representations or warranties concerning the Mortgage Loans.
The Certificates offered by this Prospectus Supplement constitute a
separate series of Certificates being offered by BSCMSI 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.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
CERTIFICATES AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.]
[To be included where trust fund includes Private Mortgage- Backed
Securities]
[The Private Mortgage-Backed Securities were originally issued in publicly
registered offerings or have been outstanding for at least three years and will
be acquired for inclusion in the Trust Fund in purely secondary transactions,
not from the Issuer or an affiliate thereof.]
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Capitalized terms not defined in this summary shall
have the meaning assigned in the Prospectus Supplement. See "Index of Principal
Definitions" herein.
TITLE OF SERIES................. Mortgage Pass-Through Certificates, Series
199_-_ (the "Certificates"). The Certificates
will represent in the aggregate the entire
beneficial ownership interest in a trust
fund (the "Trust Fund") consisting primarily
of a segregated pool (the "Mortgage Pool") of
mortgage loans (the "Mortgage Loans") having
an aggregate principal balance as of
__________, 199_ (the "Cut-Off Date") of
approximately $__________. The Certificates
will be issued pursuant to a Pooling and
Servicing Agreement to be dated as of the
Cut-Off Date (the "Agreement") among Bear
Stearns Commercial Mortgage Securities Inc.,
as depositor ("BSCMSI"), [ ], as master
servicer, [ ], as special servicer, and
[_______________], as trustee (the "Trustee").
OFFERED CERTIFICATES............ Class A-1A ____% $________
Class A-1B ____% $________
Class A-1R ____% $________
Class A-2 Floating Rate
$--------
Class A-3A ____% $________
Class A-3B ____% $________
Class A-4 Floating Rate
$--------
Class B ____% $________
Class C ____% $________
The original principal amount of one or more
Classes of Certificates may be increased or
decreased by BSCMSI by up to __%, depending
upon the Mortgage Loans actually acquired by
BSCMSI and delivered to the Trustee. In
addition, the original principal amount of any
Class of Certificates may be adjusted, as
necessary, to obtain the required ratings on
the Certificates from the Rating Agencies (as
defined under "--Rating" herein).
[OTHER CERTIFICATES.............$_______ __% Class __ Certificates. The Class
__ Certificates are not offered hereby and
information included herein with respect to such
Certificates is solely for the information of
potential investors in the Offered
Certificates.]
DESIGNATIONS
Regular Certificates..........All Classes of Certificates other
than the Class A-1R Certificates.
Residual Certificates.........Class A-1R Certificates.
Class A Certificates..........Class A-1A, Class A-1B, Class
A-1R, Class A-2, Class A-3A, Class A-3B
and Class A-4 Certificates.
Commercial Fixed Rate
Certificates.................Class A-1A, Class A-1B, Class A-1R, Class B
and Class C Certificates.
Multifamily Fixed
Rate Certificates............Class A-3A and Class A-3B Certificates.
Fixed Rate
Certificates.................Commercial Fixed Rate and Multifamily Fixed
Rate Certificates.
Floating Rate
Certificates.................Class A-2 and Class A-4 Certificates.
Commercial
Certificates................Commercial Fixed Rate and Class A-2
Certificates.
Multifamily
Certificates.................Multifamily Fixed Rate and Class A-4
Certificates.
Book-Entry
Certificates.................All [Offered] Certificates other than the Class
A-1R Certificates.
DENOMINATIONS...................Each Class of Book-Entry Certificates will be
registered as a single Certificate held by a
nominee of The Depository Trust Company, and
beneficial interests will be held by investors
through the book-entry facilities of The
Depository Trust Company, as described herein,
in minimum denominations of $25,000 and
increments of $1,000 in excess thereof. One
Certificate of each Class of Book-Entry
Certificates may be issued in a different
principal amount to accommodate the remainder
of the initial principal amount of the
Certificates of such Class, and, if so issued,
will be held in physical certificate form
directly by investors.
The Class A-1R Certificates will be issued in
certificated, fully-registered form in minimum
denominations of $_________ and increments of
$________ in excess thereof.
DEPOSITOR.......................BSCMSI, a wholly-owned subsidiary of CMC
Commercial Assets Corporation, which is a
wholly-owned subsidiary of The Bear Stearns
Companies Inc. See "The Depositor" in the
Prospectus.
MASTER SERVICER.................[ ] will act as master servicer
(the "Master Servicer") with respect to the
Mortgage Loans. See "The Pooling and Servicing
Agreement" herein.
SPECIAL SERVICER................____________ (the "Special Servicer") will act
as Special Servicer. See "The Pooling and
Servicing Agreement--Special Servicer" herein.
COLLATERAL AGENT.................__________ (the "Collateral Agent") will act as
Collateral Agent pursuant to the Collateral
Security Agreement dated as of __________,
19__ (the "Collateral Security Agreement")
among BSCMSI, the Trustee and the Collateral
Agent. See "The Trust Fund--Reserve Fund"
herein.
THE TRUST FUND...................The Trust Fund will consist of the Mortgage
Pool, together with the payments thereon and
certain other assets, including [the reserve
fund] [the insurance policies on the mortgage
loans] [a letter of credit] [certificate
guarantee insurance] [the credit enhancement
devices set forth below.]
[A.] The Mortgage Pool...........As of the Cut-Off Date, the Mortgage Pool
consisted of approximately __ Mortgage Loans
with an approximate aggregate Scheduled
Principal Balance (as defined herein under
"Description of the Certificates--Distributions
--Generally") of $__________. The Mortgage
Loans will be divided into four Mortgage Loan
Groups on the basis of their Floor Interest
Rates (as defined below), if any, the types of
properties securing such Mortgage Loans (the
"Mortgaged Properties"), and whether their
respective annual interest rates ("Mortgage
Interest Rates") are fixed or adjustable. [The
Mortgage Loans are not insured or guaranteed by
any governmental entity or private insurer.]
[Some of the Mortgage Loans are [Installment
Contracts] [mortgage pass-through certificates]
[participations in mortgage loans of the type
set forth below.] The Mortgage Loans [(other
than Installment Contracts)] [(or in the case
of mortgage pass-through certificates, the
underlying mortgage loans)] are [except as
discussed below] secured by first liens on fee
simple or leasehold interests in commercial
real estate properties, multifamily residential
[rental] properties, [and] [cooperatively owned
multifamily properties] [consisting of five or
more dwelling units], and mixed residential/
commercial properties located in approximately
__ states [and the District of Columbia]. The
commercial real estate properties include
[office buildings, retail buildings,
warehouses, hotels and motels, industrial
buildings, medical buildings, mobile home
parks, nursing homes, shopping centers and a
variety of other commercial properties]. See
"The Trust Fund" herein.
[With respect to _______ Mortgage Loans with an
aggregate Scheduled Principal Balance of
approximately $_______, representing ____% of
the Mortgage Pool by Scheduled Principal
Balance as of the Cut-Off Date, the Mortgage
Loans are secured by second liens on Mortgaged
Properties for which the related first lien[,
in some cases,] secures a mortgage loan which
is not included in the Mortgage Pool; with
respect to ____ Mortgage Loans with an
aggregate Scheduled Principal Balance of
approximately $_____, representing ___% of the
Mortgage Pool by Scheduled Principal Balance
as of the Cut-Off Date, the Mortgage Loans are
secured by third liens on Mortgaged Properties
for which the related senior liens[, in some
cases,] secure mortgage loans which are not
included in the Mortgage Pool; and with respect
to _______ Mortgage Loans with an aggregate
Scheduled Principal Balance of approximately
$_______, representing __% of the Mortgage
Pool by Scheduled Principal Balance as of the
Cut-Off Date, the Mortgage Loans are secured by
a lien on a Mortgaged Property more junior than
a third mortgage.]
Mortgage Loan Groups 3 and 4 will consist of
Mortgage Loans secured by first liens (or by
junior liens where all related senior liens
secure Mortgage Loans included in the related
Mortgage Loan Group) on multifamily residential
properties ("Eligible Multifamily Mortgage
Loans"), such that such Mortgage Loans are
eligible to support "mortgage-related
securities," as that term is defined under the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA").
Mortgage Loan Group 1 will consist of Mortgage
Loans having Mortgage Interest Rates which are
fixed (or, in limited cases, which increase
by fixed amounts after the Cut-Off Date on a
predetermined schedule) and Mortgage Loans
having Mortgage Interest Rates that are
adjustable, but subject to a minimum interest
rate (a "Floor Interest Rate") of at least
____% per annum. None of the Mortgage Loans in
Mortgage Loan Group 1 is an Eligible
Multifamily Mortgage Loan. As of the Cut-Off
Date, the approximately ---- Mortgage Loans in
Mortgage Loan Group 1 had an approximate
aggregate Scheduled Principal Balance of
$------, a weighted average Mortgage Interest
Rate of approximately ____% per annum and a
weighted average remaining term to stated
maturity [(excluding Matured Performing
Mortgage Loans (as defined under "Risk
Factors--Delinquent Mortgage Loans; Matured
Performing Mortgage Loans" herein))] of
approximately ------ years. Approximately ___%
of the Group 1 Mortgage Loans, by Scheduled
Principal Balance as of the Cut-Off Date,
are not fully amortizing over their terms
to maturity.
Mortgage Loan Group 2 will consist of Mortgage
Loans having Mortgage Interest Rates that are
adjustable[, based upon the weighted average
cost of funds for member savings institutions
of the Eleventh Federal Home Loan Bank District
("COFI"),] and generally subject to lower
Floor Interest Rates than the adjustable rate
Group 1 Mortgage Loans or no Floor Interest
Rate. None of the Group 2 Mortgage Loans is
an Eligible Multifamily Mortgage Loan. As of
the Cut-Off Date, the approximately ________
Mortgage Loans in Mortgage Loan Group 2 had an
approximate aggregate Scheduled Principal
Balance of $______, a weighted average Mortgage
Interest Rate of approximately __% per annum
and a weighted average remaining term to
stated maturity [(excluding Matured Performing
Mortgage Loans)] of approximately ___ years.
Approximately __% of the Group 2 Mortgage
Loans, by Scheduled Principal Balance as of the
Cut-Off Date, are not fully amortizing over
their terms to maturity.
Mortgage Loan Group 3 will consist of Mortgage
Loans having Mortgage Interest Rates which are
fixed (or, in limited cases, which increase
by fixed amounts after the Cut-Off Date on a
predetermined schedule) and Mortgage Loans
having Mortgage Interest Rates that are
adjustable, but subject to a Floor Interest
Rate of at least ___% per annum. All of the
Group 3 Mortgage Loans are Eligible Multifamily
Mortgage Loans. As of the Cut-Off Date,
the approximately __ Mortgage Loans in Mortgage
Loan Group 3 had an approximate aggregate
Scheduled Principal Balance of $_________, a
weighted average Mortgage Interest Rate of
approximately ___% per annum and a weighted
average remaining term to stated maturity
[(excluding Matured Performing Mortgage Loans)]
of approximately ___ years. Approximately
____% of the Group 3 Mortgage Loans, by
Scheduled Principal Balance as of the Cut-Off
Date, are not fully amortizing over their terms
to maturity.
Mortgage Loan Group 4 will consist of Mortgage
Loans having Mortgage Interest Rates which are
adjustable [based upon COFI] and generally
subject to lower Floor Interest Rates than the
adjustable rate Group 3 Mortgage Loans or no
Floor Interest Rate. All of the Group 4
Mortgage Loans are Eligible Multifamily
Mortgage Loans. As of the Cut-Off Date the
approximately __ Mortgage Loans in Mortgage
Loan Group 4 had an approximate aggregate
Scheduled Principal Balance of $________, a
weighted average Mortgage Interest Rate of
approximately ___% per annum and a weighted
average remaining term to stated maturity
[(excluding Matured Performing Mortgage Loans)]
of approximately __ years. Approximately ____%
of the Group 4 Mortgage Loans, by Scheduled
Principal Balance as of the Cut-Off Date, are
not fully amortizing over their terms to
maturity.
[Substantially all of the Mortgaged Properties
are leased under leases (the "Leases") to one or
more principal tenants (each, a "Lessee")
occupying the related Mortgaged Property [and,
to the extent excess commercial space is
available, to one or more minor tenants]. Each
Lease will be assigned to the Trust Fund as
collateral for the related Mortgage Loan. Under
the Leases, the Lessees are required to pay
stipulated rent [describe whether rent is a
fixed payment and/or is based upon a percentage
of gross revenues, net revenues, or some other
measure of financial performance of the leased
Mortgaged Property]. In addition to rent,
the Lessees generally are required to pay their
pro rata share of the operating expenses,
insurance premiums and real estate taxes
associated with the Mortgaged Properties.
Certain of the Leases also require the lessor
(who is also the mortgagor under the related
Mortgage Loan (the "Mortgagor")) to cover costs
associated with the maintenance of the exterior
of the Mortgaged Property or provide for certain
limits on the aggregate amount of operating
expenses, insurance premiums and taxes that the
Lessees are required to pay].
[The Leases require the Lessees to pay rent to
the Mortgagors which is sufficient in the
aggregate to cover all scheduled payments of
principal (other than balloon payments) and
interest on the related Mortgage Loans and any
fixed expenses of operating the related
Mortgaged Properties borne by the Mortgagors
under the related Leases. If payments under the
Leases (net of any operating expenses payable by
the Mortgagor) were insufficient to pay all of
the scheduled principal and interest on the
related Mortgage Loans, the Mortgagors would
have to rely on other income or sources
(including security deposits) generated by
the related Mortgaged Property to make payments
on the related Mortgage Loan. As described
herein, certain Mortgaged Properties are leased
entirely to one tenant. In such cases, the
Mortgagor must rely entirely on such tenant to
pay rent equal to all of the scheduled
principal (other than balloon payments) and
interest on the related Mortgage Loan or
make such payment from other sources. Certain
of the Leases expire prior to the stated
maturity of the related Mortgage Loan. In such
cases, upon expiration of the Leases the
Mortgagors will have to look to alternative
sources of income, including rent payments by
any new tenants or proceeds from the sale of the
Mortgaged Property, to cover the payments of
principal and interest due on such Mortgage
Loans unless the Leases are renewed. See
"Special Considerations--Single-Tenant
Properties; Tenant Bankruptcy" herein and
"Certain Legal Aspects of the Mortgage Loans and
Leases-- Leases and Rents" in the Prospectus.]
[Each lessor will assign to the Master Servicer
the right to collect rent and other expenses
directly from the related Lessee and each such
Lessee will agree to make all payments under
the related Lease directly to the Master
Servicer.]
[The Mortgage Pool consists of ____ Mortgage
Loans of ____ unrelated obligors.] [The
Mortgage Loans include cross-default and cross-
collateralization provisions, as described
herein.]
[The Mortgage Loans in Mortgage Loan Group ____
are non-recourse and, in the event of default,
provide for recourse only against the Mortgaged
Property and such other assets, if any, as have
been pledged to secure the Mortgage Loans, and
not against the Mortgagor thereon.] [The
Mortgage Loans in Mortgage Loan Group ____
are full recourse Mortgage Loans.]
For further information regarding the Mortgage
Pool, see "The Trust Fund" herein and in the
Prospectus.
[B. CREDIT ENHANCEMENT]........[Specify provider of Credit Enhancement] has
delivered to the Trustee [an irrevocable letter
of credit] [a surety bond] [an insurance policy]
[a committed line of credit] [a repurchase
commitment] (the "Credit Enhancement") with
respect to the [Senior] [specify appropriate
classes] [Certificates] [the Mortgage Loans]
[the Master Servicer's] obligation to [make
advances on] [repurchase defaulted Mortgage
Loans]. Under the Credit Enhancement, [specify
provider of Credit Enhancement] will advance
funds to the Trustee [to pay] [up to ___% of]
[principal of the [Senior] [Certificates]
[specify appropriate class] [Mortgage Loans]
[and to pay] [up to ___% of] interest on such
[Certificates] [Mortgage Loans] [to provide
funds in the event of a failure by the [Master
Servicer] to make advances] [to repurchase
delinquent Mortgage Loans] in an amount not to
exceed [___% of the initial principal amount of
the Mortgage Loans.] [$____] [The [cross-
support features and] amount available under the
Credit Enhancement is subject to reduction and
reinstatement as described herein under "The
Trust Fund--Credit Enhancement."] [Describe, if
applicable, swaps and caps intended to cover
Basis Risk Shortfalls (as defined herein).]
[1. Subordination].............[The right of Holders of Subordinate
Certificates to receive principal and interest
payments thereon on any Distribution Date will
be subordinate in right and priority to the
rights of Holders of Senior Certificates, but
only [in the event of certain types of losses
specified in "Trust Fund," and then only] to the
extent of the "Available Subordination Amount"
as of such Payment Date. The "Available
Subordination Amount" will initially be $_______
(the "Maximum Subordination Amount")
(representing ___% of the initial Certificate
Principal Amount (as defined herein under
"--Interest) of the [Certificates], declining
as described herein under "Trust Fund --Credit
Enhancement--Subordination" to [$_____] (the
"Minimum Subordination Amount"). The
subordination is effected by [the type of loss
incurred,] the preferential right (to the extent
of the then Available Subordination Amount) of
Holders of Senior Certificates to receive
distributions of principal on the Certificates.]
[2. Reserve Fund...............[BSCMSI] [__________ (the "Unaffiliated Seller"]
will pledge to the Collateral Agent (as defined
above under "--Collateral Agent") and deposit
in a fund (the "Reserve Fund") cash or an
irrevocable letter of credit in an amount
satisfactory to the Rating Agencies rating the
Certificates to cover Basis Risk Shortfalls
(as defined herein under "Description of the
Certificates--Distributions--Basis Risk"). See
"The Trust Fund--Credit Enhancement--Reserve
Fund" herein and in the Prospectus. The
Reserve Fund initially will equal approximately
__% of the aggregate Scheduled Principal Balance
of the Mortgage Loans as of the Cut-Off Date.
[BSCMSI will have the right on any Distribution
Date to cause the Trustee to pay over to BSCMSI,
free from the lien thereon, the amount by which
the balance in the Reserve Fund exceeds the
amount required to be maintained therein.]
[Describe, if applicable, Reserve Funds to cover
replacements or repairs or environmental
remediation on the Mortgaged Properties.]
[Describe, if applicable, other means of
funding the Reserve Fund, e.g., from payments
received on the Mortgage Loans or other assets
of the Trust Fund.]
DISTRIBUTION DATES..............The [25th] day of each month, or if such day is
not a business day, then the next succeeding
business day, beginning in __________ 199_
(each, a "Distribution Date").
RECORD DATE.....................The "Record Date" for each Distribution Date
will be the close of business on the last
business day of the month preceding the
month in which the related Distribution Date
occurs. See "Description of the Certificates
--Distributions" herein.
DUE PERIOD......................With respect to each Distribution Date, the
period commencing on the second day of the month
preceding the month in which the Distribution
Date occurs and ending at the close of business
on the first day of the month in which the
Distribution Date occurs (each, a "Due Period").
DUE DATE........................As to each Mortgage Loan and any Distribution
Date, the day of the month in the related Due
Period on which a Monthly Payment (as defined
herein under "Description of the Certificates--
Distributions--Generally") or Balloon Payment
(as defined herein under "Special
Considerations--Balloon Loans") is due (or, in
the case of a Non-Monthly Payment Loan (as
defined herein under "Description of the
Certificates--Distributions--Generally"), deemed
to be due), without giving effect to any grace
period, except that with respect to Mortgage
Loans that by their terms accrue interest in
advance rather than in arrears, the Due Date for
the interest portion of each Monthly Payment
will be deemed to be the date one month after
the date such payment is actually due.
PREPAYMENT PERIOD...............With respect to each Distribution Date, the
period commencing immediately following the
second preceding Determination Date (or the
Cut-Off Date, in the case of the first
Distribution Date) and ending on the
Determination Date in the month in which such
Distribution Date occurs (each, a
"Prepayment Period").
DETERMINATION DATE..............With respect to any Distribution Date, the
[15]th day (or if such day is not a Business
Day, the preceding Business Day) of the
month in which such Distribution Date occurs.
DISTRIBUTIONS...................On each Distribution Date, commencing in ______,
199_, distributions of principal and interest
will be made on the Certificates in an aggregate
amount, to the extent funds are available
therefor from payments on the Mortgage Loans
[Monthly Advances (as defined herein under
"--Monthly Advances") from the Master Servicer
and draws on the Reserve Fund or other forms of
Credit Enhancement], equal to [the sum of (i)]
the Optimal Available Funds (as defined under
"Description of the Certificates-- Distributions
--Generally") of the Mortgage Loan Groups,
[plus (ii) the Basis Risk Reserve Fund Draw
Amount (as defined under "Description of the
Certificates--Distributions--Basis Risk")] and
certain past due amounts together with interest
thereon as described herein. Distributions will
be made to holders of record on the related
Record Date, except that the final payment in
respect of each Class of Certificates will be
made only upon presentation and surrender of
such respective Certificates at the office or
agency of the Trustee in New York, New York.
Payments on the Certificates will be applied
first to the payment of interest and then to the
payment of principal. See "Description of the
Certificates--Allocation Among Classes" herein.
INTEREST ACCRUAL PERIOD.........With respect to each Distribution Date, the
"Interest Accrual Period" (i) for each Class of
Fixed Rate Certificates, will be the calendar
month preceding the month in which the
Distribution Date occurs, commencing in
__________, 199_ and (ii) for each Class of
Floating Rate Certificates, will be the
period commencing on the [25th] day of the month
preceding such Distribution Date and ending on
the [24th] day of the month of such
Distribution Date, commencing in ____________,
199_.
INTEREST........................To the extent of the Available Distribution
Amounts (as defined herein under "Description
of the Certificates--Distributions--Generally")
for the [related] Mortgage Loan Group[s] and
prior to payments of principal on the
Certificates, each Class of Certificates will
be entitled to receive interest on each
Distribution Date as provided below on the
respective Certificate Principal Amount (as
defined below) of each such Class applicable to
such Distribution Date (or as otherwise
described below).
All Classes of Certificates, other than the
Floating Rate Certificates, will bear interest
at the fixed rates (each, a "Pass- Through
Rate") set forth on the cover page hereof.
The Class A-2 Certificates will bear interest
at a rate of __% per annum during their first
[ ] Interest Accrual Periods. During each
Interest Accrual period thereafter, the Class
A-2 Certificates will bear interest, subject to
a maximum rate of __% per annum [and a minimum
rate of __% per annum], at a rate per annum
equal to __% in excess of LIBOR, as more fully
described herein. See "Description of the
Certificates--Distributions--Interest" herein.
The Class A-4 Certificates will bear interest
at a rate of ___% per annum during their first
[ ] Interest Accrual Periods. During each
Interest Accrual Period thereafter, the Class
A-4 Certificates will bear interest, subject to
a maximum rate of ___% per annum [and a minimum
rate of __% per annum,] at a rate per annum
equal to __% in excess of LIBOR, as more fully
described herein. See "Description of the
Certificates--Distributors--Interest" herein.
Distributions of interest on the Certificates
will include interest accrued during the
Interest Accrual period for the applicable
Distribution Date, reduced by any Interest
Shortfalls [or increased by any Excess
Prepayment Interest] ([each] as defined herein
under "Description of the Certificates--
Distributions--Basis Risk") and any Deferred
Interest (as defined below) allocable thereto.
Any Deferred Interest with respect to the
Mortgage Loans included in any Mortgage Loan
Group will be allocated to the related Classes
of Certificates in the manner described herein.
The amount of any Deferred Interest allocated to
a Class of Certificates will be added to the
Certificate Principal Amount thereof. See
"Description of the Certificates--Distributions
--Interest" herein. To the extent funds are not
available to pay interest at the rates and in
the amounts stated herein (after giving effect
to allocations of any Interest Shortfalls and
Deferred Interest), such unpaid amounts will be
payable on succeeding Distribution Dates and
will not bear interest.
As of the Cut-Off Date, __________ of the
Group _____ Mortgage Loans, with an aggregate
Scheduled Principal Balance of approximately
$________, provided for the possibility on or
after the Cut-Off Date that the rate of interest
that becomes due for each such Mortgage Loan on
each Due Date (the "Payment Rate") may be less
than the Mortgage Interest Rate on each Mortgage
Loan (which is the rate at which interest
accrues thereon). Any excess of interest
accrued on a Mortgage Loan at the Mortgage
Interest Rate over accrued interest that becomes
due on such Mortgage Loan at the Payment Rate is
deferred ("Deferred Interest") and the amount
thereof is added to the principal balance of
such Mortgage Loan on each Due Date. Such
feature is commonly known as negative
amortization.
With respect to any Class of Certificates, the
"Certificate Principal Amount" as of any
Distribution Date will equal the initial
principal amount of such Certificates plus all
Deferred Interest allocated to such Class
on the current and all previous Distribution
Dates, reduced by the sum of (i) all payments
made prior to such Distribution Date with
respect to principal and (ii) any Realized
Losses (as defined under "Description of the
Certificates-- Realized Losses" herein)
allocated prior to such Distribution Date to
such Certificates.
PRINCIPAL
Commercial Certificates........On each Distribution Date, the Available
Distribution Amount for Mortgage Loan Groups 1
and 2 remaining after payment of interest as
described above and any amounts from Mortgage
Loan Groups 3 and 4 allocated as set forth below
under "--Multifamily Certificates" will be
distributed as principal to the Commercial
Certificates in the following manner:
(i) First, sequentially to the Class A-1A,
Class A-1B, Class A-1R and Class A-2
Certificates in reduction of the Certificate
Principal Amounts thereof until the
Certificate Principal Amounts thereof have
been reduced to zero, in each case in an amount
equal to the Primary Principal Distribution
Amount of each such Class (as defined under
"Description of the Certificates--
Distributions--Allocation Among Classes"
herein);
(ii) Second, sequentially to the Class A-1A,
Class A-1B, Class A-1R and Class A-2
Certificates in reduction of the Certificate
Principal Amounts thereof until the Certificate
Principal Amounts thereof have been reduced
to zero, in an aggregate amount equal to any
amounts previously distributable under the
preceding clause First and not previously
distributed thereunder or under this clause
Second;
(iii) Third, to the Class B Certificates
in reduction of the Certificate Principal
Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, but
only up to the amount, if any, by which the
aggregate Optimal Mortgage Loan Principal (as
defined under "Description of the Certificates--
Distributions--Generally" herein) for all
Mortgage Loan Groups (including Mortgage Loan
Groups 3 and 4) exceeds the aggregate amount
distributed pursuant to the preceding clauses
First and Second and clauses First, Second,
Fifth, Sixth, Seventh and Eighth of the
priorities for the Available Distribution
Amounts for Mortgage Loan Groups 3 and 4
as set forth below under "--Multifamily
Certificates;"
(iv) Fourth, to the Class B Certificates
in reduction of the Certificate Principal
Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, in an
aggregate amount equal to the amount previously
distributable under clause Third above and not
previously distributed thereunder or under this
clause Fourth;
(v) Fifth, to the Class C Certificates in
reduction of the Certificate Principal Amount
thereof until the Certificate Principal Amount
thereof has been reduced to zero, but only up to
the amount, if any, by which the aggregate
Optimal Mortgage Loan Principal for all Mortgage
Loan Groups (including Mortgage Loan Groups 3
and 4) exceeds the aggregate amount distributed
pursuant to the preceding clauses First,
Second, Third and Fourth and clauses First,
Second, Fifth, Sixth, Seventh and Eighth of
the priorities for the Available Distribution
Amounts for Mortgage Loan Groups 3 and 4 as set
forth below under "--Multifamily Certificates;"
(vi) Sixth, to the Class C Certificates
in reduction of the Certificate Principal
Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, in an
aggregate amount equal to the amount previously
distributable under clause Fifth above and not
previously distributed thereunder or under this
clause Sixth;
(vii) Seventh, to the Trustee for deposit into
the Reserve Fund, up to the amount equal to all
previous Basis Risk Reserve Fund Draw Amounts
less amounts previously deposited in the Reserve
Fund pursuant to this clause Seventh;
(viii) Eighth, first to the Class A-1A, Class
A-1B, Class A-1R and Class A-2 Certificates,
pro rata in accordance with their Certificate
Principal Amounts, and then sequentially to the
Class B and Class C Certificates, in reduction
of the Certificate Principal Amounts thereof
until the Certificate Principal Amounts thereof
have been reduced to zero, in each case in
an amount up to the "Net Negative Amortization"
allocated to such Class with respect to such
Distribution Date (such amount being equal to
the amount by which the amount of interest
accrued on such Class exceeds the aggregate
amount of principal and interest distributed to
such Class on such Distribution Date);
(ix) Ninth, any remaining amounts to the
Commercial Certificates in reduction of the
Certificate Principal Amounts thereof, applied
sequentially to the Class C, Class B, Class
A-1A, Class A-1B, Class A-1R and Class A-2
Certificates, in that order, in each case until
the Certificate Principal Amount thereof has
been reduced to zero; and
(x) Tenth, any remaining amounts to the
Class A-1R Certificates.
Notwithstanding the foregoing, on and after
any Distribution Date on which the aggregate
Available Distribution Amounts for Mortgage
Loan Groups 1 and 2 (plus amounts distributed
pursuant to clauses Third and Eighth of the
priorities for distribution of the Available
Distribution Amounts for Mortgage Loan Groups
3 and 4) is not sufficient to reduce the
aggregate Certificate Principal Amounts of
the Class A-1A, Class A-1B, Class A-1R and
Class A-2 Certificates to an amount less than
or equal to the aggregate Scheduled Principal
Balance of the Mortgage Loans (less the
aggregate of the Certificate Principal Amounts
of the Class A-3A, Class A-3B and Class A-4
Certificates), then the portion of such
aggregate Available Distribution Amounts
allocable to the Class A-1A, Class A-1B, Class
A-1R and Class A-2 Certificates in the foregoing
priorities will be distributed pro rata among
the Class A-1A, Class A-1B, Class A-1R and
Class A-2 Certificates based on their
outstanding Certificate Principal Amounts
until the Certificate Principal Amounts thereof
are reduced to zero rather than in accordance
with the priorities that would otherwise apply.
Multifamily
Certificates.................On each Distribution Date, the Available
Distribution Amounts for Mortgage Loan Groups 3
and 4 remaining after payment of interest as
described above will be allocated in the
following manner:
(i) First, sequentially to the Class A-3A,
Class A-3B and Class A-4 Certificates in
reduction of the Certificate Principal Amounts
thereof until the Certificate Principal Amounts
thereof are reduced to zero, in each case in an
amount equal to the Primary Principal
Distribution Amount of each such Class;
(ii) Second, sequentially to the Class A-3A,
Class A-3B and Class A-4 Certificates in
reduction of the Certificate Principal Amounts
thereof until the Certificate Principal Amounts
thereof are reduced to zero, in an aggregate
amount equal to the amount previously
distributable under clause First above and not
previously distributed thereunder or under this
clause Second;
(iii) Third, to each Class of Commercial
Certificates, pro rata in accordance with the
amount of interest each such Class is entitled
to receive for such Distribution Date (after
allocation of [Interest Shortfalls] [Excess
Prepayment Interest] and Deferred Interest), the
excess, if any, of the amount of interest each
such Class is so entitled to receive over
the amount of interest allocated to such Class
pursuant to "--Interest" above;
(iv) Fourth, sequentially to the Class A-1A,
Class A-1B, Class A-1R and Class A-2
Certificates in reduction of the Certificate
Principal Amounts thereof until the Certificate
Principal Amounts thereof are reduced to zero,
the shortfall, if any, for distribution pursuant
to clauses First and Second of the priorities
for distribution of the Available Distribution
Amounts for Mortgage Loan Groups 1 and 2;
(v) Fifth, sequentially to the Class A-1A,
Class A-1B, Class A-1R and Class A-2
Certificates, in that order, in each case
in reduction of the Certificate Principal
Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, but
only up to the amount, if any, by which
the Optimal Mortgage Loan Principal for
Mortgage Loan Group 3 exceeds the amount
distributed pursuant to the preceding
clauses First and Second;
(vi) Sixth, sequentially to the Class A-1A,
Class A-1B, Class A-1R and Class A-2
Certificates, in that order, in each case
in reduction of the Certificate Principal
Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, in an
aggregate amount equal to the amount previously
distributable under clause Fifth above and not
previously distributed thereunder or under this
clause Sixth;
(vii) Seventh, sequentially to the Class A-2,
Class A-1A, Class A-1B and Class A-1R
Certificates, in that order, in each case
in reduction of the Certificate Principal
Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, but
only up to the amount, if any, by which the
Optimal Mortgage Loan Principal for Mortgage Loan
Group 4 exceeds the amount distributed pursuant
to the preceding clauses First and Second;
(viii) Eighth, sequentially to the Class A-2,
Class A-1A, Class A-1B and Class A-1R
Certificates, in that order, in each case
in reduction of the Certificate Principal
Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, in an
aggregate amount equal to the amount previously
distributable under clause Seventh above and not
previously distributed thereunder or under this
clause Eighth;
(ix) Ninth, first to the Class A-4, Class A-3A
and Class A-3B Certificates, pro rata, second to
the Class A-1A, Class A-1B, Class A-1R and
Class A-2 Certificates, pro rata, and then
sequentially to the Class B and Class C,
in reduction of the Certificate Principal
Amount thereof (after taking into account
any increases in such Certificate Principal
Amount due to Deferred Interest), in each case in
an amount up to the Net Negative Amortization
applied to such Class with respect to such
Distribution Date;
(x) Tenth, any remaining amounts to the
Certificates in reduction of the Certificate
Principal Amounts thereof (after taking into
account distributions pursuant to the priorities
for distribution of the Available Distribution
Amounts of Mortgage Loan Groups 1 and 2), applied
sequentially to the Class C, Class B, Class A-1A,
Class A-1B, Class A-1R, Class A-2, Class A-3A,
Class A-3B and Class A-4 Certificates, in that
order, in each case until the Certificate
Principal Amount thereof has been reduced to
zero; and
(xi) Eleventh, any remaining amounts to the
Class A-1R Certificates.
Notwithstanding the foregoing, on and after any
Distribution Date on which the aggregate Available
Distribution Amounts for Mortgage Loan Groups 3 and
4 is not sufficient to reduce the aggregate
Certificate Principal Amounts of the Class A-3A,
Class A-3B and Class A-4 Certificates to an amount
less than or equal to the aggregate Scheduled
Principal Balance of the Mortgage Loans in Mortgage
Loan Groups 3 and 4, then the portion of such
aggregate Available Distribution Amounts allocable
to the Class A-3A, Class A-3B and Class A-4
Certificates in the foregoing priorities will be
distributed pro rata among the Class A-3A, Class
A-3B and Class A-4 Certificates based on their
outstanding Certificate Principal Amounts until
the Certificate Principal Amounts thereof are
reduced to zero rather than in accordance with the
priorities that would otherwise apply.
ALLOCATION OF LOSSES. . . . The Class C Certificates will bear all Realized
Losses on the Group 1 and Group 2 Mortgage Loans
by a reduction in their Certificate Principal
Amount until the Certificate Principal Amount
thereof is reduced to zero.
Thereafter, the Class B Certificates will bear all
Realized Losses on the Group 1 and Group 2 Mortgage
Loans until the Certificate Principal Amount thereof
is reduced to zero. Any additional Realized Losses
on the Group 1 and Group 2 Mortgage Loans will be
borne by the holders of the Class A-1A, Class A-1B,
Class A-1R and Class A-2 Certificates, pro rata in
accordance with their Certificate Principal Amounts,
by a reduction in their Certificate Principal
Amounts until the Certificate Principal Amounts
thereof are reduced to zero.
The Class A-3A, Class A-3B and Class A-4 Certificate
will bear all Realized Losses on the Group 3 and
Group 4 Mortgage Loans, pro rata in accordance
with their Certificate Principal Amounts, by a
reduction in their Certificate Principal Amounts
until the Certificate Amounts thereof are reduced to
zero.
Because principal distributions are paid to certain
Classes of Commercial Certificates before other
Classes of Commercial Certificates, holders of
Classes that receive principal later bear a greater
risk of losses on the Group 1 and Group 2 Mortgage
Loans than holders of Classes of Commercial
Certificates that receive principal earlier.
Similarly, because principal distributions are paid
to certain Classes of Multifamily Certificates
before other Classes of Multifamily Certificates,
holders of Classes that receive principal later bear
a greater risk of losses on the Group 3 and Group 4
Mortgage Loans than holders of Classes of
Multifamily Certificates that receive principal
earlier.
YIELD AND PREPAYMENT
CONSIDERATIONS............GENERAL CONSIDERATIONS. The yields to maturity of
the Certificates will be affected by the amount and
timing of principal payments on the Mortgage Loans,
the allocation of available funds to various Classes
of Certificates, the applicable Pass-Through Rate
for various Classes of Certificates, the level
of LIBOR [and, to a lesser extent, the weighted
average cost of funds for member savings
institutions of the Eleventh Federal Home Loan
Bank District ("COFI")] and the purchase price paid
for the Certificates. In addition, the yields to
investors in the Certificates will be adversely
affected by Interest Shortfalls and Realized Losses.
The interaction of the foregoing factors may have
different effects on the various Classes of
Certificates and the effects on any Class may vary
at different times during the life of such Class.
No representation is made as to the anticipated rate
of prepayments on the Mortgage Loans or as to the
anticipated yield to maturity of any Certificates.
Prospective investors are urged to consider
their own estimates as to the anticipated rate of
future prepayments on the Mortgage Loans and the
suitability of the Certificates to their investment
objectives. In addition to the discussion below,
prospective investors should review the discussion
under "Yield and Prepayment Considerations" herein
and in the Prospectus.
MORTGAGE LOAN PREPAYMENTS. If prevailing mortgage
rates fall significantly below the Mortgage
Interest Rates on the Mortgage Loans, the Mortgage
Loans are likely to be subject to higher pre-
payment rates than if prevailing rates remain at or
above the Mortgage Interest Rates on the
Mortgage Loans. Other factors affecting prepayments
of Mortgage Loans include the availability of
and the ability to obtain alternative financing from
commercial mortgage lenders, net equity in the
Mortgaged Properties, servicing decisions,
prevailing general economic conditions and the
relative economic vitality of the areas in which
the Mortgaged Properties are located, the terms
of the Mortgage Loans, the quality of management of
the Mortgaged Properties and the availability of
other opportunities for investment. Amounts
received by virtue of liquidations of Mortgage
Loans, repurchases of Mortgage Loans upon breach of
representations and optional termination of the
Trust Fund also affect the receipt of principal on
the Mortgage Loans. [All] [In general,] the
Mortgage Loans may be prepaid at any time without
penalty and have due-on- sale clauses.
TIMING OF PAYMENTS AND DISTRIBUTIONS. Unlike
certain corporate bonds, the times at which
principal payments will be made on the
Certificates are not fixed because they are
determined by the timing of principal payments on
the Mortgage Loans. The timing of payments on the
Mortgage Loans may significantly affect an
investor's yield. In general, the earlier a
prepayment of principal on the Mortgage Loans, the
greater will be the effect on an investor's yield
to maturity. As a result, the effect on an
investor's yield of principal prepayments occurring
at a rate higher (or lower) than the rate
anticipated by the investor during the period
immediately following the issuance of the
Certificates will not be offset by a subsequent like
reduction (or increase) in the rate of principal
prepayments. Furthermore, the effective yield to
holders of the Fixed Rate Certificates will be
slightly lower than the yield otherwise produced by
the applicable Pass-Through Rate and purchase
price because, while interest generally will accrue
on each such Certificate from the first day of
the month, the distribution of such interest will
not be made earlier than the [25]th day of the
month following the month of accrual. Moreover,
any Interest Shortfall allocated to a Class of
Certificates will reduce the yield to investors in
such Class.
LIBOR [AND COFI]. The Certificates will be
sensitive to changes in the level of LIBOR [and, to
a lesser extent, COFI]. If the level of LIBOR
increases, there will be a higher rate of interest
payable on the Class A-2 Certificates.
DISCOUNTS AND PREMIUMS. In the case of any
Certificates purchased at a discount, a slower than
anticipated rate of principal payments could result
in an actual yield that is lower than the
anticipated yield. In the case of any Certificates
purchased at a premium, a faster than anticipated
rate of principal payments could result in an actual
yield that is lower than the anticipated yield.
A discount or premium would be determined in
relation to the price at which a Certificate will
yield its Pass-Through Rate, after giving effect to
any payment delay.
REINVESTMENT RISK. Because the Mortgage Loans may
be prepaid at any time, [subject to applicable
Lock-Out Periods] it is not possible to predict the
rate at which distributions on the Certificates will
be received. Since prevailing interest rates are
subject to fluctuation, there can be no assurance
that investors in the Certificates will be able to
reinvest the distributions thereon at yields
equaling or exceeding the yields on the
Certificates. Yields on any such reinvestments
may be lower, and may even be significantly lower,
than yields on the Certificates. Generally,
when prevailing interest rates increase, prepayment
rates on mortgage loans tend to decrease, resulting
in a reduced return of principal to investors at a
time when reinvestment at such higher prevailing
rates would be desirable. Conversely, when
prevailing interest rates decline, prepayment rates
on mortgage loans tend to increase, resulting in a
greater return of principal to investors at a time
when reinvestment or comparable yields may not be
possible. Prospective investors in the Certificates
should consider carefully the related reinvestment
risks in light of other investments that may be
available to such investors.
SUBORDINATION OF CERTAIN CLASSES OF CERTIFICATES.
The rights of the holders of the Class B and Class C
Certificates to receive distributions with respect
to the Group 1 and Group 2 Mortgage Loans will be
subordinated to such rights to the holders of the
Class A-1A, Class A-1B, Class A-1R and Class A-2
Certificates, to the extent described herein, and
the rights of the holders of the Class C
Certificates to receive distributions will be
further subordinated to such rights of the holders
of the Class B Certificates. The level of
subordination available will be directly affected
by the rate and timing of prepayments and the
occurrence of Realized Losses.
SEQUENTIAL PAY CERTIFICATES. Certain Classes of
Certificates are subject to various priorities for
payment of principal as described herein.
Distributions on Classes currently entitled to
receive principal payments will be immediately
affected by the prepayment rate of the Mortgage
Loans at such time. Distributions on Classes with a
later priority of payment will not be directly
affected by the prepayment rate until such time as
principal is distributable on such Classes.
However, the timing of commencement of principal
distributions and the weighted average lives of such
Classes will be affected by the prepayment rate
experienced both before and after the commencement
of principal distributions on such Classes.
FLOATING RATE CERTIFICATES. After the first __
Interest Accrual Periods with respect to the Class
A-2 Certificates and after the first __ Interest
Accrual Periods with respect to the Class A-4
Certificates, interest on the Class A-2 and Class
A-4 Certificates will fluctuate in response to
changes in LIBOR and, accordingly, the yield on the
Class A-2 and Class A-4 Certificates will be
sensitive to the level of LIBOR. The timing of
changes in the level of LIBOR may significantly
affect the actual yield to investors in the Class
A-2 and Class A-4 Certificates, even if the average
level of LIBOR is consistent with the expectations
of investors. In general, the earlier the change in
the level of LIBOR, the greater the effect on an
investor's yield. As a result, the effect on
an investor's yield of LIBOR occurring at a level
higher (or lower) than the level anticipated
by the investor during the period immediately
following the __ month after the issuance of the
Certificates in the case of the Class A-2
Certificates or the ___ month after such issuance
in the case of the Class A-4 Certificates will not
be offset by a subsequent like reduction (or
increase) in the level of LIBOR. Changes in LIBOR
may not correlate with changes in prevailing
mortgage interest rates. Lower prevailing mortgage
interest rates, which might be expected to result
in faster prepayments, could occur concurrently with
an increased level of LIBOR.
RESIDUAL CERTIFICATES. Holders of the Class A-R1
Certificates are entitled to receive distributions
of principal and interest as described herein.
However, holders of such Certificates may have tax
liabilities with respect to their Certificates
during the early years of the term of the REMIC that
substantially exceed the principal and interest
payable thereon during such periods.
[IN ADDITION TO THE DISCLOSURE WITH RESPECT TO THE
CLASSES DESCRIBED IN THIS ILLUSTRATIVE FORM OF
PROSPECTUS SUPPLEMENT, THE FOLLOWING DISCUSSION SETS
FORTH EXAMPLES OF DISCLOSURE FOR OTHER TYPES OF
CLASSES:]
[WEIGHTED-AVERAGE PASS-THROUGH RATE CERTIFICATES.
Interest on the Class [___] Certificates is based
on the weighted average of the Net Rates (as
defined under "_______" herein) on the Mortgage
Loans. Interest on such Certificates may be paid in
the future at a rate lower than the initial interest
rate to the extent that Mortgage Loans bearing
higher rates of interest are prepaid more quickly
than Mortgage Loans bearing lower rates of
interest.]
[INTEREST-WEIGHTED CERTIFICATES. The yield to
investors in the Class [__] Certificates, which
will be offered at substantial premiums over their
stated principal amounts, will be extremely
sensitive to the rate and timing of principal
payments of the Group __ Mortgage Loans. A rapid
rate of principal payments on such Mortgage Loans
will have a materially negative effect on the yield
to investors in the Class ___ Certificates.
Investors should fully consider the associated
risks, including the risk that a rapid rate of
principal payments could result in the failure of
investors in the Class ___ Certificates to recover
fully their initial investments.]
[PRINCIPAL-WEIGHTED CERTIFICATES. The Class ___
Certificates will be principal only certificates,
will not bear interest and will be offered at
substantial discounts to their original principal
balances. Low prepayment levels will have a
material negative effect on the yield of the Class
___ Certificates.]
[VARIABLE STRIP CERTIFICATES. The yield to investors
in the Class ___ Certificates, which will be
offered at substantial premiums over their stated
principal amounts, will be extremely sensitive to the
rate and timing of principal payments of the
Mortgage Loans. A rapid rate of principal payments
on such Mortgage Loans will have a materially
negative effect on the yield to investors in the
Class ___ Certificates. Investors should fully
consider the associated risks, including the risk
that a rapid rate of principal payments could result
in the failure of investors in the Class ___
Certificates to recover fully their initial
investments. See "Yield and Prepayment
Considerations-- Yield on Class ___ Certificates"
herein.]
[PLANNED AMORTIZATION CLASSES ("PACS"). The
Certificates have been structured to provide for
relatively stable distributions of principal on the
Class ___, Class ___ and Class ___ Certificates (in
accordance with their respective PAC Principal
Balances (as defined under "__________" herein))
assuming that prepayments on the Mortgage Loans
occur at a constant level of between ___% and % of
the standard prepayment assumption model used
herein ("SPA"). To the extent that prepayments on
the Mortgage Loans occur at a constant level lower
than [lower percentage of range]% SPA, the Available
Distribution Amount allocable as payments of
principal on the _____________ Certificates on each
Distribution Date may be insufficient to make
distributions of principal on the Class ___,
Class ___ and Class ___ Certificates in amounts
sufficient to reduce their principal balances to
their respective PAC Principal Balances for such
Distribution Date, and, as a result, the weighted
average lives of such Certificates may be extended.
To the extent that prepayments occur at a constant
level higher than [higher percentage of range]% SPA,
the weighted average lives of the Class ___, Class
___ and Class ___ Certificates may be reduced. The
amounts available for principal payments may be
insufficient to reduce the Class ___, Class ___
and Class ___ Certificates to their respective PAC
Principal Balances for the related Distribution Date,
or conversely, the weighted average lives of the
Class ___, Class ___ and Class ___ Certificates may
be reduced, if prepayments on the Mortgage Loans do
not occur at a constant rate, even if such
prepayments remain within the range of __% to __%
SPA. For example, the PAC Principal Balances may
not be attained if payments of principal initially
occur at a relatively fast rate within the range and
subsequently occur at a significantly slower rate
within the range.]
[COMPANION CLASSES TO PACS. Distributions of
principal on the ,Class ___, Class ___ and Class ___
Certificates will be very sensitive to the rate of
prepayments of the Mortgage Loans because their
monthly principal distributions will be limited to
the excess, if any, of the Available Distribution
Amount allocable as payments of principal on the
__________ Certificates over the sum of the
principal payments distributed to the Class ___,
Class ___ and Class ___ Certificates. In particular,
to the extent that prepayments result in the
Available Distribution Amount allocable as payments
of principal on the _____ ____ Certificates equal to
or less than the sum of the amounts sufficient to
reduce the principal balances of the Class ___, Class
___ and Class ___ Certificates to their PAC
Principal Balances specified for any Distribution
Date, the Class ___, Class ___, Class ___ and Class
___ Certificates will receive no principal
distribution on such Distribution Date. To the
extent that prepayments result in the Available
Distribution Amount allocable as payments of
principal on the _________ Certificates in excess of
such sum on any Distribution Date, such excess will
be applied to the Class ___, Class ___ and Class ___
Certificates as described herein.]
[TARGETED AMORTIZATION CLASSES ("TACS"). The
Certificates have been structured to provide for
relatively stable distributions of principal on the
Class ___, Class ___ and Class ___ Certificates
(in accordance with their respective Targeted
Principal Balances (as defined under "_________"
herein)) assuming that prepayments on the
Mortgage Loans occur at a constant level of ___% SPA.
To the extent that prepayments on the Mortgage
Loans occur at a constant level lower than ___% SPA,
the Available Distribution Amount allocable as
payments of principal on the _________ Certificates
on each Distribution Date may be insufficient to
make distributions of principal on the Class ___,
Class ___ and Class ___ Certificates in amounts
sufficient to reduce their principal balances to
their respective Targeted Principal Balances for such
Distribution Date, and, as a result, the weighted
average lives of such Certificates may be extended.
To the extent that prepayments occur at a
constant level higher than __%
SPA, the weighted average lives of the Class ___,
Class ___ and Class ___ Certificates may be reduced.
The ability to pay amounts sufficient to reduce the
principal balances of the Class ___, Class ___ and
Class ___ Certificates in accordance with their
respective Targeted Principal Balances for a
Distribution Date will not be enhanced by the
averaging of high and low principal prepayments
because any excess over such amounts will be
distributed on each Distribution Date. In addition,
because of the diverse remaining terms to maturity
of the Mortgage Loans [(which will include recently
originated Mortgage Loans)] the Class ___, Class ___
and Class ___ Certificates may not be reduced to
their Targeted Principal Balances, even if
prepayments occur at a constant level of __% SPA.]
[COMPANION CLASSES TO TACS. Distributions of
principal on the Class ___, Class ___, Class ___
and Class ___ Certificates will be very sensitive to
the rate of prepayments of the Mortgage Loans
because their monthly principal distributions will
be limited to the excess, if any, of the Available
Distribution Amount allocable as payments of
principal on the _________ Certificates over the sum
of the principal payments distributed to the Class
___, Class ___ and Class ___ Certificates. In
particular, to the extent that prepayments result in
the Available Distribution Amount allocable as
payments of principal on the _________ Certificates
equal to or less than the sum of the amounts
sufficient to reduce the principal balances of the
Class ___, Class ___ and Class ___ Certificates to
their Targeted Principal Balances specified for any
Distribution Date, the Class ___, Class ___, Class
___ and Class ___ Certificates will receive no
principal distribution on such Distribution Date.
To the extent that prepayments result in the
Available Distribution Amount allocable as payments
of principal on the __________ Certificates in excess
of such sum on any Distribution Date, such excess
will be applied to the Class ___, Class ___, Class
___ and Class ___ Certificates as described herein.]
LIQUIDITY..................There is currently no secondary market for the
Certificates, and there can be no assurance that one
will develop. Bear, Stearns & Co. Inc. intends to
establish a market in the [Offered] Certificates, but
is not obligated to do so. There is no assurance
that any such market, if established, will continue.
Each Certificateholder will receive monthly reports
pertaining to the Certificates as described under
"Description of the Certificates--Reports to
Certificateholders" in the Prospectus. There are a
limited number of sources which provide certain
limited information about mortgage pass-through
certificates in the secondary market, and there
can be no assurance that any of these sources will
provide information about the Certificates.
Investors should consider the effect of limited
information on the liquidity of the Certificates.
OPTIONAL TERMINATION.......On any Distribution Date on which the aggregate
unpaid principal balance of the Mortgage Loans is
less than [5][10]% of the aggregate unpaid principal
balance of the Mortgage Pool as of the Cut-Off
Date, BSCMSI or its designee may repurchase from the
Trust Fund all Mortgage Loans remaining outstanding
at a purchase price equal to the unpaid principal
amount of such Mortgage Loans, plus accrued interest
thereon at the applicable Mortgage Interest Rate
to the next Due Date. The Trust Fund may also be
terminated and the Certificates retired on any
Distribution Date upon BSCMSI's determination, based
upon an opinion of counsel, that the REMIC status of
the Trust Fund has been lost or that a substantial
risk exists that such status will be lost for the
then current taxable year. Upon termination, the
Certificateholders will receive the Certificate
Principal Amount of the Certificates plus accrued
interest thereon. See "Description of the
Certificates--Optional Termination" herein.
MONTHLY ADVANCES...........The Master Servicer will be obligated to advance
delinquent scheduled payments of principal and
interest [(other than Balloon Payments)] on the
Mortgage Loans under certain circumstances (each
such advance, a "Monthly Advance"). See "Servicing
of the Mortgage Loans--Monthly Advances" herein.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES.........An election will be made to treat certain of the
assets of the Trust Fund as a REMIC for federal
income tax purposes. The Regular Certificates (i.e.,
all Certificates other than the Class A-R1
Certificates) will represent beneficial interests
in, and Holders thereof will be taxed as if they
directly owned, (i) corresponding classes of "regular
interests" in the REMIC (the "Regular Interests")
which will be designated as "regular interests"
in the REMIC and [in the case of a transaction
providing for yield supplement agreements] (ii) yield
supplement agreements in the form of interests in the
right to amounts available to be withdrawn from the
Reserve Fund in respect of Basis Risk as defined
herein. The Class A-R1 Certificates will be
designated as the "residual interest" (the "REMIC
Residual Certificates") in the REMIC. See "Certain
Federal Income Tax Consequences" herein and in the
Prospectus and "Restrictions on Purchase and Transfer
of the Class A-R1 Certificates" herein.
ERISA CONSIDERATIONS.......[THE PROSPECTUS SUPPLEMENT FOR A PARTICULAR SERIES OF
CERTIFICATES WILL INDICATE WHICH CLASSES, IF ANY,
MAY BE ELIGIBLE FOR INVESTMENT BY CERTAIN EMPLOYEE
BENEFIT AND OTHER PLANS, AS MORE FULLY DESCRIBED IN
SUCH PROSPECTUS SUPPLEMENT. THE FOLLOWING IS
EXEMPLARY LANGUAGE WHERE CERTAIN CLASSES OF
CERTIFICATES MAY BE ELIGIBLE FOR INVESTMENT BY SUCH
PLANS.]
Fiduciaries of employee benefit plans subject to
Title I of the Employee Retirement Income Security
Act of 1974, as amended("ERISA"), should consider the
ERISA fiduciary investment standards before
authorizing an investment by a plan in the
Certificates. In addition, fiduciaries of employee
benefit plans subject to Title I of ERISA, as well
as certain plans not subject to ERISA, but which are
subject to Section 4975 of the Code, such as
individual retirement accounts and Keogh plans
covering only a sole proprietor or partners
(collectively, "Plan(s)"), should consult with their
legal counsel to determine whether an investment
in the Certificates will cause the assets of the
Trust Fund ("Trust Assets") to be considered plan
assets pursuant to the plan asset regulations set
forth in 29 C.F.R. Section Section 2510.3-101
(the "Plan Asset Regulations"), thereby subjecting
the Trustee to the fiduciary investment standards of
ERISA and the Plan to the prohibited transaction
rules with respect to the Trust Assets, or cause the
excise tax provisions of Section 4975 of the Code to
apply to the Trust Assets unless some exemption
granted by the Department of Labor applies to the
purchase, sale, transfer or holding of the
Certificates.
Prohibited Transaction Exemption 90-30 may be
applicable to the Class A Certificates. However, as
each of the Class B and Class C Certificates may be
considered subordinated, the exemptions used to date
applying to mortgage pool pass-through certificates
may not apply to these Classes of Certificates,
although other exemptions based on the Plan
investor's status may be available. See "ERISA
Considerations" herein and in the Prospectus. The
Class B and Class C Certificates may not be acquired
by or on behalf of a "benefit plan investor" as
described in or subject to the Plan Asset
Regulations, unless a Benefit Plan Opinion is
provided to the Trustee and the Certificate
Administrator as described in "ERISA
Considerations" herein.
RESTRICTIONS ON PURCHASE
AND TRANSFER OF THE
CLASS A-R1 CERTIFICATES..The Class A-R1 Certificates are not offered for sale
to certain tax-exempt organizations that are
"disqualified organizations" as defined in "Certain
Federal Income Tax Consequences--Transfers of
REMIC Residual Certificates--Tax on Disposition of
REMIC Residual Certificates; Restrictions on
Transfer; Holding by Pass-Through Entities" in the
Prospectus. Such "disqualified organizations" are
prohibited from acquiring or holding any beneficial
interest in the Class A-R1 Certificates. Further,
neither the Class A-R1 Certificates nor any
beneficial interest therein may be sold or
otherwise transferred without the express written
consent of Bear Stearns Securities Administration
Corporation, an affiliate of BSCMSI (the "Tax Matters
Person"), which will be withheld only to avoid a
risk of REMIC disqualification or REMIC-level tax,
and in any event may not be sold to disqualified
organizations. See "Certain Federal Income Tax
Consequences--Transfers of REMIC Residual
Certificates--Tax on Disposition of Transfers of
REMIC Residual Certificates; Restrictions on
Transfer; Holding by Pass-Through Entities" in the
Prospectus and "Restrictions on Purchase and
Transfer of the Class A-R1 Certificates" herein.
Finally, unless the Tax Matters Person consents in
writing (which consent may be withheld in the Tax
Matters Person's sole discretion), the Class A-R1
Certificates (including a beneficial interest
therein) may not be purchased by or transferred to
any person who is not (i) a citizen or resident of
the United States, (ii) a corporation, partnership
or other entity created or 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 federal income tax regardless of the
source of its income. For certain additional
tax-related restrictions on the transfer of the
Class A-R1 Certificates, see "Certain Federal
Income Tax Consequences--REMIC Residual Certificates
--Mismatching of Income and Deductions; Excess
Inclusions" and "Certain Federal Income Tax
Consequences--Foreign Investors--REMIC Residual
Certificates" in the Prospectus.
RATING.....................It is a condition to their issuance that each Class
of Certificates receives the rating set forth below
from _________ ("________") and -------------
("---------"). _________ and ____________ are
referred to herein as the "Rating Agencies."
CLASS RATING
----- ------
Class A Certificates [ ] [ ]
Class B Certificates [ ] [ ]
Class C Certificates [ ] [ ]
A security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning
rating organization. A security rating does not
represent any assessment of the likelihood of
principal prepayments on the Mortgage Loans or of the
degree to which such prepayments might differ from
those originally anticipated. The rating does not
address the possibility that Certificateholders might
suffer a lower than anticipated yield. See
"Rating" herein.
LEGAL INVESTMENT...........The [Offered] Certificates [(other than the Class
_______ Certificates)] will constitute "mortgage
related securities" for purposes of SMMEA and, as
such, will be legal investments for certain entities
to the extent provided in SMMEA, subject to state
laws overriding SMMEA. Certain states have enacted
legislation overriding the legal investment
provisions of SMMEA. [The Class ____ Certificates
will not constitute "mortgage related securities"
under SMMEA (the "Non-SMMEA Certificates"). The
appropriate characterization of the Non-SMMEA
Certificates under various legal investment
restrictions, and thus the ability of investors
subject to these restrictions to purchase Non-SMMEA
Certificates, may be subject to significant
Interpretive Uncertainties.]
All investors whose investment activities are
subject to legal investment laws and regulations or
to review by certain regulatory authorities may be
subject to restrictions on investment in the
Certificates. Any such investor should consult its
own legal advisors in determining whether and to what
extent there may be restrictions on its ability to
invest in the Certificates. See "Legal Investment
Considerations" herein and "Legal Investment" in
the Prospectus.
RISK FACTORS...............See "Risk Factors" herein for a discussion of certain
material factors that should be considered in
connection with an investment in the [Offered]
Certificates.
<PAGE>
RISK FACTORS
Prospective investors should consider, among other things, the following
factors in connection with an investment in the Certificates.
LIMITED LIQUIDITY
There is currently no secondary market for the Certificates and there can
be no assurance that one will develop. The Underwriter intends to make a market
in the [Offered] Certificates [(other than the Class [ ] Certificates)], but is
not obligated to do so. There can be no assurance that any such market, if
established, will continue.
LIMITED OBLIGATIONS
The Certificates will not represent an obligation of, or interest in, the
Depositor, the Master Servicer, the Special Servicer, any Mortgagor or any
Lessee. Similarly, neither the Certificates nor the underlying Mortgage Loans or
any Leases will be insured or guaranteed by any governmental entity, the
Depositor, the Master Servicer, the Special Servicer, the Trustee or any of
their affiliates, or any other person. Distributions on the Certificates will be
payable solely from the assets of the Trust Fund and from the credit enhancement
described herein. See "Description of the Certificates--Distributions" herein.
PREPAYMENT CONSIDERATIONS
The payment experience on the Mortgage Loans will affect the actual payment
experience on and the weighted average life of each Class of Certificates and,
accordingly, may affect its respective yield. Prepayments on the Mortgage Loans
will be influenced by the prepayment provisions of the Mortgage Loans and may
also be affected by a variety of economic, geographic and other factors,
including the difference between the applicable Mortgage Interest Rate and
prevailing mortgage rates (giving consideration to the cost of refinancing). In
general, if prevailing mortgage interest rates fall below the interest rates on
the Mortgage Loans, the rate of prepayment would be expected to increase.
Conversely, if prevailing mortgage interest rates rise above the interest rates
on the Mortgage Loans, the rate of prepayment would be expected to decrease. [As
specified herein, certain of the Mortgage Loans prohibit principal prepayments
in whole or in part for specified periods (the "Lock-Out-Periods") and certain
of the Mortgage Loans impose fees as a condition to full or partial prepayment.
Under certain circumstances, the enforcement of Lock-Out Period provisions and
the payment of prepayment fees may be waived by the Master Servicer. See " ."]
In some circumstances, condemnation (or taking in lieu of condemnation) of
Mortgaged Properties, casualty losses on Mortgaged Properties or acceleration of
the payments due under Mortgage Loans by reason of default may also result in
principal prepayments at any time with or without payment of a prepayment fee.
Since prepayments on the Mortgage Loans (including prepayments resulting
from modifications, defaults or liquidations or repurchases due to certain
breaches of representations and warranties) and other principal payments on the
Mortgage Loans are initially directed to reduce the respective Certificate
Principal Amounts of the Class A Certificates, principal prepayments on the
Mortgage Loans will have a disproportionately greater tendency to shorten the
weighted average lives of the Class A Certificates relative to the Class B and
Class C Certificates and to shorten the weighted average lives of the Class B
Certificates relative to the Class C Certificates.
[In contrast, [a substantial portion of] the excess of interest due on the
Mortgage Loans, net of servicing compensation and certain other fees and
expenses, over interest due on the Certificates will generally be applied to the
Class ___ Certificates as described herein under "Description of the
Certificates--Distributions--Allocation Among Classes." Accordingly, while the
amount of such excess interest will generally be affected primarily by changes
in interest rates and the interest rate adjustment terms of the Mortgage Loans
as described below under "--Basis Risk Shortfalls," any payment experience which
would reduce such excess interest, including prepayments, will have a tendency
to extend the weighted average lives of the Class ___ Certificates. Likewise,
any payment experience which would increase such excess interest will have a
tendency to shorten the weighted average lives of the Class ___ Certificates and
to extend the weighted average lives of the Class ___ Certificates. The level of
such excess interest will also be affected by other factors described below
under "--Basis Risk Shortfalls" and under "Description of the
Certificates--Distributions--Basis Risk" herein.]
Any changes in weighted average life may adversely affect the yield to the
related Class of Certificateholders. Prepayments resulting in shortening the
weighted average life of any Class of Certificates may be made at a time of low
interest rates when a Certificateholder may be unable to reinvest the resulting
payments of principal at a rate comparable to the Pass-Through Rate payable on
such Certificates, while delays and extensions resulting in a lengthening of
such weighted average life may occur at a time of high interest rates when a
Certificateholder may have been able to reinvest principal payments that would
otherwise have been received by it at higher rates. [In contrast, because the
Class [ ] Certificates are being offered at a discount, and because the Class [
] Certificates are being offered at a premium, their effective yields will
depend to a significant extent on the rate at which any excess interest is
collected and applied to make distributions of principal in respect of such
Classes of Certificates as described above.] The yield on the Class [ ]
Certificates may be adversely affected to the extent their weighted average
lives are extended due to a reduction in such excess interest and the yield on
the Class [ ] Certificates may adversely affected to the extent their weighted
average lives are shortened due to an increase in such excess interest. See
"Yield, Prepayment and Maturity Considerations" and "The Trust Fund" herein.
MORTGAGOR DEFAULT
Loans secured by multifamily and commercial properties are generally viewed
as exposing the lender to a greater degree of loss than loans secured by one- to
four-family residences. Multifamily and commercial loans also typically involve
larger loans to a single obligor or groups of related obligors than residential
one- to four-family mortgage loans.
The repayment of multifamily and commercial loans, which generally are
secured by income-producing properties, is typically more dependent upon the
successful operation of the related real estate project than upon the
liquidation value of the underlying real estate. Also, for adjustable rate
Mortgage Loans, an increase in the Mortgage Interest Rate will increase the debt
service and possibly impair the Mortgagor's ability to repay the Mortgage Loan.
Net operating income from a real estate project may be reduced, and a
Mortgagor's ability to repay the loan impaired, as a result of an increase in
vacancy rates for the project, a decline in rental rates as leases are renewed
or entered into with new tenants, an increase in operating expenses of the
project and/or an increase in capital expenditures needed to maintain the
project and make improvements required by tenants.
The liquidation value of any Mortgaged Property may be adversely affected
by risks generally incident to interests in real property, including (i) changes
or continued weakness in general or local economic conditions and/or specific
industry segments, (ii) declines in real estate values or declines in rental or
occupancy rates, (iii) increases in interest rates, real estate and personal
property tax rates, energy costs and other operating expenses, (iv) the
availability of commercial real estate financing, (v) changes in governmental
rules, regulations and fiscal policies, including environmental legislation,
(vi) acts of God and (vii) other factors which are beyond a Mortgagor's control.
Although the Master Servicer or the Special Servicer is obligated to cause
standard hazard insurance to be maintained with respect to each Mortgage Loan,
insurance with respect to extraordinary hazards such as earthquakes and floods
is generally not required to be maintained, and insurance is not available with
respect to many of the other risks listed above. Further, standard hazard
insurance policies do not ordinarily cover damages sustained during hurricanes
and tornadoes, unless such damage is attributable to wind, and no special hazard
insurance insuring against such losses will ordinarily be required to be
maintained.
Even where the net operating income generated by a Mortgaged Property is
currently sufficient to cover debt service payments on the related Mortgage
Loan, there can be no assurance that this will continue to be the case in the
future. In the case of Mortgage Loans that are secured by owner-occupied
Mortgaged Properties or Mortgaged Properties leased to a single tenant, a
decline in the financial condition of the Mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
LIMITED OBLIGATIONS OF MORTGAGOR
[The] [A substantial portion of the] Mortgage Loans are nonrecourse loans.
Accordingly, in the event of a Mortgagor default, recourse may be had only
against the Mortgaged Property pledged to secure such Mortgage Loan, and not
against the Mortgagor's other assets. In the event of a default on a scheduled
payment of principal or interest by the Mortgagor, the Master Servicer may
proceed to foreclose on the defaulted Mortgage Loan. Because under the terms of
a non-recourse Mortgage Loan the Master Servicer may not seek a deficiency
judgment against the Mortgagor for nonpayment of such Mortgage Loan except in
limited circumstances, Certificateholders may experience losses if the proceeds
from the disposal of the Mortgaged Property are less than the aggregate
principal amount of the Mortgage Loan that such Mortgaged Property secured, the
interest and other charges due and owing under the related Mortgage Note and the
aggregate amount of expenses incurred and to be incurred by the Master Servicer
in connection with such foreclosure. [To the extent a Mortgage Loans is
cross-collateralized, losses on the disposition of a given Mortgaged Property
may be recovered from payments with respect to another Mortgaged Property
securing the same Mortgage Loan.]
[With respect to those Mortgage Loans that provide for recourse against the
Mortgagor and its assets generally, there can be no assurance that such recourse
will ensure a recovery in respect of a defaulted Mortgage Loan greater than the
liquidation value of the related Mortgaged Property.]
BALLOON LOANS
As described herein, approximately __% of the Mortgage Loans, measured by
aggregate Scheduled Principal Balance as of the Cut-Off Date, will not fully
amortize over their terms to maturity or may provide for mandatory prepayment at
the time of the scheduled expiration of a related Lease and, accordingly, will
generally require a substantial payment (a "Balloon Payment") at their stated
maturity or at the time of Lease expiration (such Mortgage Loans, the "Balloon
Loans"). In addition, certain Mortgage Loans provide for monthly (or other
periodic) payments of interest at a rate less than the Mortgage Interest Rate
for such Mortgage Loan for some portion of the Mortgage Loan term. The principal
balance of such Mortgage Loan would be increased periodically by an amount equal
to such difference, resulting in negative amortization. Accordingly, such
Mortgage Loans could also have Balloon Payments due at their respective stated
maturities. [The Agreement permits the Master Servicer to modify a Mortgage Loan
to create or increase existing Balloon Payments.] Balloon Loans involve a
greater degree of risk than fully amortizing Mortgage Loans because the ability
of a Mortgagor to make a Balloon Payment typically will depend upon its ability
either to sell or refinance the related Mortgaged Property.
The ability of a Mortgagor to make a Balloon Payment will be affected by
the value of the related Mortgaged Property at the time the Balloon Payment is
due, which in turn will depend on a number of factors, including (i) whether, on
what terms and to whom such Mortgaged Property is leased, (ii) the ability of
the Mortgagor to extend the related Lease (and the willingness of the Lessee to
extend such Lease), or to substitute another comparable lessee, on favorable
lease terms, including comparable levels of rent, (iii) the value of such
Mortgaged Property, (iv) the Mortgagor's equity in the Mortgaged Property (v)
the economic conditions of the area in which such Mortgaged Property is located,
(vi) the supply of and demand for commercial and/or multifamily properties in
the area that are similar to such Mortgaged Property, (vii) local zoning
changes, (viii) real estate capitalization rates, (ix) tax laws, (x) the
availability of credit for commercial and/or multifamily residential real estate
projects generally, (xi) the level of available mortgage interest rates, and
(xii) the performance of the Master Servicer in overseeing the maintenance of
such Mortgaged Property.
DEFAULTED MORTGAGE LOANS
In the case of defaults, recovery of proceeds may be delayed by, among
other things, compliance with foreclosure laws, bankruptcy of the Mortgagor or
adverse conditions in the market where the Mortgaged Property is located. Delays
in liquidations of defaulted Mortgage Loans and modifications extending the
maturity of Mortgage Loans will tend to extend the payment of principal of the
Mortgage Loans. To produce a greater recovery [on a present value basis] on
defaulted Mortgage Loans, the [Master Servicer] [Special Servicer] has
considerable flexibility under the Agreement to extend or modify Mortgage Loans
which are in default or as to which a payment default is reasonably foreseeable,
including in particular, with respect to Balloon Payments. More specifically,
subject to the overall goal of providing a greater recovery [on a present value
basis] from the defaulted Mortgage Loans than would result from foreclosure and
to certain conditions set forth in the Agreement, the [Master Servicer] [Special
Servicer] has the power, among other things, to forgive permanently the payment
of principal or interest or both, to lower or modify the Mortgage Interest Rate
or the rate at which interest is currently required to be paid or to modify the
schedule for payments of principal and interest. Any extension of the scheduled
maturity date of a Mortgage Loan may cause the weighted average lives of the
Certificates to be longer than if such Mortgage Loan had paid under its original
terms. [The flexibility of the [Master Servicer] [Special Servicer] is limited
by the need to preserve the status of the Trust Fund as a REMIC.]
[The Special Servicer will receive a Workout Fee (as defined under
"Servicing of the Mortgage Loans--Servicing Compensation and Payment of
Expenses" herein) which is based on receipts from or proceeds of Mortgage Loans
for which it is acting as Special Servicer. While such flexibility with respect
to modifications and payment of compensation to the Special Servicer in the form
of a Workout Fee is designed to increase the present value of receipts from or
proceeds of Mortgage Loans which are in default or as to which default is
reasonably foreseeable, there can be no assurance that it will do so. See
"Servicing of the Mortgage Loans--Modifications, Waivers and Amendments" and
"--Servicing and Other Compensation and Payment of Expenses" herein and in the
Prospectus.]
ENVIRONMENTAL CONSIDERATIONS
Environmental conditions may diminish the value of the Mortgage Loans and
give rise to liability of various parties. There are many federal and state
environmental laws concerning hazardous waste, hazardous substances, gasoline,
asbestos, radon and other materials which may affect a Mortgaged Property
securing a Mortgage Loan. For example, under the federal Comprehensive
Environmental Response Compensation and Liability Act, as amended, and possibly
under state law in certain states, a secured party that takes a deed in lieu of
foreclosure or purchases a mortgaged property at a foreclosure sale may become
liable in certain circumstances for the costs of a remedial action ("Cleanup
Costs") if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be substantial. It is
possible that such costs could become a liability of the Trust Fund and reduce
the amounts otherwise distributable to the Certificateholders if a Mortgaged
Property securing a Mortgage Loan became the property of the Trust Fund in
certain circumstances and if such Cleanup Costs were incurred. Moreover, certain
state statutes impose a lien for any Cleanup Costs incurred by such state on the
property that is the subject of such Cleanup Costs (a "Superlien"). All
subsequent liens on such property are subordinated to such Superlien and, in
some states, even prior recorded liens on such property are subordinated to such
Superliens. In the latter states, the security interest of the Trustee in a
property that is subject to such a Superlien could be adversely affected.
[At the time the Mortgage Loans were originated it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Properties was conducted.]
[The Agreement provides that the Special Servicer [may] [shall], at the
expense of the Trust Fund, obtain an environmental assessment with respect to
any Mortgaged Property prior to acquiring title thereto or assuming its
operation. If such an assessment is to be provided, enforcement of the security
for the related Mortgage Note is effectively precluded until a satisfactory
environmental assessment is obtained or any required remedial action is taken,
reducing the likelihood that the Trust Fund will become liable for any Cleanup
Costs relating to a Mortgaged Property, but making it more difficult to
foreclose. However, there can be no assurance that the requirements of the
Agreement will in fact insulate the Trust Fund from liability for Cleanup
Costs.]
ENFORCEABILITY
[Each Mortgage Loan contains] [Substantially all of the Mortgage Loans
contain] a due-on-sale clause, which generally provides that if the Mortgagor
sells, transfers or conveys the related Mortgaged Property, the loan or contract
may be accelerated by the mortgagee or secured party. Due-on-sale clauses are
generally enforceable subject to certain exceptions. The inability to enforce a
due-on-sale clause may result in transfer of the related Mortgaged Property to
an uncreditworthy person, which could increase the likelihood of default. See
"Certain Legal Aspects of the Mortgage Loans and the Leases--Mortgage
Loans--Due-on-Sale Clauses" in the Prospectus.
[Each Mortgage Loan also includes] [Substantially all of the Mortgage Loans
also include] a debt-acceleration clause, which permits the lender to accelerate
the debt upon a monetary or nonmonetary default of the Mortgagor. The courts of
all states will enforce clauses providing for acceleration in the event of a
material payment default after the giving of appropriate notices. The equity
courts of a state, however, may refuse to permit the foreclosure of a mortgage
or deed of trust when an acceleration of the indebtedness would be inequitable
or unjust or the circumstances would render the acceleration unconscionable.
[As described herein, certain Mortgage Loans are also secured by an
assignment of leases and rents pursuant to which the Mortgagor assigns its
right, title and interest as landlord under all leases of the related Mortgaged
Property and the income derived therefrom to the lender as further security for
the related Mortgage Loan[, while retaining a license to collect rents for so
long as there is no default]. [If the Mortgagor defaults, the license terminates
and the lender is entitled to collect rents.] [With respect to certain of the
Mortgage Loans secured by an assignment of lease, the lessor also has assigned
to the Master Servicer the right to collect rent and other expenses directly
from the related Lessee.] Such assignments are typically not perfected as
security interests prior to actual possession of the cash by the lender. Some
state laws may require that the lender take possession of the Mortgaged Property
and obtain a judicial appointment of a receiver before becoming entitled to
collect the rents. In addition, if bankruptcy or similar proceedings are
commenced by or in respect of the Mortgagor, the lender's ability to collect the
rents may be adversely affected. Some bankruptcy courts have held that a
lender's security interest in rents, income and profits generated by a hotel or
motel does not include room revenues. Such courts have characterized room
revenues as accounts receivable, entitling the Mortgagor to use the cash without
the consent of the lender. See "Certain Legal Aspects of the Mortgage Loans and
the Leases--Leases and Rents" in the Prospectus.]
[PRIORITY OF PAYMENTS
All amounts received on or in respect of the Mortgage Loans in Mortgage
Loan Groups 1 and 2 [(including related payments from Credit Enhancement)] will
be applied first to interest on each Class of Commercial Certificates and then
to principal distributable with respect to the Class A-1A, Class A-1B, Class
A-1R and Class A-2 Certificates, and only thereafter will be applied to
principal then distributable with respect to the Class B and Class C
Certificates. All amounts received on or in respect of the Mortgage Loans in
Mortgage Loan Groups 3 and 4 [(including related payments from Credit
Enhancement)] will be applied first to interest and then to principal
distributable with respect to the Multifamily Certificates and only thereafter
may be available for application to amounts then distributable with respect to
the Commercial Certificates. Principal distributable on the Multifamily
Certificates generally will include all principal received, due (other than
Balloon Payments) but not received, or deemed to be due, on the Groups 3 and 4
Mortgage Loans. Furthermore, pursuant to the subordination of the Class B and
Class C Certificates to the Class A-1A, Class A-1B, Class A-1R and Class A-2
Certificates, remaining amounts received on or with respect to Mortgage Loans in
Mortgage Loan Groups 3 and 4, otherwise allocable to such subordinated Classes,
will first be applied to cover any shortfalls in minimum distribution to the
Class A-1A, Class A-1B, Class A-1R and Class A-2 Certificates to the extent
amounts received on or with respect to the Mortgage Loans in Mortgage Loan
Groups 1 and 2 are not sufficient therefor before allocation thereof to the
Class B and Class C Certificates.
In no event will amounts received on or with respect to the Mortgage Loans
in Mortgage Loan Groups 1 and 2 be available to make distributions to the
Multifamily Certificates, and, accordingly, the Class B and Class C Certificates
could receive distributions from such amounts at times when the Multifamily
Certificates are not receiving minimum distributions in full.
Distributions of principal with respect to the Class B and Class C
Certificates will be subordinate to distributions of principal with respect to
the Class A-1A, Class A-1B, Class A-1R and Class A-2 Certificates to the extent
that no distribution of principal is permitted to be made with respect to the
Class B and Class C Certificates on any Distribution Date until principal then
payable to the Class A-1A, Class A-1B, Class A-1R and Class A-2 Certificates
have been paid. [Repeat for each additional subordinate Class.]
To the extent interest distributable in respect of a Class of Certificates
on any Distribution Date is not paid as a result of the foregoing priorities or
otherwise, the amount of such interest will be added to amounts of interest to
be distributed on subsequent Distribution Dates. See "Description of the
Certificates--Distributions" herein.]
[IN ADDITION TO THE RISK FACTORS DESCRIBED IN THIS ILLUSTRATIVE FORM OF
PROSPECTUS SUPPLEMENT, THE FOLLOWING DISCUSSION SETS FORTH EXAMPLES OF RISK
FACTORS FOR OTHER TYPES OF CLASSES AND MORTGAGE ASSETS.]
[DELINQUENT MORTGAGE LOANS; MATURED PERFORMING MORTGAGE LOANS
Included in the Trust Fund are Mortgage Loans that, as of the Cut-Off Date,
had up to ____ Monthly Payments past due [and Mortgage Loans that, as of the
Cut-Off Date, were delinquent as to their Balloon Payments but as to which the
related Mortgagors continue to make Monthly Payments]. The Trust Fund includes
Mortgage Loans that have had one or more delinquencies during the 12 month
period immediately preceding the Cut-Off Date.
As of the Cut-Off Date, no Mortgage Loan has ___ or more Monthly Payments
past due. As of the Closing Date, all Monthly Payments due on any Mortgage Loan
on or before __________, 199_ will have been made. [____ Mortgage Loans having
an aggregate Scheduled Principal Balance of approximately $_____, representing
____% of the aggregate Scheduled Principal Balance of the Mortgage Loans as of
the Cut-Off Date, will have a Monthly Payment which is more than 60 days past
due at the Closing Date if no Monthly Payments are received on such Mortgage
Loans from the Cut-Off Date to the Closing Date.]
____ Mortgage Loans having an aggregate Scheduled Principal Balance of
approximately $______, representing ____% of the aggregate Scheduled Principal
Balance of the Mortgage Loans as of the Cut-Off Date, are Mortgage Loans that
are delinquent as to their Balloon Payments as of the Cut-Off Date, that have
not yet been the subject of modification as a consequence thereof and on which
the Mortgagors continue to make Monthly Payments in accordance with their
original terms ("Matured Performing Mortgage Loans"). Matured Performing
Mortgage Loans that do not contain principal amortization schedules are expected
to be modified to provide for extended maturity dates. See "The Trust Fund--The
Mortgage Collateral" herein and "The Trust Fund" in the Prospectus.
Investors should consider the risk that the inclusion of delinquent
Mortgage Loans [and Matured Performing Mortgage Loans] in the Mortgage Pool may
affect the rate of defaults and prepayments on the Mortgage Loans and the yield
on the Offered Certificates. See "Yield, Prepayment and Maturity Considerations"
herein.]
[BASIS RISK SHORTFALLS
Under certain circumstances, interest accrued on the Certificates as of any
Distribution Date could exceed interest (net of applicable servicing fees [,
fees for Credit Enhancement] and fees due the Trustee) accrued on the Mortgage
Loans. Such a shortfall could arise due to, among other things, variations in
the difference between [LIBOR] and the indexes for the Group 2 and Group 4
Mortgage Loans, variations in interest rate adjustment dates and interest rate
maximums for such Mortgage Loans relative to those for the Floating Rate
Certificates, differences in the number of days for interest accrual periods for
payments on Mortgage Loans and Interest Accrual Periods for corresponding
Distribution Dates for the Certificates, the existence of fixed rate Group 1 or
Group 3 Mortgage Loans with Net Mortgage Interest Rates (as defined herein under
"Description of the Certificates--Distributions--Generally"), and adjustable
rate Group 1 or Group 3 Mortgage Loans with Floor Interest Rates, that could
result in weighted average Net Mortgage Interest Rates that are below the
Pass-Through Rates for the applicable Fixed Rate Certificates, conversion of
certain adjustable rate Mortgage Loans to fixed rate Mortgage Loans, and net
shortfalls in interest collected on Principal Prepayments or Balloon Payments.
[Whatever their source, Basis Risk Shortfalls will be incurred by the Classes of
Floating Rate Certificates, pro rata.] [The Reserve Fund will be available to
cover shortfalls due to Basis Risk.] Any such amounts will be applied, first, to
such shortfalls incurred by the Class ___ Certificates[, second to such
shortfalls incurred by the Class ___ Certificates] and last to such shortfalls
incurred by the Class ___ Certificates. See "Description of the
Certificates--Distributions--Basis Risk" herein.]
[GEOGRAPHIC CONCENTRATION
Approximately [ ] Mortgage Loans, representing approximately [ ]% of the
aggregate Scheduled Principal Balance of the Mortgage Loans as of the Cut-Off
Date, are secured by Mortgaged Properties located in the State of __________.
[Improvements on Mortgaged Properties located in __________ may be more
susceptible to certain types of special hazards not covered by insurance (such
as earthquakes) than properties located in other parts of the country.] In
addition, the economy of the State of __________ may be adversely affected to a
greater degree than that of other areas of the country by certain developments
affecting industries concentrated in such states. Moreover, in recent periods,
several regions of the United States (including __________) have experienced
significant downturns in the market value of real estate. [Because of the
relative lack of geographic diversity in the Mortgage Loan Groups, losses on the
related Mortgage Loans may be higher than would be the case if such Mortgage
Loan Groups were more diversified.]
[MORTGAGE LOAN CONCENTRATION
Approximately ___ Mortgage Loans with an aggregate Scheduled Principal
Balance as of the Cut-Off Date greater than ________ comprise approximately __%
of the aggregate Scheduled Principal Balance of the Mortgage Loans. As a result
of this relative concentration of the Mortgage Loans, losses or prepayments on,
or modifications of (including an extension of the maturity date), any such
Mortgage Loans are likely to have a greater effect on the yield to
Certificateholders or the anticipated weighted average lives of the Certificates
than might otherwise be the case had such concentration not existed.]
[SPECIAL PURPOSE PROPERTIES
Certain of the Mortgaged Properties were constructed to meet the
requirements of specific Lessees. Accordingly, some of the Mortgaged Properties
may incorporate certain design features relating to the needs or preferences of
the related Lessees. Additionally, certain of the Mortgaged Properties were
constructed for a specific business purpose (I.E., nursing homes and motels),
which would render such Mortgaged Properties unsuitable for other business
purposes. If such Lessees do not renew their Leases or default under the Leases,
there is a possibility that such design features or specific business purposes
could impair the ability of the Mortgagor to re-let such properties to other
tenants.]
[SINGLE-TENANT PROPERTIES; TENANT BANKRUPTCY
As set forth herein, certain of the Mortgage Loans are secured by Mortgaged
Properties leased to a single tenant. A decline in the financial condition of
such tenant may have a disproportionately greater effect on the net operating
income from such property than would be the case with respect to a property with
multiple tenants. See "The Trust Fund" herein. For a discussion of the impact of
a tenant's bankruptcy on the related Lease, see "Certain Legal Aspects of the
Mortgage Loans and Leases--Bankruptcy Laws" in the Prospectus.]
[LESSOR'S OBLIGATIONS; OFFSETS; TERMINATION RIGHTS
[Description of terms and conditions of those Leases which contain a right
of the tenant to offset against such tenant's rental obligations amounts
expended by such tenant in satisfaction of the landlord's obligations under such
Leases. Also description of those Leases which obligate the landlord to make
payments with respect to the Mortgaged Properties, E.G., to insure the
structural integrity of the Mortgaged Property, etc. Also description of those
Leases that allow the tenant to terminate such Lease in the event of certain
breaches by the landlord or the occurrence of certain events (E.G., casualty
loss and condemnation).]
[BANKRUPTCY CONSIDERATIONS
BSCMSI believes that the transfers by the Seller of the Mortgage Loans to
BSCMSI, the simultaneous transfer of the Mortgage Loans by BSCMSI to the Trust
Fund and the sale of the Certificates should be treated as absolute and
unconditional sales. However, in the event of the bankruptcy of the Seller or
BSCMSI, a court, a creditor or other party in interest, or a trustee in
bankruptcy, among other remedies, could attempt to recharacterize the sale of
the related Mortgage Loans by the Seller to BSCMSI and by BSCMSI to the Trust
Fund as a borrowing by the Seller or BSCMSI, as the case may be, secured by a
pledge of such Mortgage Loans. Such an attempt, even if unsuccessful, could
result in delays in payments on the Certificates and could result, if ultimately
successful, in payment of reduced amounts on the Certificates. If such an
attempt were successful, a court, among other remedies, could elect to
accelerate payment of such Certificates and liquidate the Mortgage Loans, with
the holders of such Certificates entitled to the then outstanding principal
balance thereof and interest thereon at their applicable Pass-Through Rates to
the date of payment (or, under certain circumstances, to the date of the
appointment of a trustee in bankruptcy). Thus, the holders of Certificates could
lose the right to future payments of interest and might incur reinvestment
losses in a lower interest rate environment. Certain tax and governmental liens
and certain administrative expenses of the trustee in bankruptcy might have
priority over the interest of the Trust Fund in the Mortgage Loans, or the
proceeds from the liquidation of the Mortgage Loans may not be sufficient to pay
the outstanding principal balance of, and interest on, the Certificates.]
DESCRIPTION OF THE CERTIFICATES
The Certificates are to be issued pursuant to the Agreement, dated as of
the Cut-Off Date, among BSCMSI, the Master Servicer, the Special Servicer and
the Trustee. Reference is made to the Prospectus for important additional
information regarding the terms and conditions of the Agreement and the
Certificates. The Trustee will provide Certificateholders without charge, on
written request, a copy of the Agreement. Requests should be addressed to
_____________, Attention: ___________, or by calling ( ) - .
GENERAL
The Certificates will represent, in the aggregate, the entire beneficial
ownership interest in the Trust Fund consisting primarily of, among other
things, the Mortgage Loans, together with payments thereon, and certain other
assets, including [the Reserve Fund established with respect to the
Certificates,] [the insurance policies,] [the Credit Enhancement devices set
forth herein]; however, the Class A-3A, Class A-3B and Class A-4 Certificates do
not represent a beneficial ownership interest in any Mortgage Loans other than
Eligible Multifamily Mortgage Loans.
Each Class of Book-Entry Certificates will be represented initially by a
single certificate registered in the name of Cede & Co. ("Cede") as the nominee
of The Depository Trust Company ("DTC"), except for one Certificate of each such
Class which may be issued as a Definitive Certificate (as defined below) in an
initial principal amount of less than $1,000. No person acquiring an interest in
the Book-Entry Certificates (a "Certificate Owner") will be entitled to receive
a certificate representing such person's interest in the Trust Fund, except in
the event Definitive Certificates are issued under the limited circumstances set
forth below under "--Definitive Certificates." Unless and until Definitive
Certificates are issued, all references to actions by holders of Book-Entry
Certificates shall refer to actions taken by DTC upon instructions from its
Participants (as defined under "--Book-Entry Registration" below), and all
references herein to distributions, notices, reports and statements to holders
of Book-Entry Certificates shall refer to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Book-Entry
Certificates, as the case may be, for distribution to Certificate Owners in
accordance with DTC procedures.
The Class A-1R Certificates will be issued in certificated,
fully-registered form in minimum denominations of $___ and increments of $___ in
excess thereof.
Distributions of principal and interest as set forth below initially will
be made by the Trustee to Cede, as the registered holder of the Book-Entry
Certificates, and to the holders of the Class A-1R Certificates. Upon the
issuance of Definitive Certificates to persons other than Cede, distributions
will be made by the Trustee to the persons in whose names such Certificates are
registered at the close of business on each Record Date, which will be the last
Business Day (as defined below) of the month preceding the month in which the
related Distribution Date occurs. Such distributions will be made (i) by check
mailed to each Certificateholder entitled thereto at the address appearing in
the Certificate Register to be maintained in accordance with the provisions of
the Agreement or (ii) upon timely receipt by the Trustee of written instructions
from a Certificateholder holding Certificates representing an initial aggregate
Certificate Principal Amount of not less than $1,000,000, by wire transfer to a
United States dollar account maintained by the payee at any United States
depository institution with appropriate facilities for receiving such a wire
transfer; provided, however, that the final payment in respect of each Class of
Certificates will be made only upon presentation and surrender of such
respective Certificates at the office or agency of the Trustee specified in the
notice to Certificate-holders of such final payment.
A "Business Day" is a day other than Saturday, Sunday, or a day on which
banking institutions in the State of ___________________ or The City of New York
are authorized or obligated by law or executive order to be closed.
BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the
State of New York and is a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934. DTC was created to hold securities for its participating
organizations ("Participants") and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers (including Bear, Stearns & Co. Inc.),
banks, trust companies and clearing corporations. Indirect access to the DTC
system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions of
principal and interest on the Book-Entry Certificates through Participants.
Under a book-entry format, Certificate Owners may experience some delay in their
receipt of payments, since such payments will be forwarded to Cede, as a nominee
for DTC. DTC will forward such payments to is Participants, which thereafter
will forward them to Indirect Participants or Certificate Owners. It is
anticipated that, except as provided below under "--Definitive Certificates,"
the only "Certificateholder" with respect to the Book-Entry Certificates will be
Cede, as nominee of DTC. Certificate Owners will not be recognized by the
Trustee as Certificateholders, as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC will be required to make book-entry transfers
of Book-Entry Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, Book-Entry Certificates.
Participants and Indirect Participants with which Certificate Owners have
accounts with respect to the Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess physical certificates, the Rules provide a mechanism by which
Participants and Certificate Owners will receive payments and will be able to
transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, and on behalf of certain banks, the ability of
a Certificate Owner to pledge Book- Entry Certificates to persons or entities
that do not participate in the DTC system, or to otherwise act with respect to
such Book- Entry Certificates, may be limited due to the absence of physical
certificates for such Book-Entry Certificates.
DTC has advised BSCMSI that it will take any action permitted to be taken
by a holder of Book-Entry Certificates under the Agreement only at the direction
of one or more Participants to whose accounts with DTC the Book-Entry
Certificates are credited. Additionally, DTC has advised BSCMSI that it will
take such action where the consent of specified percentages of the Book-Entry
Certificates is required under the Agreement only at the direction of and on
behalf of Participants whose interests represent such specified percentages. DTC
may take conflicting actions on behalf of other Participants.
Neither BSCMSI, the Servicer nor the Trustee will have any liability for
any aspect of the records relating to or payment 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
Except for the Class A-1R Certificates and in the case of a single
Certificate of each class of Book-Entry Certificates issued in an original
dollar denomination of less than $1,000, Certificates will be issued in fully
registered, certificated form ("Definitive Certificates") to Certificate Owners
or their nominees, rather than to DTC or its nominee, only if (i) BSCMSI advises
the Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Certificates and
BSCMSI is unable to locate a qualified successor within 30 days or (ii) BSCMSI,
at its option, elects to terminate the book-entry system through DTC.
Upon the occurrence of either event described in clause (i) or (ii) of the
immediately preceding paragraph, the Trustee is required to notify DTC, which in
turn will notify all Certificate Owners through Participants, of the
availability of Definitive Certificates. Upon surrender by Cede, as nominee of
DTC, of the Definitive Certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the
Book-Entry Certificates as Definitive Certificates to Certificate Owners. Under
no circumstances will Definitive Certificates of any Class be issued in an
amount representing an interest in, as of the Cut-Off Date, less than $______
principal amount of the respective Class of Book-Entry Certificate.
Class A-1R Certificates and Definitive Certificates will be transferable
and exchangeable on a "Certificate Register" to be maintained by the Trustee at
the office or agency of the Trustee maintained for that purpose in _______.
Class A-1R Certificates and Definitive Certificates surrendered to the Trustee
for registration of transfer or exchange must be accompanied by a written
instrument of transfer in form satisfactory to the Trustee. No service charge
will be made for any registration of transfer or exchange of Class A-1R
Certificates and Definitive Certificates, but payment of a sum sufficient to
cover any tax or other governmental charge may be required. Such office or
agency of the Trustee is currently located at ____________________.
DISTRIBUTIONS
[SUBJECT TO REVISION FOR EACH SERIES.]
Generally
As more fully described below, distributions of principal and interest on
the Certificates will be made on each Distribution Date in an aggregate amount,
to the extent funds are available therefor from payments on the Mortgage Loans,
Monthly Advances from the Servicer and draws on the Reserve Fund or other forms
of Credit Enhancement], equal to [the sum of (i)] the Optimal Available Funds
(as defined below) of the Mortgage Loan Groups, [net of certain reimbursements
to the Reserve Fund,] [plus (ii) the Basis Risk Reserve Fund Draw Amount (as
defined below under "--Basis Risk")] and certain past due amounts together with
interest thereon as described herein. Such amount will be allocated among the
different Classes of Certificates as described below under "--Allocation Among
Classes." Such distributions will be made on each Distribution Date in
accordance with the Agreement to each Certificateholder of record on the related
Record Date. For each Distribution Date, the "Record Date" is the close of
business on the last Business Day of the month preceding the month in which such
Distribution Date occurs.
On each Distribution Date, the Trustee will determine the Optimal Available
Funds for each Mortgage Loan Group and will also determine the Group Available
Funds (as defined below) for each such Mortgage Loan Group. The Group Available
Funds for any Mortgage Loan Group may be less than receipts on the Mortgage
Loans (excluding Amounts Held for Future Distribution (as defined below)) as the
result of, among other things, payment of certain servicing and Trustee fees and
expenses therefrom [payment of fees for Credit Enhancement] and for payment
received on a Discounted Mortgage Loan (as defined herein under "--Discounted
Mortgage Loans") after its Scheduled Principal Balance has been reduced to zero
as described herein.
To the extent the aggregate Group Available Funds of the Mortgage Loan
Groups are insufficient to make a distribution in full of the aggregate Optimal
Available Funds of the Mortgage Loan Groups, the Master Servicer will draw on
the Collection Account, as directed by the Trustee, up to the amount of any
additional funds held in such account as of the Distribution Date for
distribution on a future Distribution Date ("Amounts Held for Future
Distribution") (limited in the case of Mortgage Loan Groups 3 and 4, to the
Amounts Held for Future Distribution received on Eligible Multifamily Mortgage
Loans). In addition, Basis Risk Shortfalls (as defined herein under "--Basis
Risk") may be covered by Basis Risk Reserve Fund Draw Amounts as described under
"--Basis Risk" herein. [Description of other forms of Credit Enhancement to
cover losses or shortfalls] The Group Available Funds for each Mortgage Loan
Group, together with any Amounts Held for Future Distribution and Basis Risk
Reserve Fund Draw Amounts allocated to such Mortgage Loan Group [and other forms
of Credit Enhancement], represent the full amount available for distribution on
a given Distribution Date with respect to such Mortgage Loan Group (the
"Available Distribution Amount" for such Mortgage Loan Group).
The "Group Available Funds" for each Mortgage Loan Group with respect to
any Distribution Date will equal (a) the amount on deposit in the Collection
Account with respect to the Mortgage Loans included in such Mortgage Loan Group
(other than any investment income earned thereon) as of the close of business on
the related Determination Date minus (b) the sum of (i) the portion of the
amount described in clause (a) hereof that represents Monthly Payments received
but due during any subsequent Due Period (or, with respect to Simple Interest
Loans, that represents interest accrued on the Scheduled Principal Balance
thereof after the Due Date in the related Due Period) and (ii) all other amounts
related to such Mortgage Loan Group (or, if not related to a particular Mortgage
Loan Group, as allocated to such Mortgage Loan Group pursuant to the Agreement)
either not required to be deposited by the Master Servicer in the Collection
Account or permitted or required to be withdrawn therefrom by the Master
Servicer pursuant to the Agreement (including, among other things, servicing
fees, [, fees for Credit Enhancement] fees due the Trustee and reimbursement for
certain expenses of the Master Servicer or Special Servicer).
The "Optimal Available Funds" for each Mortgage Loan Group for any
Distribution Date will equal the sum of (i) the Optimal Mortgage Loan Interest
for such Mortgage Loan Group and (ii) the Optimal Mortgage Loan Principal for
such Mortgage Loan Group.
The "Optimal Mortgage Loan Interest" for each Mortgage Loan Group on any
Distribution Date will equal the excess, if any, of (x) the aggregate, for all
Mortgage Loans in such Mortgage Loan Group, of interest accrued at the
applicable Mortgage Interest Rate of each such Mortgage Loan, net of the
applicable Servicing Fee Rate and Trustee's Fee Rate [describe any other
applicable fees including fees for Credit Enhancement] (each as defined in the
Agreement) (the "Net Mortgage Interest Rate") [(or, with respect to a Discounted
Mortgage Loan that has been modified to change the Mortgage Interest Rate, the
applicable Assumed Net Mortgage Interest Rate (as defined herein under
"--Discounted Mortgage Loans"))] from the Due Date for such Mortgage Loan in the
second preceding Due Period through the Due Date in the Due Period immediately
preceding such Distribution Date on the applicable Scheduled Principal Balance
(as defined below) as of the second preceding Determination Date, less any
Interest Shortfall (as defined herein under "--Basis Risk") allocable thereto
[or plus any Excess Prepayment Interest (as defined herein under "--Basis Risk")
allocable thereto, as the case may be,] over (y) any Deferred Interest with
respect to such Mortgage Loan Group.
The "Optimal Mortgage Loan Principal" for each Mortgage Loan Group on any
Distribution Date will equal the sum, for all Mortgage Loans in such Mortgage
Loan Group, of:
(i) the principal component of all scheduled Monthly Payments (as
defined below) (other than Balloon Payments) which become due during the
related Due Period on the related Mortgage Loan (other than Simple Interest
Loans (as defined herein under "The Trust Fund--The Mortgage Collateral")
and Discounted Mortgage Loans),
(ii) the principal component of all Assumed Scheduled Payments
(as defined below) deemed to become due during the related Due Period with
respect to any related Balloon Mortgage Loan (other than a Discounted
Mortgage Loan) that is delinquent in respect of its Balloon Payment,
(iii) the Scheduled Principal Balance of each related Mortgage
Loan as of the Determination Date in the month preceding the month in which
such Distribution Date occurs which either was repurchased, was sold or
became a Liquidated Mortgage Loan (as defined herein under ["--Allocation
of Losses"]) during the related Prepayment Period,
(iv) to the extent not included in the preceding clause (ii), the
principal component of all Balloon Payments on any related Mortgage Loan,
up to the Scheduled Principal Balance thereof, received during the related
Prepayment Period,
(v) the portion of each payment of any Simple Interest Loan
(other than a Discounted Mortgage Loan that is a Simple Interest Loan)
attributable to principal received during the related Prepayment Period,
(vi) to the extent not included in the preceding clause (iii),
all other full or partial prepayments of principal or other recoveries
allocable to principal (including the principal portion of any payments
made by the applicable Seller, the Master Servicer or BSCMSI as the result
of breaches of representations or warranties of any such party with respect
to the Mortgage Loans) in excess of the principal portion of any related
Monthly Payment ("Principal Prepayments"), of any related Mortgage Loan
other than a Simple Interest Loan up to the Scheduled Principal Balance
thereof, received in the related Prepayment Period,
(vii) the portion of any scheduled Monthly Payment or Assumed
Scheduled Payment, net of any applicable Workout Fee, which became due
during the related Due Period on any related Discounted Mortgage Loan which
is in excess of the sum of (i) one month of interest at the Assumed Net
Mortgage Interest Rate (as defined herein under "--Discounted Mortgage
Loans" on the Scheduled Principal Balance thereof and (ii) the servicing
fee for such month at the Servicing Fee Rate on the actual principal
balance thereof, but not in excess of the Scheduled Principal Balance
thereof,
(viii) the excess, if any, of (x) the Scheduled Principal Balance
of any related Discounted Mortgage Loan on the related Determination Date,
after taking into account amounts included in the preceding clause (vii),
over (y) the actual principal balance of such Discounted Mortgage Loan,
(ix) the amount of any Deficient Valuation and the present value
of any Debt Service Reduction (each as defined herein under "Discounted
Mortgage Loans") with respect to any related Mortgage Loan, up to the
Scheduled Principal Balance thereof, occurring in the related Prepayment
Period, and
(x) the amount of certain payments required in connection with
modifications of Mortgage Loans and foreclosure or other acquisitions of
Mortgaged Properties as described under "Servicing of the Mortgage
Loans--Modification, Waivers and Amendments" in the Prospectus.
With respect to any Mortgage Loan and any Due Period, the "Monthly
Payment" is the scheduled monthly payment of principal and interest, excluding
any Balloon Payment, on such Mortgage Loan which is payable by a Borrower in
such Due Period, except that (x) with respect to any Mortgage Loan which by its
terms pays interest in advance of its accrual rather than in arrears, the
Monthly Payment is the scheduled monthly payment of principal, excluding any
Balloon Payment, due in such Due Period and the scheduled monthly payment of
interest due in the preceding Due Period, and (y) with respect to any Mortgage
Loan as to which the related Borrower is not required to make payments monthly
(a "Non-Monthly Payment Loan"), the Monthly Payment in any month is interest
accrued thereon from the Due Date in the preceding Due Period to the Due Date in
such current Due Period and principal (other than a Balloon Payment) due in such
Due Period. With respect to a Non-Monthly Payment Loan, the Monthly Payment in
respect of such loan is deemed to be due the same day of each Due Period as the
day in the month in which payments in respect of such loan are actually due.
As referred to herein, the "Scheduled Principal Balance" of a Mortgage
Loan (other than a Discounted Mortgage Loan) with respect to any Determination
Date is equal to the unpaid principal balance of such Mortgage Loan as of the
Due Date of such Mortgage Loan occurring in the Due Period relating to such
Determination Date [as specified in the amortization schedule at the time
relating thereto (before any adjustment to such amortization schedule by reason
of any bankruptcy or similar proceeding (other than a Deficient Valuation) or
any moratorium or similar waiver or grace period)], after giving effect to (a)
any principal prepayments or other unscheduled recoveries of principal, any
Balloon Payments and, as to Simple Interest Loans, any payments attributable to
principal received on or prior to such Determination Date, (b) the Deferred
Interest, if any, added to the principal balance of such Mortgage Loan on or
before such Due Date, and (c) except in the case of any Simple Interest Loan,
any payment in respect of principal, if any, due on or before such Due Date
(other than a Balloon Payment, but including the principal portion of any
Assumed Scheduled Payment, if applicable), irrespective of any delinquency in
payment by the Borrower. With respect to any Discounted Mortgage Loan, the
"Scheduled Principal Balance" thereof will be determined as described under
"--Discounted Mortgage Loans" herein. As indicated above, the Scheduled
Principal Balance of a Mortgage Loan that is delinquent as to its Balloon
Payment and that has not yet been the subject of a modification as a consequence
thereof will be calculated with reference to the Assumed Scheduled Payments in
respect of such Mortgage Loan. As referred to herein, "Assumed Scheduled
Payment" means, with respect to any Balloon Mortgage Loan that is delinquent in
respect of its Balloon Payment (including any REO Mortgage Loan (as defined
below) that provided for a Balloon Payment), an amount deemed to be due for such
Balloon Mortgage Loan on each Distribution Date after the related Due Date,
which will generally be equal to the Monthly Payment that was due on such
Balloon Loan on the Due Date immediately preceding the Due Date on which the
Balloon Payment was due.
The Scheduled Principal Balance of any Mortgage Loan relating to a
Mortgaged Property acquired on behalf of the Trust Fund through foreclosure or
deed in lieu of foreclosure (such Mortgage Loan, an "REO Mortgage Loan" and such
Mortgaged Property, an "REO Property") will be determined in the manner
described above as if the related Mortgage Loan had remained outstanding. Net
proceeds received in respect of any REO Property (as defined herein under
"--Accounts") in excess of the scheduled Monthly Payments or Assumed Scheduled
Payments that are assumed to remain in effect will be treated as prepayments of
the Scheduled Principal Balance of the related REO Mortgage Loan.
If a Mortgage Loan is prepaid in full, the principal portion of any
Monthly Payment received during the Prepayment Period in which such prepayment
is received but after the Due Period which ended during such Prepayment Period
shall be treated as part of such principal prepayment.
Interest
To the extent of the Available Distribution Amounts for the related
Mortgage Loan Group and prior to payments of principal on the Certificates, each
Class of Certificates will be entitled to receive interest on each Distribution
Date as provided below on the respective Certificate Principal Amount of each
such Class applicable to such Distribution Date (or as otherwise described
below).
All Classes of Certificates, other than the Floating Rate
Certificates, will bear interest at the respective Pass-Through Rate set forth
on the cover page hereof.
The Class A-2 Certificates will bear interest at a rate of __% per
annum during their first [ ] Interest Accrual Periods. During each Interest
Accrual period thereafter, the Class A-2 Certificates will bear interest,
subject to a maximum rate of __% per annum [and a minimum rate of __% per
annum], at a rate per annum equal to __% in excess of LIBOR. See
"--Determination of LIBOR" herein.
The Class A-4 Certificates will bear interest at a rate of ___% per
annum during their first [ ] Interest Accrual Periods. During each Interest
Accrual Period thereafter, the Class A-4 Certificates will bear interest,
subject to a maximum rate of ___% per annum [and a minimum rate of __% per
annum,] at a rate per annum equal to __% in excess of LIBOR. See
"--Determination of LIBOR" herein.
Distributions of interest on the Certificates will include interest
accrued during the Interest Accrual Period for the applicable Distribution Date,
reduced by any Interest Shortfalls and any Deferred Interest allocable thereto
[or increased by any Excess Prepayment Interest]. Any Deferred Interest with
respect to the Mortgage Loans included in any Mortgage Loan Group will be
allocated to the related Classes of Certificates in the manner described herein.
The amount of any Deferred Interest allocated to a Class of Certificates will be
added to the Certificate Principal Amount thereof. To the extent funds are not
available to pay interest at the rates and in the amounts stated herein (after
giving effect to allocations of any Interest Shortfalls [, Excess Prepayment
Interest] and Deferred Interest), such unpaid amounts will be payable on
succeeding Distribution Dates and will not bear interest.
Interest on each Class of Certificates will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.
Allocation of Deferred Interest
The aggregate amount of interest required to be paid to the Holders of
the Commercial Fixed Rate Certificates on any Distribution Date will be
decreased by the aggregate amount of Deferred Interest (negative amortization)
added to the principal balances of the Mortgage Loans in Mortgage Loan Group 1
(or, in the case of Discounted Mortgage Loans, added to the Scheduled Principal
Balances thereof) in the related Due Period up to the amount of interest accrued
on the Commercial Fixed Rate Certificates during the related Interest Accrual
Period, and the amount thereof will be added to the Certificate Principal Amount
of the Commercial Fixed Rate Certificates as provided in the Agreement. Such
reduction in the amount of interest to be paid to the Commercial Fixed Rate
Certificates will be allocated, pro rata, among the Classes thereof, based on
the amount of interest accrued on each such Class during the related Interest
Accrual Period. In certain circumstances, including if the aggregate amount of
Deferred Interest added to the Mortgage Loans in Mortgage Loan Group 1 in any
Due Period exceeds the amount of interest accrued on the Commercial Fixed Rate
Certificates during the related Interest Accrual Period, such excess will be
allocated to other Classes of Certificates as provided in the Agreement.
Similarly, the aggregate amount of interest required to be paid to the
Holders of Class A-2 Certificates on any Distribution Date will be decreased by
the aggregate amount of Deferred Interest added to the principal balances of the
Mortgage Loans in Mortgage Loan Group 2 (or, in the case of Discounted Mortgage
Loans, added to the Scheduled Principal Balances thereof) in the related Due
Period up to the amount of interest accrued on the Class A-2 Certificates during
the related Interest Accrual Period and the amount thereof will be added to the
Certificate Principal Amount of the Class A-2 Certificates as provided in the
Agreement. In certain circumstances, including if the aggregate amount of
Deferred Interest added to the principal balances of the Mortgage Loans in
Mortgage Loan Group 2 in any Due Period exceeds the amount of interest accrued
on the Class A-2 Certificates during the related Interest Accrual Period, such
excess will be allocated to other Classes of Certificates as provided in the
Agreement.
Similarly, the aggregate amount of interest required to be paid to the
Holders of the Multifamily Fixed Rate Certificates on any Distribution Date will
be decreased by the aggregate amount of Deferred Interest added to the principal
balances of the Mortgage Loans in Mortgage Loan Group 3 (or, in the case of
Discounted Mortgage Loans, added to the Scheduled Principal Balances thereof) in
the related Due Period up to the amount of interest accrued on the Multifamily
Fixed Rate Certificates during the related Interest Accrual Period, and the
amount thereof will be added to the Certificate Principal Amount of the
Multifamily Fixed Rate Certificates as provided in the Agreement. Such reduction
in the amount of interest to be paid to the Multifamily Fixed Rate Certificates
will be allocated, pro rata, among the Classes thereof, based on the amount of
interest accrued on each such Class during the related Interest Accrual Period.
In certain circumstances, including if the aggregate amount of Deferred Interest
added to the Mortgage Loans in Mortgage Loan Group 3 in any Due Period exceeds
the amount of interest accrued on the Multifamily Fixed Rate Certificates during
the related Interest Accrual Period, such excess will be allocated to other
Classes of Certificates as provided in the Agreement.
Similarly, the aggregate amount of interest required to be paid to the
Holders of Class A-4 Certificates on any Distribution Date will be decreased by
the aggregate amount of Deferred Interest added to the principal balances of the
Mortgage Loans in Mortgage Loan Group 4 (or, in the case of Discounted Mortgage
Loans, added to the Scheduled Principal Balances thereof) in the related Due
Period up to the amount of interest accrued on the Class A-4 Certificates during
the related Interest Accrual Period, and the amount thereof will be added to the
Certificate Principal Amount of the Class A-4 Certificates as provided in the
Agreement. In certain circumstances, including if the aggregate amount of
Deferred Interest added to the principal balances of the Mortgage Loans in
Mortgage Loan Group 4 in any Due Period exceeds the amount of interest accrued
on the Class A-4 Certificates during the related Interest Accrual Period, such
excess will be allocated to other Classes of Certificates as provided in the
Agreement.
In addition, on any Distribution Date on which amounts are available
therefor, the excess of interest due on the Mortgage Loans, net of servicing
compensation[, fees for Credit Enhancement] and fees due the Trustee, over
interest due on the Classes of Certificates will generally first be applied to
reduce the amount of Net Negative Amortization (as defined herein under "Summary
of Terms--Principal--Commercial Certificates") allocated to each Class in the
manner described below under "--Allocation Among Classes."
Basis Risk
[Initially, the aggregate Certificate Principal Amounts of the
Multifamily Fixed Rate Certificates and the Class A-4 Certificates will be equal
to approximately __% of the aggregate Scheduled Principal Balance of the Group 3
and of the Group 4 Mortgage Loans. The aggregate Certificate Principal Amounts
of the Commercial Fixed Rate Certificates will be approximately equal to 100% of
the aggregate Scheduled Principal Balance of the Group 1 Mortgage Loans plus __%
of the aggregate Scheduled Principal Balance of the Group 3 Mortgage Loans, and
the Certificate Principal Amount of the Class A-2 Certificates will be
approximately equal to 100% of the aggregate Scheduled Principal Balance of the
Group 2 Mortgage Loans plus __% of the aggregate Scheduled Principal Balance of
the Group 4 Mortgage Loans. Accordingly, the Certificate Principal Amounts of
the Fixed Rate Certificates will approximately equal the aggregate Scheduled
Principal Balance of the Group 1 and Group 3 Mortgage Loans (which bear interest
at fixed rates or adjustable rates subject to specified floors), and the
Certificate Principal Amounts of the Floating Rate Certificates will equal
approximately the aggregate Scheduled Principal Balance of the Group 2 and Group
4 Mortgage Loans (which bear interest at variable rates based on a variety of
indexes). Such correspondence is expected to vary over time, however, because,
among other things, (a) at a time when the Certificate Principal Amounts of the
Class A-1A, Class A-1B and Class A-1R Certificates have been reduced to zero,
the Optimal Mortgage Loan Principal of the Group 1 Mortgage Loans will first be
applied to distribution of principal on the Class A-2 Certificates rather than
to the remaining Commercial Fixed Rate Certificates, (b) at a time when the
Certificate Principal Amount of the Class A-2 Certificates has been reduced to
zero, the Optimal Mortgage Loan Principal of the Group 2 Mortgage Loans will be
applied to distribution of principal on the Class A-1A, Class A-1B and Class
A-1R Certificates, (c) at a time when the Certificate Principal Amounts of the
Class A-3A and Class A-3B Certificates have been reduced to zero, the Optimal
Mortgage Loan Principal of the Group 3 Mortgage Loans will first be applied to
distribution of principal on the Class A-4 Certificates rather than to the Class
A-1A, Class A-1B and Class A-1R Certificates, (d) at a time when the Certificate
Principal Amount of the Class A-4 Certificates has been reduced to zero, the
Optimal Mortgage Loan Principal of the Group 4 Mortgage Loans will first be
applied to the Class A-3A and Class A-3B Certificates rather than to the Class
A-2 Certificates, (e) excess interest, which may come from adjustable rate
Mortgage Loans, may be used to retire the Fixed Rate Certificates and [(f)
Realized Losses may be borne by Classes of Certificates not having comparable
types of interest rates to those of the Mortgage Loans on which the losses were
incurred].]
The Pass-Through Rates of the Class A-2 and Class A-4 Certificates are
based upon the value of LIBOR which may be different from the value of the
Indexes (as defined herein under "The Trust Fund--The Mortgage Collateral") upon
which the Mortgage Interest Rates of the Group 2 and Group 4 Mortgage Loans are
based (either as a result of the use of a different index, rate determination
date, rate adjustment date or rate cap or floor). Consequently, the interest
which becomes due on such Mortgage Loans (net of the servicing fees [, fees for
Credit Enhancement] and fees due the Trustee) during any Due Period may not
equal the amount of interest that would accrue at LIBOR plus the applicable
margin on the Class A-2 or Class A-4 Certificates, subject to the cap thereon,
during the related Interest Accrual Period. In particular, the Pass-Through
Rates of the Class A-2 and Class A-4 Certificates adjust monthly, while the
interest rates of the Mortgage Loans in many cases adjust less frequently.
Accordingly, the Net Mortgage Interest Rates for such Mortgage Loans may be
lower than such Pass-Through Rates for extended periods in a rising interest
rate environment. In addition, because interest accruing on the Certificates
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months, while the Mortgage Loans may accrue interest on another basis (such as
the actual number of days in the related interest accrual period), the interest
that becomes due on the Mortgage Loans (net of servicing fees [, fees for Credit
Enhancement] and fees due the Trustee) on Due Dates therefor occurring in any
Due Period may be less than the amount of interest which accrues on a
corresponding Certificate Principal Amount of the Certificates during the
related Interest Accrual Period. In addition, with respect to the Class A-2 and
Class A-4 Certificates, LIBOR and Indexes applicable to the Mortgage Loans
included in Mortgage Loan Groups 2 and 4 may respond to different economic and
market factors, and there is no necessary correspondence between them. Thus, it
is possible, for example, that LIBOR may rise during periods in which one or
more of the Indexes are stable or are falling or that, even if both LIBOR and
the Indexes rise during the same period, LIBOR may rise much more rapidly than
the Indexes. Furthermore, certain Group 1 Mortgage Loans bear fixed Mortgage
Interest Rates (and certain adjustable rate Group 1 Mortgage Loans are subject
to Floor Interest Rates which, if reached, would result in Net Mortgage Interest
Rates) that may be lower than the weighted average of the Pass-Through Rates of
the Commercial Fixed Rate Certificates. Similarly, certain Group 3 Mortgage
Loans bear fixed Mortgage Interest Rates (and certain adjustable rate Group 3
Mortgage Loans are subject to Floor Interest Rates which, if reached, would
result in Net Mortgage Interest Rates) that may be lower than the weighted
average of the Pass-Through Rates of the Multifamily Fixed Rate Certificates.
[Finally, [ ] [certain of the] adjustable rate Mortgage Loans are convertible to
a fixed Mortgage Interest Rate, which rate (net of servicing fees [, fees for
Credit Enhancement] and fees due the Trustee) may be lower at any time than the
weighted average of the Pass-Through Rates of the related Classes of
Certificates.]
Any shortfall in accrued interest at the Net Mortgage Interest Rates
on the Mortgage Loans (after giving effect to any Excess Prepayment Interest or
Interest Shortfall as described below) in relation to accrued interest at the
respective Pass-Through Rates on the Certificates is referred to herein as a
"Basis Risk Shortfall." The Reserve Fund will be available to cover any
remaining Basis Risk Shortfall.
If a Mortgagor prepays a Mortgage Loan in full, including making a
Balloon Payment, or makes any payment of principal on a Simple Interest Loan
during a Prepayment Period and the date on which such payment is made (or, with
respect to a Balloon Payment, the date through which interest thereon accrues)
is prior to the Due Date for such Mortgage Loan in the related Due Period, the
amount of interest (net of servicing fees[, fees for Credit Enhancement] and
fees due the Trustee) which accrues on the amount of such principal payment will
be less than the corresponding amount of interest accruing on the Certificates.
Interest shortfalls also could result from Mortgage Loans becoming Liquidated
Mortgage Loans, since no interest is recoverable with respect to Liquidated
Mortgage Loans after the liquidation thereof, and from application of the
provisions of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended
(the "Relief Act"), which limits, in certain circumstances, the interest rate
required to be paid by a Mortgagor in the military service to 6% per annum. If a
Mortgagor makes a Balloon Payment, or makes any payment of principal on a Simple
Interest Loan during a Prepayment Period and the date on which such payment is
made (or, with respect to a Balloon Payment, the date through which interest
thereon accrues) is after the Due Date for such Mortgage Loan in the related Due
Period, the amount of interest (net of servicing fees[, fees for Credit
Enhancement] and fees due the Trustee) which accrues on the amount of such
principal payment will exceed the corresponding amount of interest accruing on
the Certificates. To the extent that such excesses for all Mortgage Loans [in a
Mortgage Loan Group] exceed such shortfalls for all Mortgage Loans [in such
Mortgage Loan Group] as of any Determination Date, such net amount ("Excess
Prepayment Interest") will be applied as described below under "--Allocation
Among Classes." To the extent that such shortfalls for all Mortgage Loans [in a
Mortgage Loan Group] exceed such excesses for such Mortgage Loans as of any
Determination Date, such net shortfall (an "Interest Shortfall") will reduce
funds available from Mortgage Loan payments for distribution to
Certificateholders.
The Interest Shortfall on any Distribution Date will be allocated
[among all Classes of Certificates representing an interest in the related
Mortgage Loan Group] pro rata based on the amount of interest payable with
respect to each such Class of Certificates for such Distribution Date, before
taking into account any such reduction. Interest Shortfalls will not be offset
by application of servicing compensation or otherwise.
The Regular Interests (as defined herein under "Certain Federal Income
Tax Consequences--General") corresponding to each Class of Certificates bear
interest at a rate (each, a "REMIC Pass-Through Rate") equal to the Pass-Through
Rate for the related Class of Certificates if no Basis Risk Shortfall exists,
and otherwise bear interest at a REMIC Pass-Through Rate equal, in the case of
the Fixed Rate Certificates, to the Pass-Through Rate of the related Class of
Certificates and, in the case of the Floating Rate Certificates, to the product
of (a) the Pass-Through Rate for the related Class of Certificates and (b) a
fraction, the numerator of which is the interest accrued at the Net Mortgage
Interest Rate on all Mortgage Loans with respect to such Distribution Date, less
interest accrued during the preceding Interest Accrual Period on the Fixed Rate
Certificates, and the denominator of which is interest accrued at the
Pass-Through Rate on all of the Certificates other than the Fixed Rate
Certificates during the preceding Interest Accrual Period. If the Trustee
determines on any Determination Date that a Basis Risk Shortfall exists or that
there are "Uncovered Basis Risk Shortfalls" (i.e., Basis Risk Shortfalls from
prior periods not covered by Reserve Fund draws, as described below), the
Trustee will determine the sum of (x) the interest due on the Floating Rate
Certificates in excess of interest due on the corresponding Regular Interests
and (y) the Uncovered Basis Risk Shortfalls for such Floating Rate Certificates
(the "Total Basis Risk Amount"). On the related Distribution Date, the Trustee
will draw on the Reserve Fund in an amount (the "Basis Risk Reserve Fund Draw
Amount") up to the amount of the Total Basis Risk Amount. The Basis Risk Reserve
Fund Draw Amount will be applied to the Class A-2 and Class A-4 Certificates
(pro rata among such Classes in accordance with their Certificate Principal
Amounts), in each case (x) first, in an amount equal to the difference between
interest at the Pass-Thorough Rate thereon and interest at the REMIC
Pass-Through Rate on the related Class of Regular Interests (the "REMIC Rate
Shortfall" for such Class) and (y) second, in the amount of any Uncovered Basis
Risk Shortfall from prior Distribution Dates. Any remaining Basis Risk Shortfall
(an "Uncovered Basis Risk Shortfall") for any such Class will be deducted from
interest currently distributable to such Class, but will be added to amounts to
which Holders of Certificates of such Class are entitled on future Distribution
Dates, but only from Basis Risk Reserve Fund Draw Amounts on such future
Distribution Dates. The Basis Risk Reserve Fund Draw Amount will be paid
directly to the Holders of the Floating Rate Certificates and will not be
deposited in, or paid from, the REMIC.
Interest due on the Mortgage Loans at their respective Mortgage
Interest Rates (net of applicable servicing fees [, fees for Credit Enhancement]
and fees due the Trustee) which is in excess of interest on the Certificates at
their respective Pass-Through Rates will be applied to principal on the
Certificates as described under "--Allocation Among Classes" herein, generally
creating overcollateralization. Any such overcollateralization will reduce the
likelihood of Basis Risk Shortfalls, since interest will then accrue on the
Mortgage Loans on a higher balance than the aggregate Certificate Principal
Amount on which interest on the Certificates accrues.
Determination of LIBOR
On the second LIBOR Business Day (as defined below) preceding each
Distribution Date (each such date, a "LIBOR Determination Date"), commencing in
_______________ 199_, the Trustee will determine the London interbank offered
rate for [one-month] U.S. dollar deposits ("LIBOR") for the next Interest
Accrual Period for the Floating Rate Certificates on the basis of the offered
rates of the Reference Banks for [one-month] U.S. dollar deposits, as such rates
appear on the Reuters Screen LIBO Page, as of 11:00 a.m. (London time) on such
LIBOR Determination Date. "LIBOR Business Day" means a day on which banks are
open for dealing in foreign currency and exchange in London and New York City;
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks); and "Reference Banks" means leading banks 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, BSCMSI, (iii) whose quotations appear
on the Reuters Screen LIBO Page on the LIBOR Determination Date in question and
(iv) which have been designated as such from time to time by the Trustee. If any
of the initial Reference Banks should be removed from the Reuters Screen LIBO
Page or in any other way fail to meet the qualifications of a Reference Bank,
the Trustee will use its best efforts to designate alternative Reference Banks.
LIBOR for the first Interest Accrual Period will be __% per annum. On
each LIBOR Determination Date, LIBOR for the next Interest Accrual Period for
the Floating Rate Certificates will be established by the Trustee as follows:
(a) If on any LIBOR Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest Accrual
Period for such Certificates shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple of
1/32%).
(b) If on any LIBOR Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR for the next Interest Accrual
Period for such Certificates shall be the higher of (x) LIBOR as determined
on the previous LIBOR Determination Date and (y) the Reserve Interest Rate.
The "Reserve Interest Rate" shall be the rate per annum that the Trustee
determines to be (i) the arithmetic mean (rounded upwards if necessary to
the nearest whole multiple of 1/32%) of the [one-month] U.S. dollar lending
rates which three New York City banks selected by the Trustee after
consultation with BSCMSI are quoting on the relevant LIBOR 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
the New York City banks so selected by the Trustee are quoting on such
LIBOR Determination Date to leading European banks.
(c) If on any LIBOR Determination Date the Trustee is required
but unable to determine LIBOR in the manner provided in paragraphs (a) and
(b) above, LIBOR for the next Interest Accrual Period for such Certificates
shall be LIBOR as determined on the previous LIBOR Determination Date or,
in the case of the first LIBOR Determination Date, __%.
The establishment of LIBOR on each LIBOR Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Floating Rate Certificates for the related Interest Accrual Period shall (in the
absence of manifest error) be final and binding. Each such rate of interest may
be obtained by telephoning the Trustee at ( ) - .
[Determination of COFI
The Group 2 and Group 4 Mortgage Loans bear Mortgage Interest Rates
that adjust based upon COFI. COFI is the monthly weighted average cost of funds
for savings institutions the home offices of which are located in Arizona,
California or Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District as computed from statistics tabulated and published by the
Federal Home Loan Bank of San Francisco (the "FHLBSF"). The FHLBSF publishes
COFI in its monthly Information Bulletin. Any individual may request receipt by
mail of Information Bulletins by writing the Federal Home Loan Bank of San
Francisco, P.O. Box 7948, 600 California Street, San Francisco, California
94120, or by calling (415) 616-1000.
Unlike most other interest rate measures, COFI does not necessarily
reflect current market rates. A number of factors affect the performance of COFI
which may cause COFI to move in a manner different from indices tied to specific
interest rates, such as United States Treasury Bills or LIBOR. Because of the
various maturities of the liabilities upon which COFI is based (which may be
more or less sensitive to market interest rates), COFI may not necessarily
reflect the average prevailing market interest rates on new liabilities of
similar maturities. Additionally, COFI may not necessarily move in the same
direction as market interest rates, because as longer term deposits or borrowing
mature and are renewed at prevailing market interest rates, COFI is influenced
by the differential between the prior rates on such deposits or borrowings and
the cost of new deposits or borrowings. Moreover, COFI represents the average
cost of funds for Eleventh District member institutions for the month prior to
the month in which COFI is generally announced. Movement of COFI, as compared to
other indices tied to specific interest rates, may also be affected by changes
instituted by FHLB San Francisco in the method it uses to calculate COFI.
Allocation Among Classes
COMMERCIAL CERTIFICATES. On each Distribution Date, the aggregate of
the Available Distribution Amounts for Mortgage Loan Groups 1 and 2 will be
distributed first to each Class of Commercial Certificates in respect of
interest in the amounts and manner described above under "--Interest." The
Available Distribution Amounts for Mortgage Loan Groups 1 and 2 remaining after
payment of interest and any amounts from Mortgage Loan Groups 3 and 4 allocated
as set forth below under "--Multifamily Certificates" will be distributed as
principal to the Commercial Certificates in the following manner:
(i) First, sequentially to the Class A-1A, Class A-1B, Class A-1R
and Class A-2 Certificates in reduction of the Certificate Principal
Amounts thereof until the Certificate Principal Amounts thereof have been
reduced to zero, in each case in an amount equal to the Primary Principal
Distribution Amount of each such Class (as defined below);
(ii) Second, sequentially to the Class A-1A, Class A-1B, Class
A-1R and Class A-2 Certificates in reduction of the Certificate Principal
Amounts thereof until the Certificate Principal Amounts thereof have been
reduced to zero, in an aggregate amount equal to any amounts previously
distributable under the preceding clause First and not previously
distributed thereunder or under this clause Second;
(iii) Third, to the Class B Certificates in reduction of the
Certificate Principal Amount thereof until the Certificate Principal Amount
thereof has been reduced to zero, but only up to the amount, if any, by
which the aggregate Optimal Mortgage Loan Principal for all Mortgage Loan
Groups (including Mortgage Loan Groups 3 and 4) exceeds the aggregate
amount distributed pursuant to the preceding clauses First and Second and
clauses First, Second, Fifth, Sixth, Seventh and Eighth of the priorities
for the Available Distribution Amounts for Mortgage Loan Groups 3 and 4 as
set forth below under "--Multifamily Certificates";
(iv) Fourth, to the Class B Certificates in reduction of the
Certificate Principal Amount thereof until the Certificate Principal Amount
thereof has been reduced to zero, in an aggregate amount equal to the
amount previously distributable under clause Third above and not previously
distributed thereunder or under this clause Fourth;
(v) Fifth, to the Class C Certificates in reduction of the
Certificate Principal Amount thereof until the Certificate Principal Amount
thereof has been reduced to zero, but only up to the amount, if any, by
which the aggregate Optimal Mortgage Loan Principal for all Mortgage Loan
Groups (including Mortgage Loan Groups 3 and 4) exceeds the aggregate
amount distributed pursuant to the preceding clauses First, Second, Third
and Fourth and clauses First, Second, Fifth, Sixth, Seventh and Eighth of
the priorities for the Available Distribution Amounts for Mortgage Loan
Groups 3 and 4 as set forth below under "--Multifamily Certificates";
(vi) Sixth, to the Class C Certificates in reduction of the
Certificate Principal Amount thereof until the Certificate Principal Amount
thereof has been reduced to zero, in an aggregate amount equal to the
amount previously distributable under clause Fifth above and not previously
distributed thereunder or under this clause Sixth;
(vii) Seventh, to the Trustee for deposit into the Reserve Fund,
up to the amount equal to all previous Basis Risk Reserve Fund Draw Amounts
less amounts previously deposited in the Reserve Fund pursuant to this
clause Seventh;
(viii) Eighth, first to the Class A-1A, Class A-1B, Class A-1R
and Class A-2 Certificates, pro rata in accordance with their Certificate
Principal Amounts, and then sequentially to the Class B and Class C
Certificates until the Certificate Principal Amounts thereof have been
reduced to zero, in reduction of the Certificate Principal Amounts thereof,
in each case in an amount up to the "Net Negative Amortization" allocated
to such Class with respect to such Distribution Date (such amount being
equal to the amount by which the amount of interest accrued on such Class
exceeds the aggregate amount of principal and interest distributed to such
Class on such Distribution Date);
(ix) Ninth, any remaining amounts to the Commercial Certificates
in reduction of the Certificate Principal Amounts thereof, applied
sequentially to the Class C, Class B, Class A-1A, Class A-1B, Class A-1R
and Class A-2 Certificates, in that order, in each case until the
Certificate Principal Amount thereof has been reduced to zero; and
(x) Tenth, any remaining amounts to the Class A-1R Certificates.
Notwithstanding the foregoing, on and after any Distribution Date on
which the aggregate Available Distribution Amounts for Mortgage Loan Groups 1
and 2 (plus amounts distributed pursuant to clauses Third and Eighth of the
priorities for distribution of the Available Distribution Amounts for Mortgage
Loan Groups 3 and 4) is not sufficient to reduce the aggregate Certificate
Principal Amounts of the Class A-1A, Class A-1B, Class A-1R and Class A-2
Certificates to an amount less than or equal to the aggregate Scheduled
Principal Balance of the Mortgage Loans (less the aggregate of the Certificate
Principal Amounts of the Class A-3A, Class A-3B and Class A-4 Certificates),
then the portion of such aggregate Available Distribution Amounts allocable to
the Class A-1A, Class A-1B, Class A-1R and Class A-2 Certificates in the
foregoing priorities will be distributed pro rata among the Class A-1A, Class
A-1B, Class A-1R and Class A-2 Certificates based on their outstanding
Certificate Principal Amounts until the Certificate Principal Amounts thereof
are reduced to zero rather than in accordance with the priorities that would
otherwise apply.
The "Primary Principal Distribution Amount" for each of the Class
A-1A, Class A-1B, Class A-1R and Class A-2 Certificates is determined as
follows:
First, the lesser of (a) the Optimal Mortgage Loan Principal for
Mortgage Loan Group 1 and (b) the aggregate remaining principal balance of the
Class A-1A, Class A-1B, Class A-1R and Class A-2 Certificates, is allocated
sequentially, first to the Class A-1A Certificates, second to the Class A-1B
Certificates, third to the Class A-1R Certificates and fourth to the Class A-2
Certificates, in each case up to an amount equal to the remaining Certificate
Principal Amount thereof; and
Second, the lesser of (a) the Optimal Mortgage Loan Principal for
Mortgage Loan Group 2 and (b) the aggregate remaining principal balance of the
Class A-1A, Class A-1B, Class A-1R and Class A-2 Certificates (after giving
effect to any amounts allocated pursuant to clause First above), is allocated
sequentially, first to the Class A-2 Certificates, second to the Class A-1A
Certificates, third to the Class A-1B Certificates and fourth to the Class A-1R
Certificates, in each case up to an amount equal to the remaining Certificate
Principal Amount thereof.
MULTIFAMILY CERTIFICATES. On each Distribution Date, the aggregate of
the Available Distribution Amounts for Mortgage Loan Groups 3 and 4 will be
distributed first to each Class of Multifamily Certificates in respect of
interest in the amounts and manner described above under "--Interest." The
Available Distribution Amounts for Mortgage Loan Groups 3 and 4 remaining after
payment of interest as described above will be allocated in the following
manner:
(i) First, sequentially to the Class A-3A, Class A-3B and Class
A-4 Certificates in reduction of the Certificate Principal Amounts thereof
until the Certificate Principal Amounts thereof have been reduced to zero,
in each case in an amount equal to the Primary Principal Distribution
Amount (as defined below) of each such Class;
(ii) Second, sequentially to the Class A-3A, Class A-3B and Class
A-4 Certificates in reduction of the Certificate Principal Amounts thereof
until the Certificate Principal Amounts thereof have been reduced to zero,
in an aggregate amount equal to the amount previously distributable under
clause First above and not previously distributed thereunder or under this
clause Second;
(iii) Third, to each Class of Commercial Certificates, pro rata
in accordance with the amount of interest each such Class is entitled to
receive for such Distribution Date (after allocation of [Interest
Shortfalls] [Excess Prepayment Interest] and Deferred Interest), the
excess, if any, of the amount of interest each such Class is so entitled to
receive over the amount of interest allocated to such Class pursuant to
"--Interest" above;
(iv) Fourth, sequentially to the Class A-1A, Class A-1B, Class
A-1R and Class A-2 Certificates in reduction of the Certificate Principal
Amounts thereof until the Certificate Principal Amounts thereof have been
reduced to zero, the shortfall if any, for distribution pursuant to clauses
First and Second of the priorities for distribution of the Available
Distribution Amounts for Mortgage Loan Groups 1 and 2;
(v) Fifth, sequentially to the Class A-1A, Class A-1B, Class A-1R
and Class A-2 Certificates, in that order, in each case in reduction of the
Certificate Principal Amount thereof until the Certificate Principal Amount
thereof has been reduced to zero, but only up to the amount, if any, by
which the Optimal Mortgage Loan Principal for Mortgage Loan Group 3 exceeds
the amount distributed pursuant to the preceding clauses First and Second;
(vi) Sixth, sequentially to the Class A-1A, Class A-1B, Class
A-1R and Class A-2 Certificates, in that order, in each case in reduction
of the Certificate Principal Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, in an aggregate amount equal to
the amount previously distributable under clause Fifth above and not
previously distributed thereunder or under this clause Sixth;
(vii) Seventh, sequentially to the Class A-2, Class A-1A, Class
A-1B and Class A-1R Certificates, in that order, in each case in reduction
of the Certificate Principal Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, but only up to the amount, if any,
by which the Optimal Mortgage Loan Principal for Mortgage Loan Group 4
exceeds the amount distributed pursuant to the preceding clauses First and
Second;
(viii) Eighth, sequentially to the Class A-2, Class A-1A, Class
A-1B and Class A-1R Certificates, in that order, in each case in reduction
of the Certificate Principal Amount thereof until the Certificate Principal
Amount thereof has been reduced to zero, in an aggregate amount equal to
the amount previously distributable under clause Seventh above and not
previously distributed thereunder or under this clause Eighth;
(ix) Ninth, first to the Class A-4, Class A-3A and Class A-3B
Certificates, pro rata, second to the Class A-1A, Class A-1B, Class A-1R
and Class A-2 Certificates, pro rata, and then sequentially to the Class B
and Class C, in reduction of the Certificate Principal Amount thereof
(after taking into account any increases in such Certificate Principal
Amount due to Deferred Interest), in each case in an amount up to the Net
Negative Amortization applied to such Class with respect to such
Distribution Date;
(x) Tenth, any remaining amounts to the Certificates in reduction
of the Certificate Principal Amounts thereof (after taking into account
distributions pursuant to the priorities for distribution of the Available
Distribution Amounts of Mortgage Loan Groups 1 and 2), applied sequentially
to the Class C, Class B, Class A-1A, Class A-1B, Class A-1R, Class A-2,
Class A-3A, Class A-3B and Class A-4 Certificates, in that order, in each
case until the Certificate Principal Amount thereof has been reduced to
zero; and
(xi) Eleventh, any remaining amounts to the Class A-1R
Certificates.
Notwithstanding the foregoing, on and after any Distribution Date on
which the aggregate Available Distribution Amounts for Mortgage Loan Groups 3
and 4 is not sufficient to reduce the aggregate Certificate Principal Amounts of
the Class A-3A, Class A-3B and Class A-4 Certificates to an amount less than or
equal to the aggregate Scheduled Principal Balance of the Mortgage Loans in
Mortgage Loan Groups 3 and 4, then the portion of such aggregate Available
Distribution Amounts allocable to the Class A-3A, Class A-3B and Class A-4
Certificates in the foregoing priorities will be distributed pro rata among the
Class A-3A, Class A-3B and Class A-4 Certificates based on their outstanding
Certificate Principal Amounts until the Certificate Principal Amounts thereof
are reduced to zero rather than in accordance with the priorities that would
otherwise apply.
The "Primary Principal Distribution Amount" for each of the Class
A-3A, Class A-3B and Class A-4 Certificates is determined as follows:
First, the lesser of (a) the Optimal Mortgage Loan Principal for
Mortgage Loan Group 3 and (b) the aggregate remaining principal balance of the
Class A-3A, Class A-3B and Class A-4 Certificates, is allocated sequentially,
first to the Class A-3A Certificates, second to the Class A-3B Certificates and
third to the Class A-4 Certificates, in each case up to an amount equal to the
remaining Certificate Principal Amount thereof; and
Second, the lesser of (a) the Optimal Mortgage Loan Principal for
Mortgage Loan Group 4 and (b) the aggregate remaining principal balance of the
Class A-3A, Class A-3B and Class A-4 Certificates (after giving effect to any
amounts allocated pursuant to clause First above), is allocated sequentially,
first to the Class A-4 Certificates, second to the Class A-3A Certificates and
third to the Class A-3B Certificates, in each case up to an amount equal to the
remaining Certificate Principal Amount thereof.
All of the foregoing determinations are made after increasing the
Certificate Principal Amounts of the Certificates as a result of allocations of
Deferred Interest on such Distribution Date.
Class A-1R Certificates
The Class A-1R Certificates are the residual interest in the REMIC. On
each Distribution Date, in addition to the amounts described above, the Class
A-1R Certificates will be entitled to receive any Available Distribution Amount
remaining after the Certificate Principal Amounts of all of the Certificates
have been reduced to zero. It is not anticipated that there will be any
significant amounts remaining for such distribution.
ALLOCATION OF LOSSES
The Class C Certificates will bear all Realized Losses on the Group 1
and Group 2 Mortgage Loans by a reduction in their Certificate Principal Amount
until the Certificate Principal Amount thereof is reduced to zero. Thereafter,
the Class B Certificates will bear all Realized Losses on the Group 1 and Group
2 Mortgage Loans until the Certificate Principal Amount thereof is reduced to
zero. Any additional Realized Losses on the Group 1 and Group 2 Mortgage Loans
will be borne by the holders of the Class A-1A, Class A-1B, Class A-1R and Class
A-2 Certificates, pro rata in accordance with their Certificate Principal
Amounts, by a reduction in their Certificate Principal Amounts until the
Certificate Principal Amounts thereof are reduced to zero.
The Class A-3A, Class A-3B and Class A-4 Certificate will bear all
Realized Losses on the Group 3 and Group 4 Mortgage Loans, pro rata in
accordance with their Certificate Principal Amounts, by a reduction in their
Certificate Principal Amounts until the Certificate Amounts thereof are reduced
to zero.
Because principal distributions are paid to certain Classes of
Commercial Certificates before other Classes of Commercial Certificates, holders
of Classes that receive principal later bear a greater risk of losses on the
Group 1 and Group 2 Mortgage Loans than holders of Classes of Commercial Rate
Certificates that receive principal earlier.
[insert definition of Realized Loss for applicable transaction]
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates for the Distribution Date occurring in __________ 199_:
___ 2- ___ 1....... (A) The Due Period with respect to the
___[25] Distribution Date. Monthly
Payments (other than the principal
component thereof for Simple Interest
Loans) due during the Due Period and
any Assumed Scheduled Payments deemed
to be due during the Due Period will
be available for distribution of
principal and interest to
Certificateholders on the Distribution
Date to the extent the Available
Distribution Amounts are sufficient
therefor.
__ 16- ____ [15]. (B) The Prepayment Period with respect to
the Distribution Date. Balloon Pay-
ments, Principal Prepayments and the
principal component of Monthly
Payments on Simple Interest Loans made during
the Prepayment Period will be
available for distribution of principal and
interest to Certificateholders on the
Distribution Date.
__[31] .......... (C) Record Date for the Certificates.
__[15] .......... (D) Determination Date.
__ [25] .......... (E) Distribution Date.
- ----------------
(A) Such payments will be deposited in the Collection Account following receipt
by the Master Servicer for distribution to Certificateholders on the
Distribution Date.
(B) Such payments will be deposited in the Collection Account following receipt
by the Master Servicer for distribution to Certificateholders on the
Distribution Date.
(C) Distributions on the Certificates will be made on the Distribution Date to
Certificateholders of record at the close of business on the last Business
Day of the month prior to the month in which the Distribution Date occurs.
(D) As of the close of business on _______ [15], the amounts of principal and
interest to be passed through to Certificateholders will be determined.
Holders of Regular Certificates generally will be entitled, to the extent
of available funds, to one month of interest as described under
"--Distributions--Interest" and to principal as described under
"--Distributions--Allocation Among Classes." Monthly Payments due during
the Due Period, any Assumed Scheduled Payments deemed to be due during the
Due Period and Balloon Payments, Principal Prepayments and the principal
portion of payments on Simple Interest Loans received during the Prepayment
Period (to the extent funds available for withdrawal from the Collection
Account and/or the Reserve Fund are sufficient therefor) will be deposited
in the Distribution Account on the Master Servicer Remittance Date (as
defined herein under "--Accounts"), along with Monthly Advances [and
payments received from applicable Credit Enhancement], for distribution to
Certificateholders.
(E) The Trustee will make distributions to Certificateholders on the [25]th day
of each month or, if such day is not a Business Day, on the next succeeding
Business Day.
ACCOUNTS
The Trustee will establish and maintain an account (the "Distribution
Account") into which the Master Servicer will deposit an amount equal to all
amounts held in the Collection Account that are part of the Available
Distribution Amount of each Mortgage Loan Group and from which account
distributions will be made with respect to a given Distribution Date. On each
Distribution Date, the Trustee will apply amounts on deposit in the Distribution
Account generally to make distributions of interest and principal from the
Available Distribution Amounts for the Mortgage Loan Groups to the
Certificateholders in the manner and subject to the priorities described above
under "-- Distributions." Funds will be [withdrawn from the Reserve Fund] [paid
in accordance with the Credit Enhancement device] and deposited in the
Distribution Account [, along with Monthly Advances received from the Master
Servicer] to be applied to payments due on the Certificates as described herein.
The Master Servicer will establish and maintain the Collection Account
in the name of the Trustee for the benefit of Certificateholders. The Master
Servicer will deposit into the Collection Account those amounts set forth under
"Description of the Certificates--Accounts" in the Prospectus. The amounts at
any time credited to the Collection Account will be fully insured to the maximum
extent possible or will be invested in certain investments permitted by the
Agreement ("Permitted Investments"). The Master Servicer will be required to
remit amounts required for distribution to Certificateholders to the
Distribution Account on the Business Day preceding the related Distribution Date
(the "Master Servicer Remittance Date").
The Special Servicer will establish and maintain a special trust
account (the "REO Account") to be used in connection with REO Properties and
certain other Mortgaged Properties relating to Specially Serviced Mortgage Loans
that are being operated by the Special Servicer, directly or through others as
permitted by the Agreement, on behalf of the Trust Fund. The Special Servicer
will deposit into, and make certain withdrawals from, the REO Account as set
forth under "Description of the Certificates--Accounts" in the Prospectus. The
amounts at any time credited to the REO Account will be fully insured to the
maximum coverage possible or will be invested in Permitted Investments.
RESERVE FUND
To increase the likelihood of full distributions of interest to
Holders of the Floating Rate Certificates, [BSCMSI] [the Unaffiliated Seller]
will pledge to the Collateral Agent a reserve fund (the "Reserve Fund") to cover
Basis Risk Shortfalls. The Reserve Fund will not be a part of the Trust Fund or
the REMIC, but the right of the Trustee to make draws on the Reserve Fund will
be an asset of the Trust Fund. The Reserve Fund will consist of an initial
deposit by [BSCMSI] [the Unaffiliated Seller] of securities, cash or other
property (the "Initial Deposit") in an amount equal to approximately __% of the
aggregate Scheduled Principal Balance of the Mortgage Loans as of the Cut-Off
Date. The pledge of the Reserve Fund will be made pursuant to the terms of the
Collateral Security Agreement. The Collateral Security Agreement will provide
that the Initial Deposit may be invested, at the direction of BSCMSI, in
Permitted Investments. Investments made with amounts on deposit in the Reserve
Fund must mature in accordance with a schedule established by the Rating
Agencies. [Any earnings resulting from the investment of amounts held in the
Reserve Fund will be remitted to BSCMSI].
[BSCMSI will have the right on any Distribution Date to cause the
Trustee to pay over to BSCMSI, free from the lien thereon, the amount by which
the balance in the Reserve Fund exceeds the amount required to be maintained
therein.] [Describe, if applicable, Reserve Funds to cover replacements or
repairs on the Mortgaged Properties.] [Describe, if applicable, other means of
funding the Reserve Fund, E.G., from payments received on the Mortgage Loans or
other assets of the Trust Fund.]
If on any Distribution Date the interest accrued on the Certificates
at their respective Pass-Through Rates during the related Interest Accrual
Periods exceeds the interest accrued at the Net Mortgage Interest Rates on the
Mortgage Loans, then the REMIC Pass-Through Rates on the Regular Interests
corresponding to the Floating Rate Certificates will be adjusted as described
above under "--Distributions--Basis Risk," and the Trustee will draw on the
Reserve Fund in an amount equal to the REMIC Rate Shortfall for each Class of
Floating Rate Certificates, provided that the amount of Reserve Fund draws to be
allocated to the Class A-4 Certificates cannot exceed the amount in the Reserve
Fund attributable to payments received on Eligible Multifamily Mortgage Loans.
In addition, the Trustee will draw on the Reserve Fund for distribution to
Certificateholders of any Uncovered Basis Risk Shortfalls from prior periods.
DISCOUNTED MORTGAGE LOANS
In the event of (i) any modification, waiver or amendment to the terms
of any Mortgage Loan which results in the present value of the remaining Assumed
Monthly Payments (as defined below) due thereon, net of applicable servicing
fees of the Master Servicer and the Special Servicer (including the Workout Fee
[, fees for Credit Enhancement] and the fees of the Trustee), discounted on a
monthly basis at a rate equal to the applicable Assumed Net Mortgage Interest
Rate (as defined below), being less than the Scheduled Principal Balance of such
Mortgage Loan, (ii) any Debt Service Reduction (as defined below) with respect
to a Mortgage Loan or (iii) a determination at the time of foreclosure of a
Mortgage Loan that the appraised value of the related Mortgaged Property is less
than the unpaid principal balance of the Mortgage Loan plus accrued but unpaid
interest thereon, such Mortgage Loan shall be treated as a "Discounted Mortgage
Loan" for purposes of the Agreement.
Pursuant to the Agreement, the Scheduled Principal Balance of any
Mortgage Loan that becomes a Discounted Mortgage Loan will be adjusted. The
Scheduled Principal Balance of a Mortgage Loan that becomes a Discounted
Mortgage Loan of the type referred to in clauses (i) and (ii) of the preceding
paragraph will be adjusted to equal the present value of the remaining Assumed
Monthly Payments due thereon, net of applicable servicing fees of the Master
Servicer and the Special Servicer (including the Workout Fee [, fees for Credit
Enhancement] and the fees of the Trustee), discounted on a monthly basis at a
rate equal to the applicable Assumed Net Mortgage Interest Rate.
The "Assumed Monthly Payments" with respect to any Mortgage Loan are
the Monthly Payments payable pursuant to the terms of the related Note as
reduced by any related Debt Service Reduction, modification, waiver or
amendment, assuming, however, that (i) each such Monthly Payment is equal to the
initial Monthly Payment as so reduced, (ii) such Monthly Payments remain in
effect generally until the earlier of the date such Mortgage Loan would be fully
amortized at the Assumed Net Mortgage Interest Rate on the basis of such Monthly
Payments and (iii) no effect is given to any Balloon Payment in respect of such
Mortgage Loan (including any balloon payment that may be due as a result of
clause (ii) above).
A "deficient valuation" with respect to any mortgage loan is the
excess of (a)(i) the then outstanding principal balance of the mortgage loan,
plus (ii) accrued and unpaid interest and expenses reimbursable under the terms
of the related note to the date of the bankruptcy petition (collectively, the
"Outstanding Balance"), over (b) a valuation by a court of competent
jurisdiction of the mortgaged property which reduces the principal balance
receivable on such mortgage loan to an amount less than the Outstanding Balance
of the mortgage loan, which valuation results from a proceeding initiated under
the Bankruptcy Code. As used herein, "Deficient Valuation" means, with respect
to any Mortgage loan, the deficient valuation described in the preceding
sentence, without giving effect to clause (a)(ii) thereof. If the terms of a
court order in respect of any retroactive Deficient Valuation provide for a
reduction in the indebtedness of a Mortgage Loan and the earlier maturity
thereof, the term Deficient Valuation includes an additional amount equal to the
excess, if any, of (a) the amount of principal that would have been due on such
Mortgage Loan for each month retroactively affected (I.E., each month occurring
after the effective date of such Deficient Valuation but before the distribution
of amounts in respect of such Deficient Valuation to Certificateholders pursuant
to the Agreement), based on the original payment terms and amortization schedule
of such Mortgage Loan over (b) the amount of principal due on such Mortgage Loan
for each such retroactive month (assuming the effect of such retroactive
application according to such Mortgage Loan's revised amortization schedule).
With respect to any Mortgage Loan, a "Debt Service Reduction" is
defined as a reduction in the Monthly Payment for such Mortgage Loan by a court
of competent jurisdiction in a proceeding under the Bankruptcy Code, except such
a reduction resulting from a Deficient Valuation.
The "Assumed Net Mortgage Interest Rate" with respect to any Mortgage
Loan in Mortgage Loan Group 1 that becomes a Discounted Mortgage Loan will be
equal to the greater of the Net Mortgage Interest Rate with respect to such
Mortgage Loan and the highest Pass-Through Rate on any class of Commercial Fixed
Rate Certificates. The "Assumed Net Mortgage Interest Rate" with respect to any
Mortgage Loan in Mortgage Loan Group 2 that becomes a Discounted Mortgage Loan
will be the maximum rate on the Class A-2 Certificates. The "Assumed Net
Mortgage Interest Rate" with respect to any Mortgage Loan in Mortgage Loan Group
3 that becomes a Discounted Mortgage Loan will be equal to the greater of the
Net Mortgage Interest Rate with respect to such Mortgage Loan and the highest
Pass-Through Rate on any Class of Multifamily Fixed Rate Certificates. The
"Assumed Net Mortgage Interest Rate" with respect to any Mortgage Loan in
Mortgage Loan Group 4 that becomes a Discounted Mortgage Loan will be the
maximum rate on the Class A-4 Certificates.
The Scheduled Principal Balance of an REO Mortgage Loan that becomes a
Discounted Mortgage Loan of the type referred to in clause (iii) of the third
preceding paragraph will be adjusted downward to equal the value of the related
REO Property, as determined by an appraisal obtained by the Special Servicer at
the time of foreclosure, if such appraised value is less than the then Scheduled
Principal Balance of such Mortgage Loan.
A distribution in reduction of the Certificate Principal Amount of the
applicable Class or Classes of Certificates will result from any downward
adjustment in the Scheduled Principal Balance of a Mortgage Loan that becomes a
Discounted Mortgage Loan if the related Available Distribution Amounts are
sufficient therefor. In the event of any further modification, waiver or
amendment with respect to a Mortgage Loan that is already a Discounted Mortgage
Loan, the same steps will be taken. Notwithstanding the foregoing, the Scheduled
Principal Balance of a Discounted Mortgage Loan will always be reduced if
necessary so that it never exceeds the actual principal balance of such Mortgage
Loan.
Payments due on any Discounted Mortgage Loan, net of applicable
servicing fees payable to the Master Servicer, the Special Servicer [, the fees
for Credit Enhancement] and the fees of the Trustee, will be applied for
purposes of calculating the Scheduled Principal Balance thereof and the Optimal
Mortgage Loan Interest in respect thereof, first, to accrued and unpaid interest
at the applicable Assumed Net Mortgage Interest Rate on the Scheduled Principal
Balance thereof and, second, in reduction of the Scheduled Principal Balance
thereof. Any payments received in respect of a Discounted Mortgage Loan in
excess of the Monthly Payments thereon will be treated as prepayments of
principal [until the Scheduled Principal Balance of such Discounted Mortgage
Loan has been reduced to zero].
SUBORDINATION OF THE CLASS B AND CLASS C CERTIFICATES
Distributions of principal with respect to the Class B and Class C
Certificates will be subordinate to distributions of principal with respect to
the Class A-1A, Class A-1B, Class A-1R and Class A-2 Certificates to the extent
that no distribution of principal is permitted to be made with respect to the
Class B and Class C Certificates on any Distribution Date until principal then
payable to the Class A-1A, Class A-1B, Class A-1R and Class A-2 Certificates
have been paid.
Distributions of principal with respect to the Class C Certificates
will be subordinate to distributions of principal with respect to the Class B
Certificates to the extent that no distribution of principal is permitted to be
made with respect to the Class C Certificates on any Distribution Date until
principal then payable to the Class B Certificates have been paid.
All amounts with respect to the Group 3 and Group 4 Mortgage Loans
which are available for distribution will be allocated first to interest and
principal then distributable with respect to the Class A-3A, Class A-3B and
Class A-4 Certificates and only thereafter will be available for application to
amounts then distributable with respect to the other Classes of Certificates.
Principal distributable on the Class A-3A, Class A-3B and Class A-4 Certificates
generally will include all principal received, due (other than Balloon Payments)
but not received, or deemed to be due, on the Group 3 and Group 4 Mortgage
Loans. No amounts with respect to the Group 1 and Group 2 Mortgage Loans will be
available to make distributions on the Class A-3A, Class A-3B and Class A-4
Certificates. As a result, the Class B and Class C Certificates could be
entitled to distributions from payments received with respect to Group 1 and
Group 2 Mortgage Loans at times when payments on the Group 3 and Group 4
Mortgage Loans are insufficient to pay in full amounts currently payable on the
Class A-3A, Class A-3B and Class A-4 Certificates. Even in the absence of
shortfalls in payments on the Group 3 and Group 4 Mortgage Loans, if the rate of
principal payments on the Group 1 and Group 2 Mortgage Loans is sufficiently
faster than the rate of principal payments on the Group 3 and Group 4 Mortgage
Loans, the Class B or Class C Certificates could be entitled to distributions of
Optimal Mortgage Loan Principal for Mortgage Loan Groups 1 and 2 at times when
the Class A-3A, Class A-3B and Class A-4 Certificates are still outstanding.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will prepare and forward on each Distribution Date to each
Certificateholder and to BSCMSI, the Master Servicer and the Underwriter, a
statement setting forth, to the extent applicable: (i) the amount, if any, of
such distribution to the Holders of each Class of Certificates applied to reduce
the respective Certificate Principal Amounts thereof; (ii) the amount of such
distribution to Holders of each Class of Certificates allocable to (a) interest
accrued at the respective Pass-Through Rates, (b) any Class Unpaid Interest
Shortfall included in such distribution and (c) any remaining Class Unpaid
Interest Shortfall after giving effect to such distribution; (iii) the amount of
Deferred Interest allocated to such Class; (iv) the aggregate Scheduled
Principal Balance of the Mortgage Loans in each Mortgage Loan Group at the close
of business on such Distribution Date, identifying the total amount of any
Deferred Interest; (v) the aggregate amount of any transfers from the [Reserve
Fund] [Credit Enhancement] [Monthly Advances] included in payments distributed
to the Certificateholders [(separately identifying the portion thereof
representing a Basis Risk Reserve Fund Draw Amount and amounts from other forms
of Credit Enhancement)] and the amount of any principal on the Mortgage Loans
that was used or otherwise allocated to pay interest on the Certificates; (vi)
the number and aggregate principal balance of Mortgage Loans in each Mortgage
Loan Group (a) delinquent one month, (b) delinquent two or more months and (c)
as to which foreclosure proceedings have been commenced; (vii) with respect to
any Mortgage Loan that became an REO Mortgage Loan during the preceding calendar
month, the Scheduled Principal Balance of such Mortgage Loan as of the date it
became an REO Mortgage Loan; (viii) as of the related Determination Date (a) the
book value of any REO Property, (b) as to any REO Property sold during the
related Due Period, the date of the related determination by the Special
Servicer that it has recovered all payments which it expects to be finally
recoverable (the "Final Recovery Determination") and the amount of the proceeds
of such sale deposited into the Collection Account, and (c) the aggregate amount
of other revenues collected by the Special Servicer with respect to each REO
Property during the related Due Period and credited to the Collection Account,
in each case identifying such REO Property by the loan number of the related
Mortgage Loan; (ix) the aggregate Certificate Principal Amount of each Class of
Certificates before and after giving effect to the distribution made on such
Distribution Date, separately identifying any increase in the Certificate
Principal Amount of each such Class of Certificates due to Deferred Interest;
(x) the aggregate amount of Principal Prepayments made during the related
Prepayment Period; (xi) the aggregate Class Unpaid Interest Shortfall remaining
undistributed, if any, for each Class of Certificates after giving effect to the
distribution made on such Distribution Date; (xii) the Pass-Through Rate
applicable to each Class of Certificates for such Distribution Date; (xiii) a
summary of any modifications, waivers, amendments or consents and the bases
therefor as described under "Servicing Of The Mortgage Loans--Modifications,
Waivers and Amendments" herein and in the Prospectus; (xiv) the aggregate amount
remaining in the Reserve Fund [and the aggregate amount remaining under other
forms of Credit Enhancement] after giving effect to the distribution made on
such Distribution Date; (xv) the number of outstanding Mortgage Loans and the
aggregate Scheduled Principal Balance of the Mortgage Loans in each of the
Mortgage Loan Groups; (xvi) the aggregate amount of servicing fees retained by
or paid to the Master Servicer and the Special Servicer; and (xvii) the amount
of Realized Losses, if any, incurred with respect to the Mortgage Loans in each
Mortgage Loan Group. [In addition, on the Distribution Date occurring in _______
199__, and on every third Distribution Date thereafter, the Master Servicer will
prepare and deliver to the Trustee, and the Trustee will forward to each
Certificateholder, a report setting forth certain information included in
Exhibit ________ to this Prospectus Supplement, based on the current Scheduled
Principal Balances of the Mortgage Loans as of the related Determination Date.]
In the case of information furnished pursuant to subclauses (i), (ii)
and (x) above, the amounts shall be expressed as a dollar amount in the
aggregate for all Certificates of each applicable Class and per single
Certificate.
Within a reasonable period of time after the end of each calendar
year, the Trustee will furnish to each Person who at any time during the
calendar year was a Holder of a Certificate a statement containing the
information set forth in subclauses (i) and (ii) only above, aggregated for such
calendar year or applicable portion thereof during which such Person was a
Certificateholder. Such obligation of the Trustee will be deemed to have been
satisfied to the extent that substantially comparable information is provided by
the Trustee pursuant to any requirements of the Code.
TRUSTEE AND COLLATERAL AGENT
The Trustee and the Collateral Agent will be __________, organized and
existing under the laws of _____________ with corporate trust offices at
____________.
OPTIONAL TERMINATION
The [Master Servicer,] [the Holders of the Class A-R1 Certificates,]
[the owner of the Reserve Fund] [or, if all Mortgage Loans are then Specially
Serviced Mortgage Loans, the Special Servicer,] may effect a termination of the
Trust Fund on any Distribution Date after the date on which the aggregate
Certificate Principal Amount of the Certificates is reduced to less than [5%]
[10%] of the initial aggregate Certificate Principal Amount of the Certificates,
by purchasing all the assets of the Trust Fund at a purchase price, payable in
cash, equal to 100% of the outstanding aggregate unpaid principal balances of
the Mortgage Loans plus accrued and unpaid interest thereon to, but not
including, the respective first Due Date following the Due Period related to the
Prepayment Period in which such repurchase occurs plus the fair market value of
all other property included in the Trust Fund. The proceeds of such sale will be
treated as a prepayment of the Mortgage Loans for purposes of distributions to
Certificateholders. Such sale will effect a termination of the Trust Fund and an
early retirement of the Certificates. Such sale and consequent termination of
the REMIC must constitute a "qualified liquidation" of the REMIC under Section
860F of the Code.
THE TRUST FUND
GENERAL
The Trust Fund will consist of the Mortgage Pool, together with the
payments thereon, and certain other assets, including [one or more reserve funds
established in respect of the Certificates] [the insurance policies on the
mortgage loans] [a letter of credit] [certificate guaranty insurance] [a
committed line of credit] [a repurchase commitment] [a surety bond] [the Credit
Enhancement issued by [specify provider of Credit Enhancement], as described
herein.] [The amount available to the Trustee under the Credit Enhancement is
subject to reduction from time to time as described herein.]
THE MORTGAGE COLLATERAL
The Mortgage Collateral will consist of Mortgage Loans [and
participation interests in Mortgage Loans]. [The selection process of the
Mortgage Loans was not adverse to the interests of the Certificateholders.]
The Mortgage Pool will consist of adjustable and fixed rate,
amortizing and Balloon Payment, recourse or non-recourse, newly-originated or
seasoned [conventional] mortgage loans [,] [and] Installment Contracts for the
sale of real estate] [and mortgage pass-through certificates].
Each Mortgage Loan included in the Trust Fund [(or, in the case of a
mortgage pass-through certificate, each underlying mortgage loan)] is evidenced
by a promissory note (the "Note") and is secured primarily by a first Mortgage
on, or is an Installment Contract for the sale of, a fee simple or leasehold
interest in [multifamily residential [rental] properties] [and] [cooperatively
owned multifamily properties] consisting of five or more dwelling units,
commercial real estate properties [, mixed multifamily/commercial properties].
The commercial real estate properties may include office buildings, retail
buildings, warehouses, hotels and motels, vehicle service facilities, industrial
buildings, medical buildings, mobile home parks, nursing homes, shopping centers
and a variety of other commercial properties. The Mortgaged Properties are
located in one of approximately ________ states [and the District of Columbia].
[In the case of Mortgage Loans having an aggregate Scheduled Principal
Balance of $_____, representing __% of the Mortgage Pool by Scheduled Principal
Balance as of the Cut-Off Date, the Mortgage Loan is secured by a second
Mortgage; (ii) in the case of Mortgage Loans having an aggregate Scheduled
Principal Balance of $_____, representing __% of the Mortgage Pool by Scheduled
Principal Balance as of the Cut-Off Date, the Mortgage Loan is secured by a
third Mortgage; and (iii) in the case of Mortgage Loans having an aggregate
Scheduled Principal Balance of $_____, representing less than __% of the
Mortgage Pool by Scheduled Principal Balance as of the Cut-Off Date, the
Mortgage Loan is secured by a lien on a Mortgaged Property more junior than a
third Mortgage.]
[_____ Mortgage Loans (the "Simple Interest Loans") having an
aggregate Scheduled Principal Balance of approximately $____, representing __%
of the aggregate Scheduled Principal of the Mortgage Loans as of the Cut-Off
Date, provide that the Monthly Payments thereon are applied first to interest
accrued from the last date to which interest has been paid to the date such
Monthly Payment is received and the balance thereof is applied to principal.]
[Indicate, to the extent applicable, whether, and the extent to which,
Mortgage Loans have current principal balances that are greater than their
original principal balances.]
[Indicate, to the extent applicable, whether, and the conditions and
extent to which, Mortgage Loans permit the Mortgagors to extend the scheduled
maturities.]
[Some of the Mortgage Loans contain "due-on-sale" provisions. Such a
clause permits the lender to accelerate the maturity of the Mortgage Loan if the
Borrower sells, transfers or conveys the Mortgaged Property or the Borrower's
interest in the Mortgaged Property. The Agreement obligates the Master Servicer
or the Special Servicer, as the case may be, to determine, in accordance with
the applicable provisions of the Agreement, whether to enforce such
"due-on-sale" provisions. See "Certain Legal Aspects Of The Mortgage Loans and
Leases--Mortgage Loans--Due on Sale Clauses" in the Prospectus.]
[Some of the Mortgage Loans may also be secured by one or more
assignments of leases and rents, management agreements or operating agreements
relating to the Mortgaged Property and in some cases by certain letters of
credit, personal guarantees or both. Pursuant to an assignment of leases and
rents, the Mortgagor assigns its right, title and interest as landlord under
each lease and the income derived therefrom to the related lender, while
retaining a license to collect the rents for so long as there is no default. If
the Mortgagor defaults, the license terminates and the related lender is
entitled to collect the rents from tenants to be applied to the monetary
obligations of the Mortgagor. State law may limit or restrict the enforcement of
the assignment of leases and rents by a lender until the lender takes possession
of the related Mortgaged Property and a receiver is appointed. See "The Trust
Fund--The Mortgage Loans--General" and "Certain Legal Aspects of The Mortgage
Loans and Leases--Leases and Rents" in the Prospectus.]
[Some of the Mortgage Loans also have Notes which may provide the
holder thereof with the right to call such Notes at times specified therein. The
Agreement provides, however, that the Trustee will not exercise its right to
call any such Note unless the Special Servicer directs the Trustee to exercise
such right in connection with a default under such Note.]
[Many of the Mortgage Loans do not provide either for any lockout
period in which prepayments are prohibited or for any prepayment premium,
penalty or charge in connection with the prepayment thereof, or if such
provisions were included in the Notes they have expired.]
[In addition, ____ Mortgage Loans having an aggregate Scheduled
Principal Balance of approximately $_____, representing __% of the aggregate
Scheduled Principal Balance of the Mortgage Loans as of the Cut-Off Date, are
"wraparound" mortgage loans. A "wraparound" mortgage loan is one that is secured
by real property on which there exists a senior mortgage and whose principal
balance equals the aggregate of the principal amount of the loan secured by the
senior mortgage plus the principal amount of the loan funded by the wraparound
(or junior) lender. The Agreement will require the Master Servicer to remit
timely the portion of each related Monthly Payment that is payable to the senior
mortgagee in accordance with the provisions of each such "wraparound" mortgage
loan or otherwise.]
[A [substantial] portion of the Mortgage Loans are "nonrecourse" loans
or loans for which recourse may be restricted or unenforceable. In the event of
default of any such Mortgage Loan by the Borrower, the Trustee (or the Special
Servicer acting pursuant to the Agreement) may look only to the related
Mortgaged Property (including any assignment of leases thereof) and any other
collateral security (and not to the Borrower's other assets) for satisfaction of
the amounts due on the related Mortgage Loan. See "Certain Legal Aspects of The
Mortgage Loans and Leases--Mortgage Loans--Anti-Deficiency Legislation" in the
Prospectus.
[cross-default provisions included in the Mortgage Loans in the
Mortgage Pool to be described]
[The adjustable rate Mortgage Loans bear interest at a per annum rate
which is adjusted periodically to equal the applicable index ("Index") plus or
minus, in most cases, a fixed percentage set forth in the related Note (the
"Margin"), the sum of which may be subject to a rounding convention provided for
in the related Note, subject, however, to certain limitations described below.
The respective Index on which each such adjustment will be based, and the
intervals between the dates of such adjustments (each such date, an "Adjustment
Date"; the first Adjustment Date with respect to each adjustable rate Mortgage
Loan is hereinafter referred to as the "First Adjustment Date"), with respect to
the several types of Group [ ] and Group [ ] Mortgage Loans, are described in
Exhibits [ ] and [ ] hereto.]
[As to all adjustable rate Mortgage Loans, if the respective Index set
forth in each Note becomes unavailable and the related Note provides for no
alternative Index, the Master Servicer will select an alternative index based on
comparable information and such alternative index will become the Index;
provided, however, that such Index must be a qualifying index for REMIC
purposes.]
[__Mortgage Loans having an aggregate Scheduled Principal Balance of
approximately $_____, representing ___% of the aggregate Scheduled Principal
Balance of the Mortgage Loans as of the Cut-Off Date, provide for monthly
payments in an amount less than the amount of interest accrued on the respective
Mortgage Loan in accordance with its terms. The excess of the amount of interest
accrued on each such Mortgage Loan over the amount of the monthly payment due is
added to the outstanding principal balance of such Mortgage Loan, resulting in
negative amortization. As a result, a balloon payment will be due at the stated
maturity of such Mortgage Loans.]
THE MORTGAGE POOL
The Mortgage Pool will consist of approximately __ Mortgage Loans,
which had an approximate aggregate original principal balance of $____ and had
an approximate aggregate Scheduled Principal Balance as of the Cut-Off Date of
$____. Of these Mortgage Loans:
(i) approximately ____ Mortgage Loans are Group 1 Mortgage Loans
with an approximate aggregate original principal balance of $______ and an
approximate aggregate Scheduled Principal Balance as of the Cut-Off Date of
______ (subject to a permitted variance of plus or minus ____%),
representing approximately __% of the aggregate Schedule Principal Balance
of the Mortgage Loans as of the Cut-Off Date; each Group 1 Mortgage Loan
has a fixed Mortgage Interest Rate (or, in limited cases, is subject to
increases by fixed amounts after the Cut-Off Date based on a predetermined
schedule) or has a Mortgage Interest Rate that is adjustable, but subject
to a Floor Interest Rate of at least __% per annum;
(ii) approximately _____ Mortgage Loans are Group 2 Mortgage
Loans with an approximate aggregate original principal balance of $____ and
an approximate aggregate Scheduled Principal Balance as of the Cut-Off Date
of $_____ (subject to a permitted variance of plus or minus ___%),
representing approximately __% of the aggregate Scheduled Principal Balance
of the Mortgage Loans as of the Cut-Off Date; the Group 2 Mortgage Loans
are generally subject to lower Floor Interest Rates than the adjustable
rate Group 1 Mortgage Loans or no Floor Interest Rate;
(iii) approximately ___ Mortgage Loans are Group 3 Mortgage Loans
with an approximate aggregate original principal balance of $_______ and an
approximate aggregate Scheduled Principal Balance as of the Cut-Off Date of
$______ (subject to a permitted variance of plus or minus __%),
representing approximately ___% of the aggregate Scheduled Principal
Balance of the Mortgage Loans as of the Cut-Off Date; each Group 3 Mortgage
Loans has a fixed Mortgage Interest Rate (or, in limited cases, are subject
to increases by fixed amounts after the Cut-Off Date based on a
predetermined schedule) or has a Mortgage Interest Rate that is adjustable,
but subject to Floor Interest Rates of at least __% per annum. All of the
Group 3 Mortgage Loans are Eligible Multifamily Mortgage Loans; and
(iv) approximately __ Mortgage Loans are Group 4 Mortgage Loans
with an approximate aggregate original principal balance of $_____ and an
approximate aggregate Scheduled Principal Balance as of the Cut-Off Date of
$_____ (subject to a permitted variance of plus or minus __%), representing
approximately __% of the aggregate Scheduled Principal Balance of the
Mortgage Loans as of the Cut-Off Date; the Group 4 Mortgage Loans are
generally subject to lower Floor Interest Rates than the adjustable rate
Group 3 Mortgage Loans or no Floor Interest Rate. All of the Group 4
Mortgage Loans are Eligible Multifamily Mortgage Loans.
Exhibit E hereto sets forth certain characteristics of the [50]
largest Mortgage Loans included in Mortgage Loan Groups 1 and 2 and Mortgage
Loan Groups 3 and 4, respectively.
BECAUSE PAYMENTS ON ALL CLASSES OF CERTIFICATES MAY BE AFFECTED BY THE
PERFORMANCE OF MORTGAGE LOANS IN A MORTGAGE LOAN GROUP OTHER THAN THE MORTGAGE
LOAN GROUP DIRECTLY SUPPORTING PAYMENTS ON A PARTICULAR CLASS, PROSPECTIVE
INVESTORS ARE URGED TO REVIEW THE INFORMATION CONTAINED HEREIN FOR ALL MORTGAGE
LOAN GROUPS.
GROUP 1 MORTGAGE LOANS
Each of the Group 1 Mortgage Loans bears interest at a fixed rate per
annum (or, in limited cases, at a rate which increases by fixed amounts after
the Cut-Off Date on a predetermined schedule), as set forth in the related Note,
or was an adjustable rate Mortgage Loan which has converted to a fixed rate
Mortgage Loan, or has passed its last Adjustment Date, and therefore provides
for payments of interest at a fixed rate until maturity as provided in the
related Note. ________ of the Group 1 Mortgage Loans provide for a Mortgage
Interest Rate which increases periodically after the Cut-Off Date to
predetermine fixed rates set forth in the related Note.
________ of the Group 1 Mortgage Loans provide for the possibility on
or after the Cut-Off Date that the rate of interest which becomes due for each
such Mortgage Loan on each Due Date (with respect to any Mortgage Loan in the
Mortgage Pool, the "Payment Rate") may be less than the Mortgage Interest Rate
of such Mortgage Loan (which is the rate at which interest accrues thereon). Any
excess of the interest accrued on a Mortgage Loan at the Mortgage Interest Rate
over accrued interest that becomes due on such Mortgage Loan at the Payment Rate
is deferred ("Deferred Interest") and the amount thereof is added to the
principal balance of such Mortgage Loan on each Due Date.
Approximately ___% of the Group 1 Mortgage Loans are secured by
leasehold mortgages. [In addition, ____ of the Group 1 Mortgage Loans,
representing $_______ or ___% of the aggregate Scheduled Principal Balance of
all Mortgage Loans as of the Cut-Off Date, are Matured Performing Mortgaged
Loans.]
A description of certain additional characteristics of the Group 1
Mortgage Loans as of the Cut-Off Date, estimated as of the date of this
Prospectus Supplement, is set forth in Exhibit A hereto.
GROUP 2 MORTGAGE LOANS
The Group 2 Mortgage Loans are adjustable rate mortgage loans
("ARMs"). The Mortgage Interest Rate on any such ARM may adjust as the Index on
which it is based adjusts (as is generally the case for Mortgage Loans for which
the Index is a prime rate) or may be fixed until the First Adjustment Date set
forth in the related Note, adjusting on the First Adjustment Date, and generally
at [one month, six month, twelve month, three year or five year] intervals
thereafter (in each case as described in the related Note). The Mortgage
Interest Rate on Group 2 Mortgage Loans will be adjusted to a rate equal to an
Index plus or minus the Margin set forth in the related Note; provided, however,
that the adjustments of the Mortgage Interest Rates are subject to rounding, to
maximum rates ("Maximum Rates") and any Floor Interest Rates set forth in the
related Note and, with respect to certain of the Group 2 Mortgage Loans, to
periodic Mortgage Interest Rate adjustment caps or floors. The Group 2 Mortgage
Loans are subject to a Floor Interest Rate of at least ___% per annum. The Index
set forth in a Note may be a [constant maturity treasury index, a bond
equivalent treasury yield index, a rate of interest based on a cost of funds
index, a rate of interest based on LIBOR, a rate of interest based on the prime
rate quoted by a financial institution, a rate of interest based on a Federal
Home Loan Bank ("FHLB") rate of interest or some other index]. The Index
applicable to a Note is set forth therein. The adjustments to the Mortgage
Interest Rates for the Group 2 Mortgage Loans may occur as the Index changes or
may be based on the Index available a specified number of days prior to the
Adjustment Date (a "Look-Back Period") or on the most recently published Index
as of each Adjustment Date. _____ of the Group 2 Mortgage Loans are convertible
into fixed rate Mortgage Loans.
The Group 2 Mortgage Loans may provide for adjustment of the Payment
Rates on dates that occur on the related Adjustment Dates for the Mortgage
Interest Rates or at some other frequency (each, a "Payment Adjustment Date").
The Adjustment Date for a given Group 2 Mortgage Loan in many cases differs from
the Payment Adjustment Date for such Group 2 Mortgage Loan. Accordingly, the
Payment Rates of such Mortgage Loans may be less than or greater than the
related Mortgage Interest Rates during certain periods, resulting in Deferred
Interest which is added to the unpaid principal balances of the related Mortgage
Loans (if the Payment Rate is less than the Mortgage Interest Rate) or positive
amortization of such Mortgage Loans (if the Payment Rate is greater than the
Mortgage Interest Rate). The Deferred Interest accrued on any of the Group 2
Mortgage Loans will be payable on or before the stated maturity of the Mortgage
Loan.
The Group 2 Mortgage Loans generally provide for a Monthly Payment
that is recalculated to an amount that would be sufficient to amortize fully the
unpaid principal balance of such Mortgage Loan generally over the remainder of
the original amortization term, at the Mortgage Interest Rate for such Mortgage
Loan in effect on such Payment Adjustment Date. However, increases or decreases
in the Monthly Payment may be limited to an amount specified in the related Note
above or below the Monthly Payment in effect prior to the related Payment
Adjustment Date (a "Group 2 Payment Adjustment Cap" and a "Group 2 Payment
Adjustment Floor," respectively). Such Mortgage Loans may provide that the Group
2 Payment Adjustment Caps and Group 2 Payment Adjustment Floors will not apply
every fifth year or at some other time interval, in each case at which time the
Monthly Payment will be adjusted to an amount sufficient to amortize fully the
outstanding principal balance of the Mortgage Loan at the then current Mortgage
Interest Rate generally over the remainder of the original amortization term.
With respect to approximately ___% of the aggregate Scheduled
Principal Balance as of the Cut-Off Date of the Group 2 Mortgage Loans, the
maximum principal balance which is permitted under the Note as a result of
negative amortization ("Maximum Negative Amortization Amount") is not generally
permitted to exceed a specified maximum amount of 125% of the principal amount
of the Mortgage Loan on the date of origination. With respect to approximately
__% of the aggregate Scheduled Principal Balance as of the Cut-Off Date of the
Group 2 Mortgage Loans, no Maximum Negative Amortization Amount is specified.
With respect to approximately __% of the aggregate Scheduled Principal Balance
of the Group 2 Mortgage Loans as of the Cut-Off Date, no negative amortization
is permitted. If the Maximum Negative Amortization Amount is exceeded as a
result of Deferred Interest, the Borrower would be required to make an
additional payment with its next Monthly Payment in an amount equal to the
difference between the unpaid principal balance of the Mortgage Loan and the
Maximum Negative Amortization Amount and, for so long as the unpaid principal
balance of the Mortgage Loan is not less than the Maximum Negative Amortization
Amount, the Monthly Payment would be adjusted to an amount that would be
sufficient to amortize fully the unpaid principal balance of the Mortgage Loan
at the then current Mortgage Interest Rate generally over the remainder of the
original amortization term of such Mortgage Loan, without regard to the
applicable Group 2 Payment Adjustment Cap. Generally, those Group 2 Mortgage
Loans without negative amortization caps either may not create Deferred Interest
or may fully re-amortize as described above.
Approximately ___% of the Group 2 Mortgage Loans are secured by
leasehold mortgages. [In addition, ___________ of the Group 2 Mortgage Loans,
representing $_________ or ___% of the aggregate Scheduled Principal Balance of
all Mortgage Loans as of the Cut-Off Date, are Matured Performing Mortgage
Loans.]
A description of certain additional characteristics of the Group 2
Mortgage Loans as of the Cut-Off Date, estimated as of the date of this
Prospectus Supplement, is set forth in Exhibit B hereto. The interest rate
adjustment sensitivity of the Group 2 Mortgage Loans is affected by, among other
things, the particular Indexes of the Mortgage Loans, the frequency of
adjustments and the applicable caps and floors. Exhibit B hereto identifies, by
Scheduled Principal Balance of Group 2 Mortgage Loans as of the Cut-Off Date,
(i) the applicable Indexes, (ii) the frequency of Mortgage Interest Rate
adjustments and adjustments of the Monthly Payments and (iii) information with
respect to the different lifetime and periodic Mortgage Interest Rate and
Payment Rate caps and floors, the portion of the Mortgage Loans having Balloon
Payments, and the weighted average maturity of the Mortgage Loans.
[INSERT DESCRIPTIONS FOR MORTGAGE LOAN GROUPS 3 AND 4]
[INSERT CHART OF HISTORICAL VALUES AND DETAILED DESCRIPTION OF ANY PREDOMINATE
INDEX]
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, BSCMSI will cause the
Mortgage Loans to be assigned to the Trustee, together with all principal and
interest due on or with respect to such Mortgage Loans, other than (i) principal
and interest due on or before the Cut-Off Date (plus, for Mortgage Loans which
provide for payment of interest in advance of accrual thereof rather than in
arrears, interest due in the month ending on the day preceding the Cut-Off
Date), (ii) with respect to Simple Interest Loans, interest received on or prior
to the Cut-Off Date, and (iii) Principal Prepayments (and principal payments
with respect to Simple Interest Loans) received on or prior to the Cut-Off Date.
The Trustee, concurrently with such assignment, will execute and deliver
Certificates evidencing the beneficial ownership interests in the Trust Fund to
the Depositor in exchange for the Mortgage Loans [and, within one Business Day
after the Closing Date, the Depositor will deposit into the Collection Account
amounts received on or prior to the Closing Date that are included in the
payments assigned to the Trustee]. For information regarding the delivery of
Mortgage Loan documents to the Trustee and to the Trustee's responsibilities
with respect thereto, see "The Mortgage Pools--Assignment of Mortgage Loans" in
the Prospectus.
[DESCRIPTION OF UNDERWRITING STANDARDS USED IN ORIGINATING THE MORTGAGE LOANS
AND ANY APPRAISALS CONDUCTED IN CONNECTION THEREWITH]
[DESCRIBE ANY VARIATIONS FROM THE DOCUMENTS INCLUDED IN THE MORTGAGE LOAN FILE
AS DESCRIBED IN THE PROSPECTUS]
[Substantially all of the Mortgaged Properties are leased under Leases
to one or more principal tenants (each, a "Lessee") occupying the related
Mortgaged Property [and, to the extent excess commercial space is available, to
one or more minor tenants]. Each Lease will be assigned to the Trust Fund as
collateral for the related Mortgage Loan. Under the Leases, the Lessees are
required to pay stipulated rent [describe whether rent is a fixed payment and/or
is based upon a percentage of gross revenues, net revenues, or some other
measure of financial performance of the leased Mortgaged Property]. In addition
to rent, the Lessees generally are required to pay their pro rata share of the
operating expenses, insurance premiums and real estate taxes associated with the
Mortgaged Properties. Certain of the Leases also require the lessor (who is also
the Mortgagor under the related Mortgage Loan) to cover costs associated with
the maintenance of the exterior of the Mortgaged Property or provide for certain
limits on the aggregate amount of operating expenses, insurance premiums and
taxes that the Lessees are required to pay].
[The Leases require the Lessees to pay rent to the Mortgagors which is
sufficient in the aggregate to cover all scheduled payments of principal and
interest on the related Mortgage Loans and any fixed expenses of operating the
related Mortgaged Properties borne by the Mortgagors under the related Leases.
If payments under the Leases (net of any operating expenses payable by the
Mortgagor) were insufficient to pay all of the scheduled principal (other than
balloon payments) and interest on the related Mortgage Loans, the Mortgagors
would have to rely on other income or sources (including security deposits)
generated by the related Mortgaged Property to make payments on the related
Mortgage Loan. Certain Commercial Properties are leased entirely to one tenant.
In such cases, the Mortgagor must rely entirely on such tenant to pay all of the
scheduled principal and interest on the related Mortgage Loan or make such
payment from other sources. Certain of the Leases expire prior to the stated
maturity of the related Mortgage Loan. In such cases, upon expiration of the
Leases the Mortgagors will have to look to alternative sources of income,
including rent payments by any new tenants or proceeds from the sale of the
Mortgaged Property, to cover the payments of principal and interest due on such
Mortgage Loans unless the Leases are renewed. [Each lessor will assign to the
Master Servicer the right to collect rent and other expenses directly from the
related Lessee and each such Lessee will agree to make all payments under the
related Lease directly to the Master Servicer.]
[Certain Leases permit the Lessee to assign its interest under the
Lease, or sublet all or a part of the Mortgaged Property, provided that in the
event of such subletting or assignment the Lessee is not relieved of any
obligations under the Lease. Also, the Lessee may elect to cease its operation
of the Mortgaged Property at any time, but is obligated to continue payment of
rent and performance of other Lessee obligations.]
In the event of a partial casualty, certain Leases provide that it is
the obligation of the Mortgagor, and certain other Leases provide that it is the
obligation of the Lessee, to restore the related Mortgaged Property to its
original condition. The cost of such restoration will be borne by the Mortgagor
or the Lessee, above the amount of the insurance paid. Such obligation to
rebuild must be completed within a time period defined in each Lease or a tenant
can terminate such Lease. During any restoration period, rent is pro rated as to
the portion of the premises the Lessee can occupy for its intended use.]
[Each Lease provides a right of termination to the Lessee in the event
that a taking of a material percentage of the demised space occurs, if the
ingress and egress or the parking area have been materially impaired due to the
taking or if such taking renders the premises unsuitable for its intended
purpose. Certain Leases provide the Mortgagor the ability to substitute
similarly improved, contiguous land for taken land. According to each Lease, if
the Lessee chooses not to terminate the Lease after a taking, rent may be
reduced in proportion to amounts of building floor area or land area taken. If
the Lease is not terminated, the Mortgagor may have an obligation to restore the
remainder of the Mortgaged Property to its condition prior to the taking or to a
condition suitable for its intended use. All condemnation awards with respect to
a Mortgaged Property must be paid to the Trust Fund.]
[Should the Lessee default in the payment of rent, and such default
continues uncured for a period of time defined in each Lease, which time period
varies between ___ to ___ days, after written notice, the Mortgagor has the
right to terminate the Lease, re-enter and re-let the Mortgaged Property and
bring suit for collection of rent. However, the Lessee remains liable for
amounts due under the Lease less amounts received from re-letting, after
deducting reasonable costs of obtaining possession of the Mortgaged Property and
performing any repair or alteration necessary prior to re-letting the Mortgaged
Property.]
[In all Leases, the Lessee is responsible for the maintenance of the
leased premises during the Lease term. Such maintenance includes maintenance on
interior portions of the building, maintenance and repairs made to parking area
and landscaping. In certain Leases, the Lessee is responsible for the payment of
its pro rata share of common area maintenance (multi-tenanted properties and
office or industrial parks assessing such charges). The Mortgagor's maintenance
obligations are limited to structural, foundation, floor slab and roof
maintenance. [In order to provide funds to fulfill such obligations, the
Agreement provides for the creation of a structural and roof reserve, to be held
by the Master Servicer subject to a lien in favor of Certificateholders and to
be expended from time to time in accordance with the Leases and with the prior
written approval of the Master Servicer.]]
[Each Mortgagor has assigned to the Trust Fund the lessor's interest
under each Lease [(as well as the lessor's interest under all other leases of
the related Mortgaged Property)], and the Lessee under each Lease will make all
payments thereunder directly to the Master Servicer. To the extent any Lessee
fails to make a scheduled rental payment under the Lease to which such Lessee is
subject, the Master Servicer may require the Special Servicer to pursue the
remedies against such Lessee available to it under the Lease. The remedies
available under each Lease include, among other things, the right to terminate
the Lease and remove the Lessee from the Mortgaged Property or continue the
Lease in force, relet the Mortgaged Property and hold the Lessee liable on a
monthly basis for any shortfall between the rental payable by the Lessee under
the Lease (plus the amount of any expenses incurred in removing the Lessee and
reletting the Mortgaged Property) and the amount of the rental payable by the
successor lessee.]
Set forth below is certain additional information concerning the [ __
largest] Leases:
Summary Information Regarding the Leases
Lease
Start Annual Expiration
LESSEE RATING(1) DATE RENT(2) DATE
- ------------------
(1) The long-term unsecured debt rating of the Lessee, if any.
(2) [If Lease provides for annual rent to adjust, insert additional columns, as
necessary.]
Set forth below is certain additional information concerning the
Mortgaged Properties relating to the [___ largest] Leases:
Rent* per
Net
Net Date of Rentable
Rentable Construction Square
LOCATION TENANT USE AREA COMPLETION FOOT
- ----------------
* For purposes of this table, "Rent" is defined as __________.
REPRESENTATIONS AND WARRANTIES
In connection with purchasing the Mortgage Loans, BSCMSI received from
the sellers thereof (each a "Seller") certain representations and warranties
concerning the Mortgage Loans. In connection with selling the Mortgage Loans to
the Trust Fund, BSCMSI will assign to the Trust Fund such representations and
warranties, along with the related remedies in the event of a breach thereof.
Such remedies generally are limited to requiring the related Seller to
repurchase [or substitute for] a Mortgage Loan as to which a breach has occurred
and is continuing. Although the Master Servicer may be obligated to enforce such
repurchase [or substitution] obligations, neither the Master Servicer nor BSCMSI
will be obligated to repurchase [or substitute for] a Mortgage Loan if the
related Seller defaults on such obligation, unless such breach also constitutes
a breach of the representations and warranties of the Master Servicer or the
BSCMSI, as the case may be. The repurchase [and substitution] obligation will
constitute the sole remedy available to Certificateholders with respect to a
breach of any representations or warranties concerning the Mortgage Loans. See
"The Trust Fund--The Mortgage Loans--Representations By Sellers; Repurchases" in
the Prospectus. [The Agreement will also provide that the [BSCMSI] [Master
Servicer] represent and warrant, among other things, that: [insert any
additional representations and warranties]
CREDIT ENHANCEMENT
[SUBORDINATION]
[The right of Holders of Subordinate Certificates to receive principal
and interest payments thereon on any Distribution Date will be subordinate in
right and priority to the rights of Holders of Senior Certificates, but only [in
the event of certain types of losses specified in "Trust Fund," and then only]
to the extent of the "Available Subordination Amount" as of such Payment Date.
The "Available Subordination Amount" will initially be $_______ (the "Maximum
Subordination Amount") (representing ___% of the initial Certificate Principal
Amount (as defined herein under "--Interest) of the [Certificates], declining as
described herein under "Trust Fund--Enhancement--Subordination of the Class ___
Certificates" to [$_____] (the "Minimum Subordination Amount"). The
subordination is effected by [the type of loss incurred,] the preferential right
(to the extent of the then Available Subordination Amount) of Holders of Senior
Certificates to receive distributions of principal on the Certificates.]
[RESERVE FUND]
[If required by the Rating Agencies rating the Certificates, on or
prior to the Closing Date [BSCMSI] [the Unaffiliated Seller] will deposit in a
Reserve Fund cash or an irrevocable letter of credit in an amount (the "Initial
Deposit") [equal to approximately __% of the aggregate Scheduled Principal
Balances of the Mortgage Loans as of the Cut-Off Date] [satisfactory to such
Rating Agencies], which amount will be available on any Distribution Date to
cover Basic Risk Shortfalls.
[BSCMSI will have the right on any Distribution Date to cause the
Trustee to pay over to BSCMSI, free from the lien thereon, the amount by which
the balance in the Reserve Fund exceeds the amount required to be maintained
therein.]
The Reserve Fund will not be a part of the Trust Fund. The pledge of
the Reserve Fund will be made pursuant to the terms of the Collateral Security
Agreement. The Collateral Security Agreement will provide that the Initial
Deposit may be invested, at the direction of [BSCMSI] [the Master Servicer], in
Permitted Investments. [Any earnings resulting from the investment of amounts
held in the Reserve Fund will be remitted [BSCMSI] [the Master Servicer.]]
The Initial Deposit will be held in the Reserve Fund in accordance
with the terms of the Collateral Security Agreement. [BSCMSI] [The Unaffiliated
Seller] will have no obligation to deposit in the Reserve Fund any amounts in
respect of any distributions it may have received or to make any other deposits
subsequent to the Initial Deposit, regardless of whether amounts in the Reserve
Fund are sufficient to cover Basis Risk Shortfalls. The conditions for the
release of amounts in the Reserve Fund to [BSCMSI] will be set forth in the
Collateral Security Agreement and shall be in accordance with the requirements
established by the Rating Agencies for the maintenance of the initial ratings of
the Certificates.
The Collateral Security Agreement will require that [BSCMSI] [the
Unaffiliated Seller] grant to the Collateral Agent a security interest in the
Reserve Fund. [The Collateral Security Agreement will provide that, with the
approval of the Rating Agencies, at the option of BSCMSI, the Reserve Fund can
be replaced, in whole or in part, with a form of credit enhancement that is, or
is invested in securities or obligations which are backed by the full faith and
credit of the United States of America, provided that such replacement does not
result in the withdrawal or downgrade of the then current rating or ratings of
the Certificates by the Rating Agencies.]
The institution serving as Trustee will also serve as Collateral Agent
under the Collateral Security Agreement.]
[Describe, if applicable, Reserve Funds to cover replacements or
repairs on the Mortgaged Properties.] [Describe, if applicable, other means of
funding the Reserve Fund, e.g., from payments received on the Mortgage Loans or
other assets of the Trust Fund.]
[INSERT DESCRIPTION OF CROSS-SUPPORT FEATURES, IF APPLICABLE]
[OTHER CREDIT ENHANCEMENT]
[Specify provider of Credit Enhancement] has delivered to the Trustee
[an irrevocable letter of credit] [a surety bond] [an insurance policy] [a
committed line of credit] [a repurchase commitment] (the "Credit Enhancement")
with respect to the [Senior] [specify appropriate Classes] [Certificates] [the
Mortgage Loans] [the Master Servicer's] obligation to [make advances on]
[repurchase defaulted Mortgage Loans]. Under the Credit Enhancement, [specify
provider of Credit Enhancement] will advance funds to the Trustee [to pay] [up
to ____% of] [principal of the [Senior] [Certificates] [specify appropriate
Class] [Mortgage Loans] [and to pay] [up to ___% of] interest on such
[Certificates] [Mortgage Loans] [to provide funds in the event of a failure by
the [Master Servicer] to make advances] [to repurchase delinquent Mortgage
Loans] in an amount not to exceed ___% of the initial principal amount of the
Mortgage Loans.] [Describe, if applicable, swaps and caps intended to cover
Basis Risk Shortfalls.]
SERVICING OF THE MORTGAGE LOANS
THE MASTER SERVICER
[Information to be provided by the Master Servicer.]
The Master Servicer will be responsible for servicing the Mortgage
Loans pursuant to the Agreement. [With respect to any Mortgage Loan that becomes
a Specially Serviced Mortgage Loan, the Master Servicer will transfer servicing
responsibilities with respect to such Mortgage Loan to the Special Servicer.
[Mortgage Loans having an aggregate Scheduled Principal Balance as of the
Cut-Off Date of approximately $ , representing % of the aggregate Scheduled
Principal Balance of the Mortgage Loans as of the Cut-Off Date, will be
transferred to the Special Servicer on the Closing Date, if no Monthly Payments
are received on such Mortgage Loans from the Cut-Off Date to the Closing Date,
because they will then have payments more than 60 days past due.] [In addition,
included in the Mortgage Pool are Matured Performing Mortgage Loans having an
aggregate Scheduled Principal Balance of approximately $ representing % of the
aggregate Scheduled Principal Balance of the Mortgage Loans as of the Cut-Off
Date, which will be transferred to the Special Servicer on the Closing Date.]
[CHARTS TO BE INSERTED SUMMARIZING THE MASTER SERVICER'S FORECLOSURE,
DELINQUENCY AND LOAN LOSS EXPERIENCE IN RESPECT OF LOANS OF THE SAME TYPE AS THE
MORTGAGE LOANS]
While the above foreclosure, delinquency and loan loss experience is
typical of the Master Servicer's recent experience, there can be no assurance
that experience on the Mortgage Loans will be similar. The information should
not be considered to reflect the credit quality of the Mortgage Loans in the
Mortgage Pool or as a basis for assessing the likelihood, amount or severity of
losses on the Mortgage Pool. The statistical data in the table is based on all
of the loans in the Master Servicer's servicing portfolio. The Mortgage Loans
may be more recently originated than, and are likely to have other
characteristics which distinguish them from, the majority of the loans in the
Master Servicer's servicing portfolio.
[THE SPECIAL SERVICER
[Information to be provided by the Special Servicer.]
The information set forth in the preceding paragraphs concerning the
Special Servicer has been provided by it. Accordingly, BSCMSI makes no
representation as to the accuracy or completeness of such information.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer (or the Special Servicer, with respect to
Specially Serviced Mortgage Loans) will make reasonable efforts to collect all
payments called for under the Mortgage Loans and will, consistent with the
Agreement, follow such collection procedures as it deems necessary or desirable.
Under the Agreement, the Master Servicer will establish and maintain the
Collection Account and the Escrow Account, and the Special Servicer will
establish and maintain the REO Account. For information regarding the
maintenance of these accounts and the obligations of the Master Servicer and
Special Servicer under the respective accounts, see "Description of the
Certificates--Accounts" and "Servicing of the Mortgage Loans--Collections and
Other Servicing Procedures" in the Prospectus.
INSURANCE
The Agreement provides that the Master Servicer maintain or require
each Mortgagor to maintain insurance in accordance with the related Mortgage,
which generally will include a standard fire and hazard insurance policy with
extended coverage, and, in some cases, flood insurance. Likewise, the Special
Servicer will cause to be maintained fire and hazard insurance with extended
coverage on each REO Property and, in some cases, flood insurance. For further
information regarding the maintenance and coverage of insurance policies as
described above, see "Servicing of the Mortgage Loans--Insurance" in the
Prospectus.
In addition, to the extent required by the related Mortgage, the
Master Servicer may require the Mortgagor to maintain other forms of insurance
including, but not limited to, loss of rents endorsements, business interruption
insurance and comprehensive public liability insurance, and the Agreement may
require the Special Servicer to maintain public liability insurance with respect
to any REO Properties. See "Servicing of the Mortgage Loans--Insurance" in the
Prospectus.
[POOL INSURANCE POLICY, SPECIAL HAZARD INSURANCE POLICY, BANKRUPTCY BOND,
REPURCHASE BOND, CERTIFICATE GUARANTEE INSURANCE TO BE DESCRIBED, IF APPLICABLE]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer's principal compensation for its activities under
the Agreement will come from the payment to it or retention by it, with respect
to each Mortgage Loan, of the Servicing Fee (as defined below).
The "Servicing Fee," including the Reserved Amount (as defined below),
with respect to each Mortgage Loan and for any Due Period, is an amount equal to
thirty days' interest (or, in the event of any payment of interest which
accompanies a Principal Prepayment made by the Borrower, interest for such
number of days from the preceding Due Date to the date of such Principal
Prepayment), calculated on the basis of a 360-day year consisting of twelve
30-day months, at the Servicing Fee Rate on the Scheduled Principal Balance of
such Mortgage Loan immediately prior to the application of the principal portion
of the Monthly Payment due on the Due Date in such Due Period. The Servicing Fee
Rate, with respect to each Mortgage Loan other than a Specially Serviced
Mortgage Loan, is a rate equal to __% per annum and, with respect to each
Specially Serviced Mortgage Loan, is a rate equal to __% per annum. A portion of
the Servicing Fee includes __% per annum of the then unpaid principal balance of
each of the Mortgage Loans (the "Reserved Amount") which the Master Servicer
will use to pay certain ongoing expenses associated with the Mortgage Loans and
incurred by it in connection with its responsibilities under the Agreement,
including the annual fees of [the Trustee and] the Collateral Agent, the Basic
Fee (as defined below) of the Special Servicer, [ongoing fees payable to the
Rating Agencies] [ongoing fees payable to the providers of Credit Enhancement]
and certain other expenses of the Trust Fund. [The Master Servicer will be
entitled to reimbursement from the Collection Account for the amount by which
such expenses exceed the Reserved Amount.]
In addition, the Master Servicer will be entitled to receive, as
additional compensation, Prepayment Premiums, late fees and certain other fees
collected from any Borrower other than with respect to Specially Serviced
Mortgage Loans, and any interest or other income earned on funds deposited in
the Collection Account, the Distribution Account and, except to the extent such
income is required to be paid to the related Mortgagors, the Escrow Account.
[The Special Servicer's principal compensation for its activities
under the Agreement will come from payment to it or retention by it, with
respect to each Mortgage Loan, of the Special Servicer Fee. The "Special
Servicer Fee" will include [(x) a fee (the "Basic Fee") calculated at a rate
equal to __% per annum with respect to each Mortgage Loan on the Scheduled
Principal Balance of such Mortgage Loan, payable from the Collection Account,
(y) an additional fee (the "Supplemental Fee") equal to the excess, if any, of
(i) an amount calculated at a rate equal to __% applied solely to the Specially
Serviced Mortgage Loans over (ii) the Basic Fee, which Supplemental Fee shall be
payable from the Reserve Fund, to the extent of funds available therein, and (z)
a fee (the "Workout Fee") equal to a fixed percentage (the "Workout Fee Rate"),
varying from __% to __% per annum, depending on the unpaid principal balance of
each Mortgage Loan as to which it is acting or at any time acted as servicer
(including those for which servicing has been returned to the Master Servicer),
of net collections and net proceeds received with respect to each such Mortgage
Loan] [other formula to compensate any Special Servicer].
[The Special Servicer will remit payments with respect to any
modification fees payable by Mortgagors in accordance with the Special
Servicer's customary servicing practices and late fees, Prepayment Premiums and
certain other fees collected from any Mortgagor for Specially Serviced Mortgage
Loans to the Master Servicer for deposit in the Collection Account.]
MONTHLY ADVANCES
The Master Servicer will advance its own funds [or funds equal to the
aggregate amount of payments of principal and interest] (adjusted to the Net
Mortgage Interest Rate) which were due on the Due Date and which were delinquent
as of the close of business on the business day preceding the Remittance Date
until the earlier to occur of (i) the determination by the Master Servicer that
further advances would be non-recoverable; (ii) the resolution of the defaults
under the Mortgage Loans by the Special Servicer and (iii) liquidation of the
Mortgaged Property, [up to an aggregate amount equal to ___% of the aggregate
outstanding principal balance of the Mortgage Loans, less previously
unreimbursed advances] [subject to such advances being recoverable, in the
reasonable judgment of the Master Servicer, under any Insurance Policy,
Liquidation Proceeds or otherwise from the Mortgagor]. The [Master] Servicer
will also be obligated to make advances in respect of certain taxes and
insurance premiums and property protection expenses not paid by Mortgagors on a
timely basis. [Advances are reimbursable from recoveries with/without interest
and from Liquidation Proceeds or subsequent collections on the Mortgage Loans.]
Such right of reimbursement from such recoveries is prior to the right of
[Certificateholders].]
MODIFICATIONS, WAIVERS AND AMENDMENTS
Each of the Master Servicer and the Special Servicer is entitled,
subject to certain conditions set forth therein, to modify, waive or amend the
terms of any Mortgage Loan without the consent of the Trustee or any
Certificateholder, as described under "Servicing of the Mortgage
Loans--Modifications, Waivers and Amendments" in the Prospectus. In particular,
the Special Servicer will use its best efforts to modify (i) a Group 1 or Group
3 Mortgage Loan to provide for calculation of interest at a fixed rate and (ii)
a Group 2 or Group 4 Mortgage Loan to provide for calculation of interest at a
rate based upon [LIBOR] [COFI].
[The Special Servicer may, with respect to any Specially Serviced
Mortgage Loan, subject to the terms and conditions set forth in the Agreement,
some of which are described below, modify, waive or amend the terms of such
Mortgage Loans if the Special Servicer determines that a material default has
occurred or a payment default has occurred or is reasonably foreseeable. The
Special Servicer may extend the maturity date of such Mortgage Loan to a date
(the "Optimal Wind-Down Date") not later than the earlier of (i) two years prior
to the Final Scheduled Distribution Date or (ii) if such Mortgage Loan is
secured by a Mortgage on a leasehold estate, the date occurring ten years prior
to the termination of such leasehold estate. Interest on any extended Mortgage
Loan will be calculated on the basis of a 360-day year consisting of twelve
30-day months. To the extent that the net operating income of the related
Mortgaged Property (together with such other sources of payment as the Special
Servicer determines are acceptable therefor) is sufficient to support Monthly
Payments which will amortize the Mortgage Loan on a level payment basis to the
rescheduled maturity date, the Special Servicer will require that Monthly
Payments be made in such amounts. If the Special Service determines that net
operating income will not be so sufficient, the Special Servicer will either
agree to a schedule of Monthly Payments that would fully amortize the Mortgage
Loan by the Optimal Wind-Down Date after providing for a Balloon Payment at the
rescheduled maturity date or reduce the Monthly Payments on any Specially
Serviced Mortgage Loan to a level that can be supported by net operating income
(either by reducing the Mortgage Interest Rate or the Payment Rate thereof,
reducing the principal payment component of the Monthly Payments or a
combination thereof).]
[Except for extensions of maturity dates of Matured Performing
Mortgage Loans,] the Special Servicer will not agree to any modification, waiver
or amendment of the payment terms of a Mortgage Loan unless the Special Servicer
has determined that such modification, waiver or amendment is reasonably likely
to produce a greater recovery on a present value basis than liquidation of the
Mortgage Loan.
EVIDENCE OF COMPLIANCE
Under the Agreement, each of the Master Servicer and the Special
Servicer is required to provide a statement of compliance with the Agreement, as
more fully described under "Servicing of the Mortgage Loans--Evidence as to
Compliance" in the Prospectus.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The yield to maturity on any Class of Certificates will depend upon
the price paid by the Certificateholder, the related Pass-Through Rate and the
rate and timing of the repayment of principal in respect of such Certificates.
The yield to maturity on the Floating Rate Certificates will be affected, in
particular, by the levels of LIBOR. The rate and timing of the repayment of
principal of the Certificates will be affected both by (x) the rate of principal
payments (particularly Balloon Payments) on the related Mortgage Loans
including, for this purpose, unscheduled payments such as prepayments by
Borrowers and prepayments resulting from modifications, defaults, repurchases
due to certain breaches of representations and warranties and (y) the amount of
interest payments on the Mortgage Loans which is available for distribution of
principal on the Certificates.
A portion of the Group 1 and Group 3 Mortgage Loans bear interest at
fixed rates. The remaining portion of the Group 1 and Group 3 Mortgage Loans and
all of the Group 2 and Group 4 Mortgage Loans are ARMs, the Mortgage interest
Rates of which are determined by reference to various Indexes. [BSCMSI] is not
aware of any relevant publicly available statistics that set forth principal
prepayment experience or prepayment forecasts of commercial [and multifamily
residential] mortgage loans over an extended period of time, especially with
respect to commercial [and multifamily residential] ARMs. The rate of principal
prepayments with respect to mortgage loans generally has fluctuated in recent
years. As is the case with fixed rate mortgage loans, ARMS may be subject to a
greater rate of principal prepayments in a declining interest rate environment,
particularly ARMs with minimum interest rate provisions.
The rate of principal payments on the Certificates will be affected by
the rate of principal payments (including prepayments) on the related Mortgage
Loans. Generally, prepayments on the Mortgage Loans (including prepayments
resulting from defaults) will tend to shorten the weighted average lives of the
Class A Certificates whereas delays in liquidations of defaulted Mortgage Loans
and modifications extending the maturity of Mortgage Loans will tend to lengthen
the weighted average lives of the Class A Certificates. Such prepayments may
affect the Class B and Class C Certificates differently as described below. Any
changes in weighted average lives may adversely affect the yield to
Certificateholders. Prepayments resulting in a shortening of such weighted
average lives may be made at a time of low interest rates when
Certificateholders may be unable to reinvest such prepayments at Pass-Through
Rates payable on the Certificates, while delays and extensions resulting in
lengthening of such weighted average lives may occur at a time of high interest
rates when Certificateholders may have been able to reinvest payments received
by them at higher rates.
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, social, tax, legal and other factors. In general, if
prevailing interest rates fall significantly below the interest rates on the
Mortgage Loans (and in particular Mortgage Loans with fixed Mortgage Interest
Rates or with minimum adjustable Mortgage Interest Rates that are higher than
prevailing interest rates), the Mortgage Loans are likely to be subject to
higher prepayments than if prevailing rates remain at or above the interest
rates on such Mortgage Loans. Conversely, if prevailing interest rates rise
significantly above the Mortgage Interest Rates on the Mortgage Loans, the rate
of prepayment would be expected to decrease. Other factors affecting prepayment
of the Mortgage Loans include the availability of and the ability to obtain
credit for mortgage refinancing, changes in tax laws (including depreciation
benefits), changes in Mortgagor's net equity in the Mortgaged Properties,
servicing decisions, prevailing general economic conditions and the relative
economic vitality of the areas in which the Mortgaged Properties are located,
the terms of the Mortgage Loans (for example, the existence of due-on-sale and
due-on-encumbrance clauses), the quality of management of the Mortgaged
Properties and the availability of other opportunities for investment. [A
significant number] of the Mortgage Loans may be prepaid at any time without
penalty, or provide for small prepayment premiums or penalties which are not
expected to be an effective deterrent to prepayment. [Some] of the Mortgage
Loans, however, continue to have prepayment premiums or penalties which could be
a deterrent to prepayments. BSCMSI makes no representation as to the particular
factors that will affect the rate of prepayment of the Mortgage Loans, the
relative importance of any such factors, the percentage of the principal balance
of the Mortgage Loans that will be paid as of any date or the overall rate of
prepayments on the Mortgage Loans.
The effective yield to Holders of the Fixed Rate Certificates will
differ from the yield otherwise produced by the applicable Pass-Through Rate and
purchase prices of such Certificates because principal and interest
distributions will not be payable to such Holders until at least the 25th day of
the month following the month of accrual (without any additional distribution of
interest or earnings thereon in respect of such delay).
If the purchaser of a Certificate purchased at a discount from its
initial Certificate Principal Amount calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is faster than
that actually experienced on such Certificate, the actual yield to maturity will
be lower than that so calculated. Conversely, if the purchaser of a Certificate
purchased at a premium calculates its anticipated yield to maturity based on an
assumed rate of payment of principal that is slower than that actually
experienced on such Certificate, the actual yield to maturity will be lower than
that so calculated.
The timing of changes in the rate of prepayments on the related
Mortgage Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal of the related
Mortgage Loans, the greater the effect on an investor's yield to maturity. The
effect on an investor's yield of principal payments occurring at a rate higher
(or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Certificates may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments. An
investor must make an independent decision as to the appropriate prepayment
scenario to be used in deciding whether to purchase the Certificates.
Investors should consider the risk that rapid rates of prepayments on
the related Mortgage Loans, and therefore of principal payments on the
Certificates, may coincide with periods of low prevailing interest rates. During
such periods, the effective interest rates on securities in which an investor
may choose to reinvest amounts received as principal payments on such investor's
Certificate may be lower than the applicable Pass-Through Rate. Conversely, slow
rates of prepayments on the Mortgage Loans, and therefore of principal payments
on the various Classes of Certificates, may coincide with periods of high
prevailing interest rates. During such periods, the amount of principal payments
available to an investor for reinvestment at such high prevailing interest rates
may be relatively low.
FINAL SCHEDULED DISTRIBUTION DATE
The "Final Scheduled Distribution Date" for distributions on each
Class of Certificates is ______ 25, ____. The Final Scheduled Distribution Date
is the first anniversary of the Distribution Date immediately following the
latest scheduled maturity date of any Mortgage Loan in the Mortgage Pool. Since
the rate of payment (including prepayments) of principal on the Mortgage Loans
can be expected to exceed the scheduled rate of payments, and could exceed the
scheduled rate by a substantial amount, the disposition of the last remaining
Mortgage Loan in the Trust Fund may be earlier, and could be substantially
earlier, than the Final Scheduled Distribution Date. In addition, BSCMCI or its
designee may, at its option, repurchase all the Mortgage Loans from the Trust
Fund on or after any Distribution Date on which the aggregate unpaid principal
balance of the Mortgage Loans is less than [5%] [10%] of the aggregate unpaid
principal balance of the Mortgage Pool as of the Cut-Off Date.
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Certificates
will be influenced by the rate at which principal payments (including scheduled
payments, principal prepayments and payments made pursuant to any applicable
policies of insurance) on the Mortgage Loans are made. Principal payments on
Mortgage Loans may be in the form of scheduled amortization or prepayments (for
this purpose, the term "prepayment" includes prepayments by Mortgagors and
prepayments resulting from modifications, defaults, repurchase due to certain
breaches of representations and warranties or other disposition of the Mortgage
Loans). Since all principal payments on the Mortgage Loans are initially
directed to reduce the respective Certificate Principal Amounts of the Class A
Certificates, prepayments on the Mortgage Loans will have a disproportionately
greater tendency to shorten the weighted average lives of the Class A
Certificates than the weighted average lives of the Class B and Class C
Certificates.
In contrast, [a substantial portion] of the excess of interest due on
the Mortgage Loans, net of servicing compensation, fees due the Trustee [and
fees for credit enhancement], over interest due on the Certificates will
generally be applied to the Certificates as described herein under "Description
of the Certificates--Allocation Among Classes." Accordingly, while the amount of
such excess interest will generally be affected primarily by changes in interest
rates and the interest rate adjustment terms of the Mortgage Loans, and
accordingly by the spread between [LIBOR] and the current Mortgage Interest
Rate, as described under "Description of the Certificates--Distributions--Basis
Risk" herein, any payment experience which would reduce such excess interest,
including prepayments (Mortgage Loans having higher interest rates being
expected to prepay first) and Prepayment Interest Shortfalls, will have a
tendency to extend the weighted average life of the Class B and Class C
Certificates, although such tendency may be offset to some extent by the
application of principal prepayments to such Classes of Certificates. The level
of such excess interest will also be affected by other factors described under
"Description of the Certificates--Distributions--Basis Risk" herein. The
weighted average life of each such Class will also be influenced by delays
associated with realizing on defaulted Mortgage Loans, and by extensions given
in connection with modifications of Mortgage Loans. Since a [significant number]
of Mortgage Loans have Balloon Payments due at maturity, and because the ability
of the Mortgagor to make a Balloon Payment typically will depend upon its
ability either to refinance the loan or to sell the related Mortgaged Property,
there is a risk that a number of Mortgage Loans having Balloon Payments may
default at maturity, or that the Special Servicer may extend the maturity of
such a Mortgage Loan in connection with a workout. In the case of defaults,
recovery of proceeds may be delayed by, among other things, bankruptcy of the
Mortgagor or adverse conditions in the market where the property is located. In
order to minimize losses on Specially Serviced Mortgage Loans, the Special
Servicer is given considerable flexibility under the Agreement to modify
Mortgage Loans which are in default or as to which default is reasonably
foreseeable. Certificateholders are not entitled to receive distributions of
Balloon Payments when due except to the extent they are actually received (and
instead are entitled only to receive certain Assumed Scheduled Payments until
final liquidation, and the remaining balance upon such final liquidation).
Consequently, any defaulted Balloon Payment or modification which extends the
maturity of a Mortgage Loan will tend to extend the weighted average lives of
the Class A Certificates and to a lesser extent, the weighted average of other
Classes of Certificates. See "Servicing of the Mortgage Loans--Modifications,
Waivers and Amendments" herein and in the Prospectus.
In contrast, because the Class [ ] Certificates are being offered at a
discount, and because the Class [ ] Certificates are being offered at a premium,
their effective yields will depend to a significant extent on the rate at which
excess interest materializes and is applied to make distributions of principal
in respect of such Classes of Certificates as described in the preceding
paragraph.
The weighted average lives of the Certificates may also be shortened
by the exercise of an optional termination right as described under "Description
of the Certificates--Optional Termination" herein.
Prepayments on mortgage loans are commonly measured by a prepayment
standard or model. The model used in this Prospectus Supplement (the "Prepayment
Model" or "SPA") represents an assumed constant rate of prepayments each month,
expressed as an annual rate, relative to the then outstanding principal balance
of a pool of mortgage loans for the life of such mortgage loans. SPA does not
purport to be either a historical description of the prepayment experience of
any pool of mortgage loans or a prediction of the anticipated rate of prepayment
of any mortgage loans, including the Mortgage Loans to be included in the
Mortgage Pool.
The tables of Percentages of Initial Certificate Principal Amount
Outstanding for the Class [ ] and Class [ ] Certificates at the respective
percentages of SPA set forth herein indicate the weighted average life of each
Class of Certificates and set forth the percentage of the initial certificate
principal amount of such Certificates that would be outstanding after each of
the dates shown at the indicated percentages of SPA. The tables have been
prepared on the basis of the "Mortgage Loan Assumptions," which are the
assumptions that the Group l, Group 2, Group 3 and Group 4 Mortgage Loans
consist of ___, ___, ___ and ___ subgroups, respectively, [each treated as a
single assumed Mortgage Loan,] with the following characteristics:
[DESCRIPTION OF MORTGAGE LOAN ASSUMPTIONS]
The assumptions described above that have been made in preparing the
following tables are expected to vary from the actual performance of the
Mortgage Loans. In particular, actual prepayments are not likely to occur at
constant rates or at the assumed rates and the terms of extensions are not
likely to be uniform, and variations in prepayment speeds and extension terms,
even if averaging to the same constant prepayment rate over time and to the same
weighted average extension term, may have different effects on the payment rates
of the Certificates. Furthermore, not all Balloon Mortgage Loans are expected to
be extended or to be extended for the suggested terms, and prepayments and
extensions may apply disproportionately to Mortgage Loans with different
Mortgage Interest Rates. To the extent fixed rate Mortgage Loans with higher
Mortgage Interest Rates prepay at higher rates or are extended less frequently
or for shorter terms, the excess interest available to make distributions in
reduction of the Certificate Principal Amounts of the Class B and Class C
Certificates may be reduced even at the same constant prepayment rates. There
can be no assurance as to the actual rates of prepayment or extension of the
Mortgage Loans or as to variations in applicable interest rates.
Furthermore, the assumptions made in preparing the following tables
vary to some degree from the actual terms of the Certificates and the Agreement
in that: [(i) any extension of a Mortgage Loan will occur only under
circumstances in which such Mortgage Loan has become a Specially Serviced
Mortgage Loan subject to deduction of a Workout Fee from all future Monthly
Payments; (ii) upon extension, and in contrast to the assumptions, some of the
Group [, Group ] and Group Mortgage Loans might not be Discounted Mortgage Loans
and some of the Group Mortgage Loans might be Discounted Mortgage Loans,
depending upon the modified terms thereof; (iii) the actual reduction of the
Scheduled Principal Balance of the Discounted Mortgage Loans will depend on the
modified terms thereof and will not always be __% of their Scheduled Principal
Balances; and (iv) the terms of any extension permitted under the Agreement may
require an increase or allow a decrease in the Mortgage Interest Rate or the
Monthly Payment, rather than providing for continuation of the same terms.]
Based on the foregoing assumptions and on the allocation rules
described above under "Description of the Certificates--Distributions--
Allocation Among Classes," the following tables indicate the weighted average
lives of the Certificates and set forth the percentage of the initial
Certificate Principal Amount of each Class of Certificates that would be
outstanding after the Distribution Date in __________ of each of the years
indicated, under various prepayment, LIBOR and years-of-extension scenarios.
None of the indicated percentages of SPA purports to be a historical description
of prepayment experience or a prediction of the anticipated rate of prepayment
of the Mortgage Loans included in the Mortgage Pool. Variations in the actual
prepayment experience and extension experience and the balance of the Mortgage
Loans that prepaid or are extended may increase or decrease the percentage of
initial Certificate Principal Amount (and weighted average life) shown in the
following tables. Such variations may occur even if the average prepayment
experience of all such Mortgage Loans equals any of the specified percentages of
the SPA and the average extension experience of all such Mortgage Loans equals
any of the specified years of extension. In addition, the Mortgage Loans may be
subject to periods of slower amortization or to negative amortization, in which
case the weighted average lives of the Certificates will be increased, and to
periods of accelerated amortization, in which case the weighted average lives of
the Certificates will be decreased.
[DECLINING BALANCE AND WEIGHTED AVERAGE LIFE TABLES]
- -----------------
(1) The weighted average life of a Certificate is determined by (i) multiplying
the amount of each distribution in reduction of the outstanding Certificate
Principal Amount of such Certificate by the number of years from the date
of issuance of the Certificates to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the initial Certificate
Principal Amount of the Certificate.
USE OF PROCEEDS
[Substantially all of the net proceeds from the sale of the
Certificates will be used by BSCMSI [to purchase the Mortgage Collateral
conveyed to the Trustee by BSCMSI simultaneously with the issue and sale of the
Certificates [to repay indebtedness incurred to purchase the Mortgage
Collateral] [to pay for the costs of structuring and issuing the Certificates]
[and] [to establish the [specify Reserve Funds]].
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
An election will be made to treat a segregated pool of assets within
the Trust Fund [(excluding the Reserve Fund and the rights of Certificateholders
under certain agreements pursuant to which the beneficial owner of the Reserve
Fund will make payments to the holders of the Regular Certificates in the event
of a Basis Risk Shortfall)] as a REMIC for federal income tax purposes. The
classes of REMIC interests designated in the Agreement as the Class of
Interests, corresponding to each Class of Certificates other than the Class A-R1
Certificates, respectively, will be considered to be "regular interests" in a
REMIC and will be referred to herein as "Regular Interests." The Class A-R1
Certificates will be considered to be the "residual interest" in a REMIC and
will be referred to herein as the "Residual Interest."
REGULAR INTERESTS
The Regular Interests generally will be treated as newly originated
debt instruments for federal income tax purposes. Holders of the Regular
Interests will be required to report income thereon in accordance with the
accrual method of accounting. It is anticipated that the Class ____ Interests
will be issued with original issue discount for federal income tax purposes, in
an amount equal to the excess of the initial principal balances of the
corresponding Classes of Certificates over their issue prices (including accrued
interest). It is further anticipated that the Class ____ Interests will be
issued at a premium for federal income tax purposes.
The Prepayment Assumption that is to be used in determining the rate
of accrual of original issue discount and whether the original issue discount is
considered DE MINIMIS, and that may be used by a holder of Regular Interests to
amortize premium, will be calculated using ____. No representation is made as to
the actual rate at which the Mortgage Loans will prepay.
RESIDUAL INTEREST
The holders of the Class A-R1 Certificates must include the taxable
income or loss of the REMIC in determining their federal taxable income. The
Class A-R1 Certificates will remain outstanding for federal income tax purposes
until there are no Certificates of any other Class outstanding. Prospective
investors are cautioned that the holders of Class A-R1 Certificates' REMIC
taxable income and the tax liability thereon will exceed cash distributions to
such holder during certain periods, in which event the holders must have
sufficient alternative sources of funds to pay such tax liability. Furthermore,
it is anticipated that all or a substantial portion of the taxable income of the
REMIC includable by a holder of a Class A-R1 Certificate will be treated as
"excess inclusion" income resulting in (i) the inability of such holder to use
net operating losses to offset such taxable income (ii) the treatment of such
taxable income as "unrelated business taxable income" to certain holders who are
otherwise tax-exempt and (iii) the treatment of such taxable income as subject
to 30% withholding tax to certain foreign investors, with no exemption or treaty
reduction.
Under the REMIC Regulations, since the fair market value of the Class
A-R1 Certificates will not exceed 2% of the fair market value of the REMIC, the
Class A-R1 Certificates will not have "significant value" and thrift
institutions will not be permitted to offset their net operating losses against
such excess inclusion income. In addition, under the REMIC Regulations, the
Class A-R1 Certificates will be considered "noneconomic residual interests,"
with the result that transfers thereof would be disregarded for federal income
tax purposes if any significant purpose of any such transfer was to impede the
assessment or collection of tax. Accordingly, the transferee affidavit used for
transfers of a Class A-R1 Certificate will require the transferee to state,
among other things, that it has no intention to impede the assessment or
collection of any federal, state or local income taxes legally required to be
paid with respect to the Class A-R1 Certificate and that it will not transfer
the Class A-R1 Certificate to any person that it has reason to believe has the
intention to impede the assessment or collection of such taxes. Finally, the
Class A-R1 Certificates generally may not be transferred to persons who are not
U.S. Persons. See "Certain Federal Income Tax Consequences--REMIC Residual
Certificates--Mismatching of Income and Deductions; Excess Inclusions" and
"--Transfers of REMIC Residual Certificates--Restrictions on Transfer; Holding
by Pass-Through Entities" in the Prospectus.
An individual, trust or estate that holds a Class A-R1 Certificate
(whether such Certificate is held directly or indirectly through certain
Pass-Through Entities) also may have additional gross income with respect to,
but may be subject to limitations on the deductibility of the fees of the Master
Servicer and the Special Servicer paid from the REMIC Pool and other
administrative expenses of the REMIC Pool in computing such holder's regular tax
liability, and may not be able to deduct such fees or expenses to any extent in
computing such holder's alternative minimum tax liability. Furthermore, the
federal income tax consequences of any consideration paid to a transferee on a
transfer of a Class A-R1 Certificate are unclear; therefore, any such transferee
receiving such consideration should consult its tax advisors.
DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTERESTS, THE EFFECTIVE
AFTER-TAX RETURN OF THE CLASS A-R1 CERTIFICATES MAY BE SIGNIFICANTLY LOWER THAN
WOULD BE THE CASE IF THE CLASS A-R1 CERTIFICATES WERE TAXED AS DEBT INSTRUMENTS.
ERISA CONSIDERATIONS
[THE PROSPECTUS SUPPLEMENT FOR A PARTICULAR SERIES OF CERTIFICATES
WILL INDICATE WHAT CLASSES, IF ANY, MAY BE ELIGIBLE FOR INVESTMENT BY CERTAIN
EMPLOYEE BENEFIT AND OTHER PLANS, AS MORE FULLY DESCRIBED IN SUCH PROSPECTUS
SUPPLEMENT. THE FOLLOWING IS EXEMPLARY LANGUAGE WHERE CERTAIN CLASSES OF
CERTIFICATES MAY BE ELIGIBLE FOR INVESTMENT BY SUCH PLANS.]
Any fiduciary of an employee benefit plan within the meaning of
Section 3(3) of ERISA (a "Plan"), which is subject to the fiduciary
responsibility rules of Title I, Sections 401-414, of ERISA or Section 4975 of
the Code and which proposes to cause a Plan to acquire any of the Offered
Certificates, should consult with its counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
such Certificates.
The U.S. Department of Labor has granted to the Underwriter an
administrative exemption (Prohibited Transaction Exemption 90-30, as amended,
referred to herein as the "Exemption") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code with respect to the initial purchase, the holding and subsequent
resale by Plans of certificates evidencing an interest in pass-through trusts
that consist of certain receivables, loans, and other obligations that meet the
conditions and requirements of the Exemption.
The Exemption covers certificates evidencing an interest in a trust
consisting of obligations that bear interest or are purchased at a discount and
which are secured, such as mortgages secured by commercial or multifamily real
property. Among the other conditions that must be satisfied for the Exemption to
apply are the following:
(l) The acquisition of the certificates by the 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 Moody's, S&P, D&P or Fitch;
(4) The trustee is not an affiliate of any member of the Restricted
Group (as defined below);
(5) The sum of all payments made to and retained by the underwriters
in connection with the distribution of certificates represents not more
than reasonable compensation for underwriting the certificates. The sum of
all payments made to and retained by the seller pursuant to the assignment
of the loans to the trust fund represents not more than the fair market
value of such loans. The sum of all payments made to and retained by the
servicer 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 Commission under the
Act.
In order for the Exemption to apply, the trust fund must also meet the
following requirements:
(1) The corpus of the trust fund must consist solely of assets of a
type that have been included in other investment pools;
(2) Certificates in such other investment pools must have been rated
in one of the three highest generic rating categories of Moody's, S&P, D&P
or Fitch for at least one year prior to the Plan's acquisition of
certificates; and
(3) Certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of certificates.
Moreover, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when a
Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on any obligations 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
Exemption does not apply to Plans sponsored by the Depositor, the Underwriters,
the Trustee, the Master Servicer, the Special Servicer, any obligor with respect
to Mortgage Loans included in the Trust Fund constituting more than five percent
of the aggregate unamortized principal balance of the assets in the Trust Fund,
or any affiliate of such parties (the "Restricted Group").
THE CHARACTERISTICS OF THE CLASS B AND CLASS C CERTIFICATES WILL NOT
MEET THE REQUIREMENTS OF THE EXEMPTION. ACCORDINGLY, THE CLASS B AND CLASS C
CERTIFICATES CANNOT BE ACQUIRED BY A PLAN.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption,
and the potential consequences in their specific circumstances, prior to making
an investment in the Class A Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment prudence
and diversification an investment in the Class A Certificates is appropriate for
the Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
RESTRICTIONS ON PURCHASE AND
TRANSFER OF THE CLASS A-R1 CERTIFICATES
The Class A-R1 Certificates are not offered for sale to certain
tax-exempt organizations that are "disqualified organizations" as defined in
"Certain Federal Income Tax Consequences--Transfers of REMIC Residual
Certificates--Tax on Disposition of REMIC Residual Certificates" and
"--Restrictions on Transfer; Holding by Pass-Through Entities" in the
Prospectus. Such "disqualified organizations" are prohibited from acquiring or
holding any beneficial interest in the Class A-R1 Certificates. Further, neither
the Class A-R1 Certificates nor any beneficial interest therein may be sold or
otherwise transferred without the express written consent of Bear Stearns
Securities Administration Corporation, an affiliate of BSCMSI (the "Tax Matters
Person"), which will be withheld only to avoid a risk of REMIC disqualification
or REMIC-level tax, and in any event may not be sold to disqualified
organizations. See "Certain Federal Income Tax Consequences--Transfers of REMIC
Residual Certificates--Tax on Disposition of REMIC Residual Certificates" and
"--Restrictions on Transfer; Holding by Pass-Through Entities" in the
Prospectus. Finally, unless the Tax Matters Person consents in writing (which
consent may be withheld in the Tax Matters Person's sole discretion), the Class
A-R1 Certificates (including a beneficial interest therein) may not be purchased
by or transferred to any person who is not (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
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 federal income tax
regardless of the source of its income. For certain additional tax-related
restrictions on the transfer of the Class A-R1 Certificates, see "Certain
Federal Income Tax Consequences--REMIC Residual Certificates--Mismatching of
Income and Deductions; Excess Inclusions" and "Certain Federal Income Tax
Consequences--Foreign Investors--REMIC Residual Certificates" in the Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
The [Offered] Certificates [(other than the Class _______
Certificates)] will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") and, as such, will
be legal investments for certain entities to the extent provided in SMMEA,
subject to state laws overriding SMMEA. Certain states have enacted legislation
overriding the legal investment provisions of SMMEA. [The Class ____
Certificates will not constitute "mortgage related securities" under SMMEA (the
"Non-SMMEA Certificates"). The appropriate characterization of the Non-SMMEA
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase Non-SMMEA Certificates,
may be subject to significant Interpretive Uncertainties.]
All investors whose investment activities are subject to legal
investment laws and regulations or to review by certain regulatory authorities
may be subject to restrictions on investment in the Certificates. Any such
investor should consult its own legal advisors in determining whether and to
what extent there may be restrictions on its ability to invest in the
Certificates. See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Certificates are being purchased from BSCMSI by the Underwriter,
an affiliate of BSCMSI, upon issuance. Distribution of such Certificates will be
made from time to time in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. Proceeds to BSCMSI are expected to be
approximately ___% of the aggregate principal balance of the Certificates as of
the Cut-Off Date plus accrued interest at the applicable Pass-Through Rate from
the Cut-Off Date to but not including the Closing Date, but before deducting
expenses payable by BSCMSI. In connection with the purchase and sale of the
Certificates, the Underwriter may be deemed to have received compensation from
BSCMSI in the form of underwriting discounts.
BSCMSI will indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or will contribute to payments the Underwriter may be required to make in
respect thereof.
CERTIFICATE RATINGS
It is a condition to their issuance that each Class of Certificates
receives the rating set forth below from _______ ("___") and __________
("_________").
CLASS RATING
Class A Certificates [ ] [ ]
Class B Certificates
Class C Certificates
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. A security rating does not represent any
assessment of the likelihood of principal prepayments on the Mortgage Loans or
of the degree to which such prepayments might differ from those originally
anticipated. The rating does not address the possibility that Certificateholders
might suffer a lower than anticipated yield.
BSCMSI has not requested a rating of the Certificates by any rating
agency other than ____ and ____. However, there can be no assurance as to
whether any rating agency not requested to rate the Certificates will
nonetheless issue a rating and, if so, what such rating would be. A rating
assigned to the Certificates by such other rating agency may be lower than the
rating assigned by _________ and __________.
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for BSCMSI and the Underwriter by Stroock & Stroock & Lavan, New York, New York.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
TERM........................................................ PAGE
Adjustment Date............................................... S-97
Agreement..................................................... S-6
Amounts Held for Future Distribution.......................... S-66
ARMs.......................................................... S-100
Assumed Monthly Payments...................................... S-89
Assumed Net Mortgage Interest Rate ........................... S-90
Assumed Scheduled Payment..................................... S-70
Available Distribution Amount................................. S-66
Available Subordination Amount................................ S-16
Balloon Loans................................................. S-53
Balloon Payment............................................... S-53
Basic Fee..................................................... S-112
Basis Risk Reserve Fund Draw Amount........................... S-76
Basis Risk Shortfall.......................................... S-75
Book-Entry Certificates....................................... S-8
BSCMSI........................................................ S-6
Business Day.................................................. S-63
Cede.......................................................... S-62
Certificate Owner............................................. S-62
Certificate Principal Amount.................................. S-22
Certificate Register.......................................... S-65
Certificates.................................................. S-1
Class A Certificates.......................................... S-7
Cleanup Costs................................................. S-55
COFI.......................................................... S-12
Collateral Agent.............................................. S-8
Collateral Security Agreement................................. S-9
Commercial Certificates....................................... S-7
Commercial Fixed Rate Certificates............................ S-7
Credit Enhancement............................................ S-16
Cut-Off Date.................................................. S-6
Debt Service Reduction........................................ S-90
Deferred Interest............................................. S-22
Deficient Valuation........................................... S-90
Definitive Certificates....................................... S-64
Depositor..................................................... S-8
Determination Date............................................ S-19
Discounted Mortgage Loan...................................... S-89
Disqualified Organizations.................................... S-45
Distribution Account.......................................... S-87
Distribution Date............................................. S-4
DTC........................................................... S-62
Due Date...................................................... S-18
Due-On-Sale................................................... S-96
Due Period.................................................... S-18
Eligible Multifamily Mortgage Loans........................... S-11
ERISA......................................................... S-44
Excess Prepayment Interest.................................... S-76
Exemption..................................................... S-123
FHLB.......................................................... S-101
FHLBSF........................................................ S-79
Final Recovery Determination.................................. S-93
Final Scheduled Distribution Date............................. S-117
First Adjustment Date......................................... S-98
Fixed Rate Certificates....................................... S-7
Floating Rate Certificates.................................... S-7
Floor Interest Rate........................................... S-11
Group Available Funds......................................... S-66
Group 2 Payment Adjustment Cap................................ S-101
Group 2 Payment Adjustment Floor.............................. S-101
Index......................................................... S-97
Indirect Participants......................................... S-63
Initial Deposit............................................... S-88
Interest Accrual Period....................................... S-20
Interest Shortfall............................................ S-76
Leases........................................................ S-13
Lessee........................................................ S-13
LIBO.......................................................... S-77
LIBOR......................................................... S-3
LIBOR Business Day............................................ S-77
LIBOR Determination Date...................................... S-77
Lock-Out Periods.............................................. S-49
Look-Back Period.............................................. S-101
Margin........................................................ S-97
Master Servicer............................................... S-8
Master Servicer Remittance Date............................... S-88
Matured Performing Mortgage Loans............................. S-58
Maximum Negative Amortization Amount.......................... S-101
Maximum Rates................................................. S-100
Maximum Subordination Amount.................................. S-17
Minimum Subordination Amount.................................. S-17
Monthly Advance............................................... S-43
Monthly Payment............................................... S-69
Mortgage Interest Rates....................................... S-9
Mortgage Loan Assumptions..................................... S-119
Mortgage Loans................................................ S-2
Mortgage Pool................................................. S-1
Mortgaged Properties.......................................... S-9
Mortgagor..................................................... S-14
Multifamily Certificates...................................... S-7
Multifamily Fixed Rate Certificates........................... S-7
Net Mortgage Interest Rate.................................... S-67
Net Negative Amortization..................................... S-25
Non-Monthly Payment Loan...................................... S-69
Non-SMMEA Certificates........................................ S-48
Note.......................................................... S-95
Offered Certificates.......................................... S-1
Optimal Available Funds....................................... S-67
Optimal Mortgage Loan Interest................................ S-67
Optimal Mortgage Loan Principal............................... S-67
Optimal Wind-Down Date........................................ S-113
Outstanding Balance........................................... S-90
PACs.......................................................... S-38
Participants.................................................. S-63
Pass-Through Rate............................................. S-20
Payment Adjustment Date....................................... S-101
Payment Rate.................................................. S-22
<PAGE>
Permitted Investments......................................... S-88
Plan Asset Regulations........................................ S-45
Plan(s)....................................................... S-44
Prepayment Model.............................................. S-119
Prepayment Period............................................. S-19
Primary Principal Distribution Amount......................... S-82
Principal Prepayments......................................... S-68
Rating Agencies............................................... S-47
Realized Loss................................................. S-86
Record Date................................................... S-18
Reference Banks............................................... S-77
Regular Certificates.......................................... S-7
Regular Interests............................................. S-43
Relief Act.................................................... S-75
REMIC......................................................... S-4
REMIC Pass-Through Rate....................................... S-76
REMIC Rate Shortfall.......................................... S-77
REMIC Residual Certificates................................... S-44
REO Account................................................... S-88
REO Mortgage Loan............................................. S-70
REO Property.................................................. S-70
Reserve Fund.................................................. S-17
Reserve Interest Rate......................................... S-78
Reserved Amount............................................... S-111
Residual Certificates......................................... S-7
Residual Interest............................................. S-121
Restricted Group.............................................. S-125
Reuters Screen LIBO Page...................................... S-77
Rules......................................................... S-63
Scheduled Principal Balance................................... S-69
Seller........................................................ S-4
Servicing Fee................................................. S-111
Simple Interest Loans......................................... S-96
SMMEA......................................................... S-11
SPA........................................................... S-38
Special Servicer.............................................. S-8
Special Servicer Fee.......................................... S-112
Superlien..................................................... S-55
Supplemental Fee.............................................. S-112
TACs.......................................................... S-40
Tax Matters Person............................................ S-46
Total Basis Risk Amount....................................... S-76
Trustee....................................................... S-6
Trust Assets.................................................. S-44
Trust Fund.................................................... S-1
Unaffiliated Seller........................................... S-17
Uncovered Basis Risk Shortfalls............................... S-76
Underwriter................................................... S-3
Workout Fee................................................... S-112
Workout Fee Rate.............................................. S-112
<PAGE>
[These exhibits may appear immediately following this Prospectus Supplement or
with the Glossary immediately following the Prospectus.]
MORTGAGE LOAN EXHIBITS
The information set forth in Exhibits ___ through ___ is based on
Scheduled Principal Balances, Mortgage Interest Rates and other information as
of _______ 1, 199_ with respect to mortgage loans expected to be included in the
Trust Fund. Not all the mortgage loans upon which Exhibits ____ through ____ are
based may be included in the Trust Fund and consequently the information set
forth below may vary from comparable information on the Mortgage Loans
ultimately included in the Trust Fund. In addition, the information set forth
below may change as a result of principal payments, Mortgage Interest Rate
adjustments and other factors relating to the Mortgage Loans prior to the
Closing Date. As to each item the chart will set forth the number of mortgage
loans, the Aggregate Unpaid Principal Balance as of the Cut-Off Date and the
Percentage of Aggregate Unpaid Principal Balance. The information expressed as a
Percentage of the Aggregate Unpaid Principal Balance may not total 100% due to
rounding, and the sum of the amounts listed as the Aggregate Unpaid Principal
Balance of the Mortgage Loans as of the Cut-Off Date may not total the indicated
amount due to rounding. For purposes of the following exhibits, weighted average
original term calculations do not include contractual extensions.
EXHIBIT A
MORTGAGE LOAN GROUP 1
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES OF MORTGAGE
LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Average Original Principal Balance is $__________.
DISTRIBUTION OF SCHEDULED PRINCIPAL BALANCES AS OF THE
CUT-OFF DATE OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Average Scheduled Principal Balance as of the Cut-Off
Date is $__________.
ORIGINAL TERMS TO STATED MATURITY OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Weighted Average Original Term to Stated Maturity is
___ months.
ORIGINAL TERMS TO STATED MATURITY OF BALLOON MORTGAGE
LOANS IN MORTGAGE LOAN GROUP 1
[information to be provided in each Series]
Weighted Average Original Term to Stated Maturity is ___ months.
REMAINING TERMS TO STATED MATURITY OF BALLOON MORTGAGE
LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Weighted Average Remaining Term to Stated Maturity
(excluding Matured Performing Mortgage Loans) is
______ months
REMAINING TERMS TO STATED MATURITY OF FULLY AMORTIZING
MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Weighted Average Remaining Term to Stated Maturity is
___ months.
SEASONING OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Weighted Averaged Seasoning is ___ months.
MORTGAGE INTEREST RATES AS OF CUT-OFF DATE OF MORTGAGE
LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Weighted Average Mortgage Interest Rate is ___%.
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Weighted Average Loan-to-Value at Origination is ___%.
RANGE OF RATIOS OF CURRENT LOAN BALANCE-TO-ORIGINAL VALUE
AS OF CUT-OFF DATE IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Weighted Average Current Loan Balance-to-Original Value
is ___%.
LIEN POSITIONS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
PROPERTY TYPE/USE OF MORTGAGED PROPERTIES IN MORTGAGE
LOAN GROUP 1
[Information to be provided in each Series]
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN
MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
MONTHLY PAYMENTS PAST DUE AS OF THE CUT-OFF DATE OF
MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
PREPAYMENT LOCK-OUT PROVISIONS OF MORTGAGE LOANS IN MORTGAGE
LOAN GROUP 1
[Information, if applicable, to be provided for each Series]
[In addition to the tables set forth above, the
following tables may be used for each exhibit relating
to a Mortgage Loan Group
consisting of adjustable rate mortgage loans:)
MARGINS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
Weighted Average Margin is ___%
MAXIMUM RATES OF MORTGAGE LOANS IN MORTGAGE LOAN
GROUP 1
[Information to be provided in each Series]
Weighted Average Maximum Rate (excluding Mortgage Loans
with no Maximum Rate and Mortgage Loans for which such
information is not available) is ___%
FLOOR INTEREST RATES OF MORTGAGE LOANS IN MORTGAGE LOAN
GROUP 1
[Information to be provided in each Series]
Weighted Average Floor Interest Rate (excluding Mortgage
Loans with no Floor Interest Rate) is ___%
PERIODIC RATE ADJUSTMENT CAPS OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
INTEREST ADJUSTMENT FREQUENCY OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
PAYMENT ADJUSTMENT FREQUENCY OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
INDEXES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP 1
[Information to be provided in each Series]
[EXHIBITS B, C AND D WILL CONTAIN FOR MORTGAGE LOAN GROUPS 2, 3 AND 4,
RESPECTIVELY, THE SAME INFORMATION AS EXHIBIT A SETS FORTH FOR THE GROUP 1
MORTGAGE LOANS.]
<PAGE>
EXHIBIT E
CHARACTERISTICS OF THE [50 LARGEST] MORTGAGE LOANS*
Group 1
Group 2
Group 3
Group 4
- --------
* Chart will set forth, for each Mortgage Loan presented, the city and state
in which the related Mortgaged Property is located, the property type,
applicable Index, current Mortgage Interest Rate, original term to
maturity, maturity date, original principal balance, Cut-Off Date,
Scheduled Principal Balance, Loan-to-Value Ratio at origination, current
loan balance to original value ratio, applicable margin, maximum Mortgage
Interest Rate, Floor Interest Rate and other information to be set forth in
the Prospectus Supplement relating to a particular Series.
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY BSCMSI OR THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CERTIFICATES
OFFERED HEREBY NOR AN OFFER OF SUCH CERTIFICATES TO ANY PERSON IN ANY STATE OR
OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Summary of Terms........................................................S-6
Risk Factors............................................................S-48
Description of the Certificates.........................................S-60
The Trust Fund..........................................................S-93
Servicing of the Mortgage Loans.........................................S-107
Yield, Prepayment and Maturity Considerations...........................S-112
Use of Proceeds.........................................................S-118
Certain Federal Income Tax Consequences.................................S-119
ERISA Considerations....................................................S-121
Restrictions on Purchase and Transfer of the
Class A-R1 Certificates...............................................S-123
Legal Investment Considerations.........................................S-124
Plan of Distribution....................................................S-125
Certificate Ratings.....................................................S-125
Legal Matters...........................................................S-126
Index of Principal Definitions..........................................S-127
Mortgage Loan Exhibits..................................................S-131
(Back cover continued
on next page)
<PAGE>
PROSPECTUS
Prospectus Supplement ................................................... 4
Available Information ................................................... 4
Reports to Certificateholders............................................ 5
Incorporation of Certain Documents by Reference.......................... 6
Summary of Terms ........................................................ 7
Description of the Certificates.......................................... 35
The Trust Fund .......................................................... 47
Use of Proceeds ......................................................... 72
The Depositor............................................................ 73
Servicing of the Mortgage Loans.......................................... 73
Credit Enhancement ...................................................... 82
Certain Legal Aspects of the
Mortgage Loans and Leases.............................................. 88
Certain Federal Income Tax Consequences .................................111
ERISA Considerations ....................................................143
Legal Investment ........................................................148
Method of Distribution ..................................................150
Legal Matters ...........................................................151
Financial Information....................................................151
Rating...................................................................152
Glossary.................................................................153
(Back cover continued
on next page)
<PAGE>
$--------------
(APPROXIMATE)
BEAR STEARNS
COMMERCIAL MORTGAGE SECURITIES INC.
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 199_-_
PROSPECTUS SUPPLEMENT
BEAR, STEARNS & CO. INC.
<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC.
Depositor
--------------------
This Prospectus relates to Mortgage Pass-Through Certificates (the
"Certificates"), which may be sold from time to time in one or more series
(each, a "Series") on terms determined at the time of sale and described in the
related Prospectus Supplement. The Certificates of a Series will evidence
beneficial ownership of one or more trust funds (each a "Trust Fund"). To the
extent specified in the related Prospectus Supplement, a Trust Fund for a Series
of Certificates will include certain mortgage-related assets (the "Mortgage
Assets") consisting of (i) first or junior lien mortgage loans or participations
therein secured by fee and/or leasehold interests in commercial or mixed
commercial/residential properties ("Commercial Mortgage Loans"), (ii) first or
junior lien mortgage loans or participations therein secured by multifamily
residential properties, including cooperatively-owned multifamily properties
("Multifamily Loans," and together with Commercial Mortgage Loans, the "Mortgage
Loans"), (iii) assignments of leases and rents of properties securing Mortgage
Loans, (iv) mortgage pass-though securities (the "Agency Securities") issued or
guaranteed by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or other government agencies or government-sponsored
agencies or (v) privately issued mortgage-backed securities ("Private
Mortgage-Backed Securities") that will have originally been issued in publicly
registered offerings or have been outstanding for at least three years and that
will have been acquired for inclusion in a Trust Fund in purely secondary
transactions, not from the issuer or an affiliate thereof. If specified in the
related Prospectus Supplement, the assets of a Trust Fund will consist of
Certificates representing a beneficial ownership interest in another trust fund
that contains the Mortgage Assets. The Mortgage Assets will be acquired by Bear
Stearns Commercial Mortgage Securities Inc. (the "Depositor") from one or more
entities which may be affiliates of the Depositor (each, a "Seller") and
conveyed by the Depositor to the related Trust Fund. A Trust Fund also may
include insurance policies, cash accounts, security deposits, letters of credit,
financial guaranty insurance policies, other insurance policies, third party
guarantees or indemnities or other agreements or assets to the extent described
in the related Prospectus Supplement.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more senior classes that receive certain
preferential treatment with respect to one or more other classes of Certificates
of such Series. One or more classes of Certificates of a Series may be entitled
to receive distributions of principal, interest or any combination thereof prior
to one or more other classes of Certificates of such Series or after the
occurrence of specified events or may be required to absorb one or more types of
losses prior to one or more other classes of Certificates, in each case as
specified in the related Prospectus Supplement.
Distributions to holders of Certificates ("Certificate-holders") will be
made monthly, quarterly, semi-annually or at such other intervals and on the
dates specified in the related Prospectus Supplement. Unless otherwise specified
in the Prospectus Supplement, distributions on the Certificates of a Series will
be made only from the assets of the related Trust Fund.
The Certificates will not represent an obligation of or interest in the
Depositor or any affiliate thereof and unless otherwise specified in the related
Prospectus Supplement will not be insured or guaranteed by any governmental
agency or instrumentality or by any other person. Unless otherwise specified in
the related Prospectus Supplement, the only obligations of the Depositor with
respect to a Series of Certificates will be to obtain certain representations
and warranties from the Sellers or other third parties and to assign to the
trustee (the "Trustee") for the related Series of Certificates the Depositor's
rights with respect to such representations and warranties. Unless otherwise
specified in the related Prospectus Supplement, the principal obligations of one
or more master servicers (each, a "Master Servicer"), any special servicer
(each, a "Special Servicer") or any standby servicer (each, a "Standby
Servicer") in each case named in the Prospectus Supplement with respect to the
related Series of Certificates, will be limited to its or their contractual
servicing obligations, including, to the extent set forth in the related
Prospectus Supplement, any obligation to advance delinquent payments on the
Mortgage Assets in the related Trust Fund.
The yield to maturity on each class of Certificates of a Series will
depend upon the price paid therefor, the related interest rate, if any, thereon
(and the levels of any applicable index, in the case of a class of floating rate
Certificates) and the rate and timing of the repayment of principal (including
prepayments) in respect thereof. The rate and timing of principal repayments of
the Certificates will be affected by the rate and timing of payments of
principal, particularly balloon payments (as hereinafter defined) on the
Mortgage Loans in the related Trust Fund, including unscheduled payments, such
as prepayments or as a result of Mortgage Loan repurchases, and the amount, if
any, of interest on the Mortgage Loans that is available for principal payments
on the Certificates. A Trust Fund may be subject to early termination under the
circumstances described herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, one or more elections may be made
to treat each Trust Fund or specified portions thereof as a "real estate
mortgage investment conduit" ("REMIC") for federal income tax purposes. See
"Certain Federal Income Tax Consequences."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
Prior to issuance there will have been no market for the Certificates of
any Series and there can be no assurance that a secondary market for any
Certificates will develop. This Prospectus may not be used to consummate sales
of a Series of Certificates unless accompanied by a Prospectus Supplement.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Method of Distribution" herein and in the related Prospectus Supplement. It is
anticipated that all Certificates will be distributed by, or sold by
underwriters managed by:
BEAR, STEARNS & CO. INC.
The date of this Prospectus is , 1995.
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the securities covered by such Prospectus Supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus and Prospectus Supplement when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to the Certificates of each Series to be
offered hereunder will, among other things, set forth with respect to such
Certificates, as appropriate: (i) a description of the class or classes of
Certificates; (ii) the rate of interest (the "Pass-Through Rate") or method of
determining the amount of interest, if any, to be passed through to each such
class; (iii) the aggregate principal amount, if any, relating to each such
class; (iv) the distribution dates (each a "Distribution Date") for interest and
principal payments and, if applicable, the initial and final scheduled
Distribution Dates for each class; (v) the order of application and allocation
of available funds to each class of Certificates; (vi) information as to the
nature and extent of subordination with respect to any class of Certificates
that is subordinate to any other class; (vii) information as to the assets
comprising the Trust Fund, including the general characteristics of the Mortgage
Assets included therein and available relevant material financial information
with respect to borrowers, guarantors, tenants and/or the mortgaged properties
underlying the Mortgage Loans (the "Mortgaged Properties") and, if applicable,
the amount and source of any reserve fund, letters of credit, guarantees,
insurance policies, or other instruments or agreements included in, or provided
for the benefit of, the Trust Fund; (viii) the circumstances, if any, under
which the Trust Fund may be subject to early termination; (ix) additional
information with respect to the plan of distribution of such Certificates; (x)
whether a REMIC election will be made and designation of the regular interests
and residual interests in any such REMIC; (xi) information as to the Trustee;
and (xii) information as to each Master Servicer and information as to each
Special Servicer or Standby Servicer, if any.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus and the Prospectus
Supplement relating to each Series of Certificates contain summaries of the
material terms of the documents referred to herein and therein, but do not
contain all of the information set forth in the Registration Statement of which
this Prospectus is a part. For further information, reference is made to such
Registration Statement and the exhibits thereto. Such Registration Statement and
exhibits can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at its Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices located
as follows: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street-Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center - 13th Floor, New York, New York 10048.
To the extent described in the related Prospectus Supplement, the Mortgage
Loans will also be secured by an assignment of the lessor's rights in one or
more leases (each, a "Lease") of the related Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, no Series of
Certificates will represent interests in or obligations of any lessee (each, a
"Lessee") under a Lease. If specified in the Prospectus Supplement, however, a
significant, and in some cases the sole, source of payments on the Mortgage
Loans and, therefore, of distributions on the related Series of Certificates
will be lease payments due from the Lessees under the Leases. Under such
circumstances, prospective investors in the related Series of Certificates may
wish to consider publicly available information concerning the Lessees, if any.
Reference should be made to the related Prospectus Supplement for information
concerning the Lessees and whether any such Lessees are subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Certificates
offered hereby and thereby nor an offer of the Certificates to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date.
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the related Trust Fund will be
provided to the Certificateholders. See "Description of the
Certificates--Reports to Certificateholders."
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of the Trust referred to in the
accompanying Prospectus Supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering of the Certificates issued by such Trust shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained herein or 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 the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute part of this
Prospectus. The Depositor will provide without charge to each person to whom a
copy of the Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by reference,
except the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to Bear Stearns Commercial Mortgage Securities Inc., 245 Park Avenue,
New York, New York 10167, Attention: Ralph Rose, Telephone: (212) 272-3210.
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement which will be prepared in connection with each Series of
Certificates.
Title of Securities..........Mortgage Pass-Through Certificates
(Issuable in Series).
Depositor....................Bear Stearns Commercial Mortgage Securities Inc., a
Delaware corporation. See "The Depositor."
Trustee......................The Trustee for each Series of Certificates will be
specified in the related Prospectus Supplement.
Master Servicer..............One or more entities named as a Master
Servicer in the related Prospectus Supplement,
which may be an affiliate of the Depositor.
See "Servicing of the Mortgage Loans--Certain
Matters Regarding the Master Servicer, Special
Servicer, the Depositor and the Trustee."
Special Servicer.............If specified in the related Prospectus
Supplement, one or more entities named as a
Special Servicer in the related Prospectus
Supplement, which may be an affiliate of the
Depositor. See "Servicing of the Mortgage Loans
--Certain Matters Regarding the Master
Servicer, Special Servicer, the Depositor and
the Trustee."
Standby Servicer.............If specified in the related Prospectus
Supplement, one or more entities named as a
Standby Servicer in the related Prospectus
Supplement, which may be an affiliate of the
Depositor. See "Servicing of the Mortgage
Loans--Advances."
Description of the
Certificates...............Each Certificate will represent a beneficial
ownership interest in one or more Trust Funds
created by the Depositor pursuant to a
Pooling and Servicing Agreement (each, an
"Agreement") among the Depositor, the Master
Servicer(s), Special Servicer(s), if any,
Standby Servicer(s), if any, and the
Trustee for the related Series. The
Certificates of any Series may be issued in
one or more classes as specified in the related
Prospectus Supplement. A Series of Certificates
may include one or more classes of senior
Certificates (collectively, the "Senior
Certificates") which receive certain
preferential treatment specified in the
related Prospectus Supplement with respect to
one or more classes of subordinate Certificates
(collectively, the "Subordinated
Certificates"). Certain Series or classes of
Certificates may be entitled to the benefits of
cash accounts, security deposits, letters of
credit, financial guaranty insurance policies,
other insurance policies, third party
guarantees and indemnities or other forms of
credit enhancement as described herein or in
the related Prospectus Supplement.
One or more classes of Certificates of each Series
(i) may be entitled to receive distributions
allocable only to principal, only to interest
or to any combination thereof; (ii) may be
entitled to receive distributions only of
prepayments of principal throughout the lives
of the Certificates or during specified
periods; (iii) may be subordinated in the right
to receive distributions of scheduled payments
of principal, prepayments of principal,
interest or any combination thereof to one or
more other classes of Certificates of such
Series throughout the lives of the Certificates
or during specified periods or may be
subordinated with respect to certain losses or
delinquencies; (iv) may be entitled to receive
such distributions only after the occurrence of
events specified in the Prospectus Supplement;
(v) may be entitled to receive distributions in
accordance with a schedule or formula or on the
basis of collections from designated portions
of the assets in the related Trust Fund; (vi)
as to Certificates entitled to distributions
allocable to interest, may be entitled to
receive interest at a fixed rate or a rate that
is subject to change from time to time; and
(vii) as to Certificates entitled to
distributions allocable to interest, may be
entitled to distributions allocable to interest
only after the occurrence of events specified
in the related Prospectus Supplement and may
accrue interest until such events occur, in
each case as specified in the related
Prospectus Supplement. The timing and amounts
of such distributions may vary among classes,
over time, or otherwise as specified in the
related Prospectus Supplement.
Distributions on the
Certificates...............Unless otherwise specified in the related
Prospectus Supplement, Distributions on the
Certificates entitled thereto will be made
monthly, quarterly, semi-annually or at such
other intervals and on such other Distribution
Dates specified in the Prospectus Supplement
solely out of the payments received in respect
of the assets of the related Trust Fund. The
amount allocable to payments of principal and
interest and as among the various classes of
Certificates on any Distribution Date will be
determined as specified in the Prospectus
Supplement. Unless otherwise specified in the
related Prospectus Supplement, all
distributions will be made pro rata to
Certificateholders of the class entitled
thereto.
Advances.....................The related Prospectus Supplement will set forth
the obligations, if any, of the Master Servicer
or any Special Servicer or any Sub-Servicer (as
hereinafter defined) to make any advances with
respect to delinquent payments on Mortgage
Loans, payments of taxes, insurance and
Property Protection Expenses (as hereinafter
defined) or otherwise. Any such advances will
be made in the form and manner described in
the Prospectus Supplement and the Agreement
for the related Series. If so specified in the
related Prospectus Supplement, one or more
Standby Servicer(s) may be obligated to make
such advances in addition to, orin lieu of, a
Master Servicer or Sub-Servicer.
Optional Termination.........The Master Servicer, the holders of the residual
interests in a REMIC, or any other entity
specified in the related Prospectus Supplement
may have the option to effect early retirement
of a Series of Certificates through the
purchase of the Mortgage Assets and other
assets in the related Trust Fund under the
circumstances and in the manner described in
"Description of the Certificates--Termination;
Repurchase of Mortgage Assets."
Trust Fund Assets............A Trust Fund for a Series of Certificates will
include the Mortgage Assets consisting of
(i) a pool (a "Mortgage Pool") of Commercial
Mortgage Loans and/or Multifamily Loans
(collectively, the "Mortgage Loans"), (ii)
assignments of leases and rents (the "Leases")
of properties securing Mortgage Loans, (iii)
Agency Securities and/or (iv) Private Mortgage-
Backed Securities, together with payments in
respect of such Mortgage Assets and certain
other accounts, obligations or agreements, in
each case as specified in the related
Prospectus Supplement.
A. Commercial Mortgage Loans
and Multifamily
Loans....................Unless otherwise specified in the related
Prospectus Supplement, Commercial Mortgage
Loans will be secured by first or junior
fee and/or leasehold mortgage liens on
commercial or mixed commercial and residential
properties, including without limitation liens
on office buildings, retail facilities,
factories, warehouses, distribution centers,
hotels, motels, medical buildings, hospitals,
nursing homes, convalescent homes, shopping
centers and industrial buildings (each, a
"Commercial Property").
Multifamily Loans will be secured by first or
junior mortgage liens on rental apartment
buildings or projects containing five or more
residential units, including apartment
buildings owned by private, nonprofit,
cooperative housing corporations
("Cooperatives"). Such loans may be
conventional loans (i.e., loans that are not
insured or guaranteed by any governmental
agency) or insured by the Federal Housing
Authority (the "FHA") or other governmental
agency or authority, as specified in the
related Prospectus Supplement.
To the extent specified in the related Prospectus
Supplement, the Mortgage Loans may also be
secured by, among other things, an assignment
of one or more Leases of one or more tenants
(each, a "Lessee") of all or a portion of the
Mortgaged Property. See "--Leases" below.
The payment terms of the Mortgage Loans to be
included in a Trust Fund will be described in
the related Prospectus Supplement and may
include any of the following features or
combinations thereof or other features
described in the related Prospectus
Supplement:
(a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to
an index, a rate that is fixed for a period
of time or under certain circumstances and
is followed by an adjustable rate, a rate
that otherwise varies from time to time,
or a rate that is convertible from an
adjustable rate to a fixed rate. Interest
may be payable in arrears or in advance and
certain Mortgage Loans ("Simple Interest
Loans") may provide that scheduled interest
and principal payments thereon are applied
first to interest accrued from the last date
to which interest has been paid to the date
such payment is received and the balance
thereof is applied to principal. Changes to
an adjustable rate may be subject to
periodic limitations, maximum rates, minimum
rates or a combination of such limitations.
Accrued interest may be deferred and added
to the principal of a Mortgage Loan for such
periods and under such circumstances as may
be specified in the related Prospectus
Supplement. Mortgage Loans may provide for
the payment of interest at a rate lower than
the specified interest rate on the Mortgage
Loan (the "Mortgage Rate") for a period of
time or for the life of the Mortgage Loan,
and the amount of any such difference may be
contributed from funds "buydown funds"
supplied by the seller of the Mortgaged
Property or another source or may be treated
as accrued interest and added to the
principal of the Mortgage Loan.
(b) Principal may be payable on a level debt
service basis to fully amortize the
Mortgage Loan over its term, may be
calculated on the basis of an assumed
amortization schedule that is significantly
longer than the original term to maturity or
on an interest rate that is different from
the interest rate on the Mortgage Loan or
may not be amortized during all or a portion
of the original term. Payment of all or a
substantial portion of the principal may be
due on maturity ("balloon payments").
Principal may include interest that has been
deferred and added to the principal balance
of the Mortgage Loan.
(c) Payments of principal and/or interest may be
fixed for the life of the Mortgage Loan, may
increase over a specified period of time or
may change from period to period. Mortgage
Loans may include limits on periodic
increases or decreases in the amount of
monthly payments and may include maximum or
minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a
prepayment fee, which may be fixed for the
life of the Mortgage Loan, may decline over
time, may be calculated based upon the
difference between the anticipated rate of
return to the lender over the life of the
Mortgage Loan and the return to the date of
prepayment or a different basis as described
in the related Prospectus Supplement, or may
be prohibited for the life of the Mortgage
Loan or for certain periods ("lockout
periods"). Certain Mortgage Loans may
permit prepayments after expiration of the
applicable lockout period and may require
the payment of a prepayment fee in
connection with any such subsequent
prepayment. Other Mortgage Loans may permit
prepayments without payment of a fee unless
the prepayment occurs during specified
time periods.The Mortgage Loans may include
due-on-sale clauses which permit the
mortgagee to demand payment of the entire
Mortgage Loan (including any prepayment
fees) in connection with the sale or certain
transfers of the related Mortgaged Property
and/or due-on-encumbrance clauses which
permit a mortgagee to demand payment of
the entire Mortgage Loan upon encumbrances
of the related Mortgaged Property with
a lien which is either senior or junior to
the lien securing the Mortgage Loan. Other
Mortgage Loans may be assumable by persons
meeting the then applicable underwriting
standards of the Seller or other standards.
The Mortgaged Properties constituting security
for repayment of a Mortgage Loan may be
located in any one of the fifty states, the
District of Columbia or such other locations
as may be described in the related
Prospectus Supplement. To the extent
specified in the related Prospectus
Supplement, the Mortgaged Properties may be
owned by the Depositor or one or more of its
affiliates or by a single owner or multiple
related or unrelated owners. Unless
otherwise specified in the related
Prospectus Supplement, all of the Mortgaged
Properties securing Mortgage Loans will be
covered by standard hazard insurance
policies insuring against losses due to fire
and various other causes. The Multifamily
Loans may be covered by primary mortgage
insurance policies to the extent provided
in the related Prospectus Supplement. The
Mortgage Loans may be newly originated or
seasoned and unless otherwise specified in
the related Prospectus Supplement, all of
the Mortgage Loans will have been purchased
by the Depositor, either directly or through
an affiliate, from Sellers. Each Seller may
or may not be the originator of the Mortgage
Loans it sells to the Depositor and certain
of the Sellers (including Sellers
originating Mortgage Loans sold to the
Depositor) may be affiliates of the
Depositor.
Mortgage Loans may provide for recourse against
only the related Mortgaged Property or
for recourse against other assets of the
borrower under the related Mortgage Loan
(each, a "Mortgagor"). See "Certain Legal
Aspects of the Mortgage Loans and Leases."
B. Leases...................To the extent specified in the related
Prospectus Supplement, certain of the
Mortgaged Properties may be leased to
Lessees occupying all or a portion of the
Mortgaged Properties. Unless otherwise
specified in the Prospectus Supplement, each
of the Leases will be assigned as collateral
for the related Mortgage Loan. As described
in the related Prospectus Supplement, the
Lessees will be required to pay stipulated
rent, all or part of which may be a fixed
payment or may be based upon gross revenues,
net revenues or some other measure of
financial performance of the related leased
Mortgaged Property. In certain instances as
provided in the related Prospectus
Supplement, rent and certain other payments
may be made directly to the Master Servicer.
In addition, to the extent described in the
related Prospectus Supplement, the Leases
generally may require the Lessees to pay
their pro rata share of the operating
expenses, insurance premiums and real estate
taxes associated with the Mortgaged
Properties. To the extent specified in the
related Prospectus Supplement, certain
of the Leases may require the lessor (who is
also the Mortgagor under the related
Mortgage Loan) to cover costs associated
with structural repairs and/or the
maintenance of the exterior of the Mortgaged
Property or provide for certain limits on
the aggregate amount of operating expenses,
insurance premiums and taxes that the
Lessees are required to pay. To the extent
specified in the related Prospectus
Supplement, the Leases may require the
Lessees to pay rent to the Mortgagors which
is sufficient in the aggregate to cover all
scheduled payments of principal and interest
on the related Mortgage Loans and, if
applicable, any fixed expenses of operating
the related Mortgaged Properties borne by
the Mortgagors under the related Leases. In
those cases where payments under the Leases
(net of any operating expenses payable by
the Mortgagor) are insufficient to pay all
of the scheduled principal and interest on
the related Mortgage Loans, the Mortgagors
must rely on other income or sources
(including security deposits) generated by
the related Mortgaged Property to make
payments on the related Mortgage Loan. To
the extent specified in the related
Prospectus Supplement, some Commercial
Properties may be leased entirely to one
tenant. In such cases, the Mortgagor must
rely entirely on such tenant to pay all of
the scheduled principal and interest on the
related Commercial Mortgage Loan or make
such payment from other sources. To the
extent specified in the related Prospectus
Supplement, certain of the Leases may expire
prior to the stated maturity of the related
Mortgage Loan. In such cases, upon
expiration of the Leases the Mortgagors will
have to look to alternative sources of
income, including rent payments by any new
tenants or proceeds from the sale of the
Mortgaged Property, to cover the payments of
principal and interest due on such Mortgage
Loans unless the Leases are renewed.
C. Agency Securities........The Agency Securities will consist of (i) fully
modified mpass-through mortgage-backed
certificates guaranteed as to timely payment
of principal and interest by the Government
National Mortgage Association ("GNMA
Certificates"), (ii) guaranteed mortgage
pass-through certificates issued and
guaranteed as to timely payment of principal
and interest by the Federal National
Mortgage Association ("FNMA Certificates"),
(iii) Mortgage Participation Certificates
issued and guaranteed as to timely payment
of interest and, unless otherwise specified
in the related Prospectus Supplement,
ultimate payment of principal by the Federal
Home Loan Mortgage Corporation ("FHLMC
Certificates"), (iv) stripped mortgage-
backed securities representing an undivided
interest in all or a part of either the
principal distributions (but not the
interest distributions) or the interest
distributions (but not the principal
distributions) or in some specified portion
of the principal and interest distributions
(but not all of such distributions) on
certain GNMA, FNMA, FHLMC or other
government agency or government-sponsored
agency Certificates and, unless otherwise
specified in the Prospectus Supplement,
guaranteed to the same extent as the
underlying securities, (v) another type
of guaranteed pass-through certificate
issued or guaranteed by GNMA, FNMA, FHLMC
or another government agency or government-
sponsored agency and described in the
related Prospectus Supplement, or (vi) a
combination of such Agency Securities. All
GNMA Certificates will be backed by the full
faith and credit of the United States. No
FNMA or FHLMC Certificates will be backed,
directly or indirectly, by the full faith
and credit of the United States. The Agency
Securities may consist of pass-through
securities issued under the GNMA I Program,
the GNMA II Program, FHLMC's Cash or
Guarantor Program or another program
specified in the Prospectus Supplement.
The payment characteristics of the Mortgage
Loans underlying the Agency Securities
will be described in the related Prospectus
Supplement. See "The Trust Fund--Agency
Securities."
D. Private Mortgage-
Backed Securities......Private Mortgage-Backed Securities may
include (i) mortgage participations or pass-
through certificates representing beneficial
interests in certain Mortgage Loans or (ii)
Collateralized Mortgage Obligations ("CMOs")
secured by such Mortgage Loans. All Private
Mortgage-Backed Securities will have
originally been issued in publicly
registered offerings or have been
outstanding for at least three years and
will have been acquired for inclusion in a
Trust Fund in purely secondary transactions,
not from the issuer or an affiliate thereof.
Although individual Mortgage Loans
underlying a Private Mortgage-Backed
Security may be insured or guaranteed by the
United States or an agency or
instrumentality thereof, they need not be,
and the Private Mortgage-Backed Securities
themselves will not be so insured or
guaranteed. See "The Trust Fund--Private
Mortgage-Backed Securities." Unless
otherwise specified in the Prospectus
Supplement relating to a Series of
Certificates, payments on the Private
Mortgage-Backed Securities will be
distributed directly to the Trustee as
registered owner of such Private Mortgage-
Backed Securities. See "The Trust Fund--
Private Mortgage-Backed Securities."
The related Prospectus Supplement for a Series
will specify (i) the aggregate approximate
principal amount and type of any Private
Mortgage-Backed Securities to be included
in the Trust Fund for such Series; (ii)
certain characteristics of the Mortgage
Loans which comprise the underlying assets
for the Private Mortgage-Backed Securities
including, to the extent available, (A)
the payment features of such Mortgage
Loans, (B) the approximate aggregate
principal amount, if known, of the
underlying Mortgage Loans which are insured
or guaranteed by a governmental entity,
and (C) the minimum and maximum stated
maturities of the Mortgage Loans at
origination; (iii) the security therefor;
(iv) whether the Mortgage Loans are recourse
or nonrecourse; (v) the pass-through or
certificate rate or ranges thereof for the
Private Mortgage-Backed Securities; (vi)
the issuer of the Private Mortgage-Backed
Securities (the "PMBS Issuer"), the servicer
of the Private Mortgage-Backed Securities
(the "PMBS Servicer") and the trustee of
the Private Mortgage-Backed Securities (the
"PMBS Trustee"); (vii) certain
characteristics of credit support, if any,
such as reserve funds, insurance policies,
letters of credit, financial guaranty
insurance policies or third party
guarantees, relating to the Mortgage Loans
underlying the Private Mortgage-Backed
Securities, or to such Private Mortgage-
Backed Securities themselves; and (viii)
the terms on which the underlying Mortgage
Loans for such Private Mortgage-Backed
Securities may be, or are required to be,
repurchased prior to their stated maturity.
Credit Enhancement...........The assets in a Trust Fund or the Certificates of
one or more classes in the related Series
may have the benefit of one or more types of
credit enhancement described in the related
Prospectus Supplement. The protection
against losses afforded by any such credit
support will be limited to the extent set
forth in the Prospectus Supplement. Such
credit enhancement may include one or
more of the following types:
A. Subordination............The rights of the holders of the
Subordinated Certificates of a Series to
receive distributions with respect to the
assets in the related Trust Fund will be
subordinated to such rights of the holders
of the Senior Certificates of the same
Series to the extent described in the
related Prospectus Supplement. This
subordination is intended to enhance the
likelihood of regular receipt by holders
of Senior Certificates of the full amount
of payments which such holders would be
entitled to receive if there had been no
losses or delinquencies. The protection
afforded to the holders of Senior
Certificates of a Series by means of the
subordination feature may be accomplished
by the preferential right of such holders
to receive, prior to any distribution being
made in respect of the related Subordinated
Certificates, the amounts of principal
and/or interest due them on each
Distribution Date out of the funds available
for distribution on such date to the extent
described in the related Prospectus
Supplement. The protection afforded to the
holders of Senior Certificates of a Series
by means of the subordination feature also
may be accomplished by allocating certain
types of losses or delinquencies to the
Subordinated Certificates to the extent
described in the related Prospectus
Supplement.
If so specified in the related Prospectus
Supplement, the same class of Certificates
may be Senior Certificates with respect
to certain types of payments or certain
types of losses or delinquencies and
Subordinated Certificates with respect to
other types of payments or types of losses
or delinquencies. If so specified in the
related Prospectus Supplement, subordination
may apply only in the event of certain
types of losses in excess of available
credit support or losses not covered by
other forms of credit support, including
without limitation losses not covered by
standard hazard insurance policies, losses
due to the bankruptcy of the Mortgagor
or losses as a result of condemnation
of the Mortgaged Property. The related
Prospectus Supplement will set forth
information concerning the amount of
subordination of a class or classes of
Subordinated Certificates in a Series, the
circumstances in which such subordination
will be applicable and the manner, if any,
in which the amount of subordination will
decrease over time.
B. Letters of Credit........If so specified in the related Prospectus
Supplement, one or more letters of credit
with respect to a Series of Certificates
will be issued by the bank or financial
institution specified in the Prospectus
Supplement (the "L/C Bank"). If so specified
in the related Prospectus Supplement, the
letter of credit may permit drawings in
the event of losses not covered by insurance
policies or other credit support, including,
without limitation, such losses not covered
by standard hazard insurance policies,
losses due to the bankruptcy of the
Mortgagor or losses as a result of
condemnation of the Mortgaged Property.
Unless otherwise specified in the related
Prospectus Supplement, the L/C Bank will be
obligated to honor drawings thereunder in an
aggregate fixed dollar amount, net of
unreimbursed payments thereunder, equal
to the percentage specified in the related
Prospectus Supplement of the aggregate
principal balance of the related Mortgage
Loans on the applicable Cut-off Date or
the initial aggregate principal balance of
one or more classes of a Series of
Certificates.
C. Financial Guaranty
Insurance...............If so specified in the related Prospectus
Supplement, financial guaranty insurance
with respect to a Series of Certificates
will be provided by one or more insurance
companies. Such financial guaranty
insurance will guaranty, with respect to one
or more classes of Certificates of the
applicable Series, timely distributions of
interest and full distributions of principal
on the basis of a schedule of principal
distributions set forth in or determined
in the manner specified in the related
Prospectus Supplement. If so specified in
the related Prospectus Supplement, the
financial guaranty insurance will also
guaranty against any payment made to a
Certificateholder which is subsequently
recovered as a "voidable preference"
payment under the Bankruptcy Code (as
hereinafter defined).
D. Reserve Accounts.........If specified in the related Prospectus
Supplement, one or more reserve funds
(each, a "Reserve Account") may be
established with respect to a Series, in
which cash, a letter of credit, Permitted
Investments (as hereinafter defined) or a
combination thereof, in the amounts, if any,
so specified in the related Prospectus
Supplement will be deposited. Each Reserve
Account for a Series may also be funded
over time by depositing therein a specified
amount of the distributions received on the
applicable Mortgage Assets if specified in
the related Prospectus Supplement.
Amounts on deposit in any Reserve Account for
a Series, together with, if so specified in
the related Prospectus Supplement, the
reinvestment income thereon, if any, will
be applied by the related Trustee for the
purposes, in the manner, and to the extent
specified in the related Prospectus
Supplement. A Reserve Account may be provided
to increase the likelihood of timely payments
of principal of and interest on one or more
classes of Certificates, if required as a
condition to the rating of such Certificates
by each nationally recognized rating agency
that will rate the related Certificates
(each, a "Rating Agency") or otherwise. If
so specified in the related Prospectus
Supplement, a Reserve Account may be
established to provide limited protection,
in an amount satisfactory to each Rating
Agency, against certain types of losses not
covered by insurance policies or other credit
support, such as losses arising from damage
not covered by standard hazard insurance
policies, losses due to the bankruptcy of a
Mortgagor or losses as a result of
condemnation of the Mortgaged Property.
Reserve Accounts may also be established for
other purposes and in such amounts as will
be specified in the related Prospectus
Supplement.
Additional information concerning any Reserve
Account will be set forth in the related
Prospectus Supplement, including the initial
balance of such Reserve Account, the balance
required to be maintained in the Reserve
Account, the manner in which such required
balance will decrease over time, the manner
of funding of such Reserve Account, the
purpose for which such funds in the Reserve
Account may be applied to make distributions
to the applicable Certificateholders of a
Series and the use of investment earnings
from the Reserve Account, if any.
E. FHA Insurance............All or a portion of the Mortgage Loans in a
Mortgage Pool may be insured by FHA
insurance.
F. Other Arrangements......Other arrangements as described in the related
Prospectus Supplement, including but not
limited to insurance policies or third
party guarantees, may be used to provide
coverage for certain risks of defaults or
losses. These arrangements may be in
addition to or in substitution for any
forms of credit support described in this
Prospectus. Any such arrangement must be
acceptable to each Rating Agency.
G. Cross Support............If specified in the related Prospectus
Supplement, the beneficial ownership of
separate groups of assets or separate Trust
Funds may be evidenced by separate classes
of the related Series of Certificates. In
such case, credit support may be provided
by a cross-support feature which requires
that distributions be made with respect to
certain Certificates evidencing beneficial
ownership of one or more asset groups or
Trust Funds prior to distributions to other
Certificates evidencing a beneficial
ownership interest in other asset groups
or Trust Funds. 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
Trust Funds, without priority among such
Trust Funds, until the credit support is
exhausted. If applicable, the Prospectus
Supplement will identify the asset groups or
Trust Funds to which such credit support
relates and the manner of determining the
amount of the coverage provided thereby and
of the application of such coverage to the
identified asset groups or Trust Funds.
H. Cross-
Collateralization......If so specified in the related Prospectus
Supplement, certain of the Mortgage Loans may
be secured not only by the mortgage securing
the Mortgaged Property in respect of which
the related Mortgage Loan was made, but by
a mortgage on some or all of the other
Mortgaged Properties in the related Mortgage
Pool for such Series of Certificates.
Under such circumstances it may be possible,
in a situation where foreclosure of a
particular Mortgaged Property does not
result in sufficient net proceeds to fully
repay the related Mortgage Loan, that the
balance of such Mortgage Loan may
nevertheless be paid as a result of
dispositions or refinancings of other
Mortgaged Properties in the related Mortgage
Pool in subsequent transactions or from
cash flows generated by such other Mortgaged
Properties in the related Mortgage Pool. To
the extent specified in the related
Prospectus Supplement, however, it may not
be possible to accelerate the payment of
other Mortgage Loans that are cross-
collateralized with a defaulted Mortgage
Loan or to foreclose on the cross-
collateralized Mortgage Loans except in
connection with a default on such Mortgage
Loans that results in the acceleration of
their payment.
Legal Investment.............Institutions whose investment activities are
subject to legal investment laws and
regulations or to review by certain
regulatory authorities may be subject to
restrictions on investment in the
Certificates. Any such institution should
consult its own legal advisors in determining
whether and to what extent there may be
restrictions on its ability to invest in the
Certificates. See "Legal Investment."
The related Prospectus Supplement will specify
which classes of Certificates, if any,
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") and, as such, will be legal
investments for certain types of
institutional investors to the extent
provided in SMMEA, subject, in any case,
to any other regulations which may govern
investments by such institutional investors.
See "Legal Investment."
Certain Federal Income Tax
Consequences...............The federal income tax consequences of the
purchase, ownership and disposition of
the Certificates of each series will depend
on, among other things, whether an election is
made to treat the corresponding Trust Fund
(or certain assets of the Trust Fund) as
a "real estate mortgage investment conduit"
("REMIC") under the Internal Revenue Code of
1986, as amended (the "Code").
REMIC. If an election is to be made to treat the
Trust Fund (or certain assets of the Trust
Fund) for a series of Certificates as a
REMIC for federal income tax purposes, the
related Prospectus Supplement will specify
which class or classes thereof will be
designated as regular interests in the REMIC
("REMIC Regular Certificates") and which class
of Certificates will be designated as the
residual interest in the REMIC ("REMIC
Residual Certificates"). To the extent
provided herein and in the related Prospectus
Supplement, Certificates representing an
interest in the REMIC will be considered
"qualifying real property loans" within the
meaning of Section 593(d) of the Code,
"real estate assets" for purposes of Section
856(c)(5)(A) of the Code and assets described
in Section 7701(a)(19)(C) of the Code.
For federal income tax purposes, REMIC Regular
Certificates generally will be treated as
debt obligations of the Trust Fund with
payment terms equivalent to the terms of
such Certificates. Holders of REMIC Regular
Certificates will be required to report income
with respect to such Certificates under an
accrual method, regardless of their normal
tax accounting method. Generally, original
issue discount, if any, on REMIC Regular
Certificates will be includable in the income
of the Holders thereof as it accrues, in
advance of receipt of the cash attributable
thereto, which rate of accrual will be
determined based on a reasonable assumed
prepayment rate. The REMIC Residual
Certificates generally will not be treated
as evidences of indebtedness for federal
income tax purposes, but instead, as
representing rights to the taxable income
or net loss of the REMIC.
Each holder of a Residual Certificate will
be required to take into account separately
its pro rata portion of the REMIC's taxable
income or loss. Certain income of a REMIC
(referred to as "excess inclusions") generally
may not be offset by such a holder's net
operating loss carryovers or other deductions,
and in the case of a tax-exempt holder of
a REMIC Residual Certificate will be treated
as "unrelated business taxable income." In
certain situations, particularly in the early
years of a REMIC, holders of a REMIC Residual
Certificate may have taxable income, and
possibly tax liabilities with respect to
such income, in excess of cash distributed to
them. "DISQUALIFIED ORGANIZATIONS," AS DEFINED
IN "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--
TRANSFERS OF REMIC RESIDUAL CERTIFICATES--TAX
ON DISPOSITION OF REMIC RESIDUAL CERTIFICATES
AND RESTRICTIONS ON TRANSFER; HOLDING BY PASS-
THROUGH ENTITIES," ARE PROHIBITED FROM
ACQUIRING OR HOLDING ANY BENEFICIAL INTEREST
IN THE REMIC RESIDUAL CERTIFICATES. In
certain cases, a transfer of a REMIC Residual
Certificate will not be effective for Federal
income tax purposes. See "Certain Federal
Income Tax Consequences-- Transfers of REMIC
Residual Certificates" and "--Foreign
Investors" herein.
Grantor Trust. If no election is to be made
to treat the Trust Fund for a series of
Certificates ("Non-REMIC Certificates") as
a REMIC, the Trust Fund will be classified
as a grantor trust for federal income tax
purposes and not as an association taxable as
a corporation. Holders of Non-REMIC
Certificates will be treated for such
purposes, subject to the possible application
of the stripped bond rules, as owners of
undivided interests in the related Mortgage
Loans and generally will be required to
report as income their pro rata share of
the entire gross income (including amounts
paid as reasonable servicing compensation)
from the Mortgage Loans and will be entitled,
subject to certain limitations, to deduct
their pro rata share of expenses of the
Trust Fund.
To the extent provided herein and in the related
Prospectus Supplement, Non-REMIC Certificates
will represent interests in "qualifying real
property loans" within the meaning of Section
593(d) of the Code, "real estate assets" for
purposes of Section 856(c)(5)(A) of the Code
and "loans . . . 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, if applicable,
in the related Prospectus Supplement.
ERISA Considerations.........Fiduciaries of employee benefit plans subject to
Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
should consider the ERISA fiduciary investment
standards before authorizing an investment by
a plan in a Series of Certificates. In
addition, fiduciaries of employee benefit
plans subject to Title I of ERISA, as well as
certain plans not subject to ERISA, but
which are subject to Section 4975 of the
Code, such as individual retirement accounts
and Keogh plans covering only a sole
proprietor or partners (collectively,
"Plan(s)"), should consult with their legal
counsel to determine whether an investment in
a Series of Certificates will cause the
Mortgage Assets of the Trust Fund to be
considered plan assets pursuant to the plan
asset regulations set forth in 29 C.F.R.
Section Section 2510.3-101 (the "Plan Asset
Regulations"), thereby subjecting the Plan to
the prohibited transaction rules with respect
to the Mortgage Assets and the Trustee or the
Master Servicer to the fiduciary investment
standards of ERISA, or cause the excise tax
provisions of Section 4975 of the Code to
apply to the Mortgage Assets unless some
exemption granted by the Department of Labor
applies to the purchase, sale, transfer or
holding of a Series of Certificates. See
"ERISA Considerations."
<PAGE>
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement (each, an "Agreement") among the Depositor, one or more
Master Servicers, one or more Special Servicers, if any, one or more Standby
Servicers, if any, and the Trustee for the benefit of the holders of the
Certificates of such Series. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. A form of an Agreement is an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries describe certain provisions which may appear in each Agreement. The
Prospectus Supplement for a Series of Certificates will describe any provision
of the Agreement relating to such Series that materially differs from the
description thereof contained in this Prospectus. The Depositor will provide a
copy of the Agreement (without exhibits) relating to any Series without charge
upon written request of a holder of a Certificate of such Series addressed to
Bear Stearns Commercial Mortgage Securities Inc., 245 Park Avenue, New York, New
York 10167.
At the time of issuance, the Certificates of each Series will be rated
"investment grade," typically one of the four highest generic rating categories,
by at least one nationally recognized statistical rating organization. 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 each nationally recognized
rating agency rating the related Certificates (each, a "Rating Agency"). See
"Rating."
GENERAL
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued in fully registered form only, in the
denominations specified in the related Prospectus Supplement, will evidence
specified beneficial ownership interests in the related Trust Fund created
pursuant to an Agreement and will not be entitled to payments in respect of the
Mortgage Assets included in any other Trust Fund established by the Depositor.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will not represent obligations of the Depositor or any affiliate of
the Depositor. The Mortgage Loans will not be insured or guaranteed by any
governmental entity or other person, unless otherwise specified in the
Prospectus Supplement. Each Trust Fund will consist of, to the extent provided
in the related Agreement, such assets as are described under "The Trust Fund"
herein. If provided in the related Agreement, a certificate administrator, which
may be an affiliate of the Depositor, may be obligated to perform certain duties
in connection with the administration of the Certificates.
Each Series of Certificates will be issued in one or more classes.
Each class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more classes that receive certain preferential
treatment with respect to one or more other classes of Certificates of such
Series and certain Series or classes of Certificates may be entitled to the
benefit of credit enhancement, in each case as described herein or in the
related Prospectus Supplement. Distributions on one or more classes of a Series
of Certificates may be made prior to one or more other classes, after the
occurrence of specified events, in accordance with a schedule or formula, on the
basis of collections from designated portions of the Mortgage Assets in the
related Trust Fund or on a different basis, in each case, as specified in the
related Prospectus Supplement. The timing and amounts of such distributions may
vary among classes or over time as specified in the related Prospectus
Supplement.
The Prospectus Supplement for any Series including classes similar to
any of those described above will contain a complete description of their
characteristics and risk factors, including, as applicable, (i) mortgage
principal prepayment effects on the weighted average lives of classes,
especially classes that support the principal payment stability of classes with
payment schedules, (ii) the risk that interest only, or disproportionately
interest weighted, classes purchased at a premium may not return their purchase
prices under rapid prepayment scenarios and (iii) the degree to which an
investor's yield is sensitive to principal prepayments. In addition, the
Prospectus Supplement relating to each Series will set forth the applicable due
period and prepayment period (i.e., the periods in which scheduled payments or
prepayments received will be available for distribution), record date, cut-off
date and determination date on which the availability of certain funds is
determined in respect of each Series of Certificates.
The Certificates will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement; PROVIDED, HOWEVER, that certain classes of Certificates may be
subject to transfer restrictions described in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, the Certificates may be
transferable only on the books of The Depository Trust Company or another
depository identified in such Prospectus Supplement. Unless otherwise provided
in the related Prospectus Supplement, no service charge will be made for any
registration of exchange or transfer of Certificates of any Series but the
Trustee may require payment of a sum sufficient to cover any related tax or
other governmental charge.
DISTRIBUTIONS ON CERTIFICATES
General. Unless otherwise specified in the related Prospectus
Supplement, distributions of principal and interest (or, where applicable, of
principal only or interest only) on the related Certificates will be made to the
registered holders thereof (the "Certificateholders" or "Holders") by the
Trustee (or such other paying agent as may be identified in the applicable
Prospectus Supplement) on each Distribution Date (i.e, monthly, quarterly,
semi-annually or at such other intervals and on the dates as are specified in
the Prospectus Supplement) in proportion to the percentages specified in the
related Prospectus Supplement. Distributions will be made to the persons in
whose names the Certificates are registered at the close of business on the
dates specified in the Prospectus Supplement (each, a "Record Date").
Distributions will be made by check or money order mailed to the persons
entitled thereto at the address appearing in the register maintained for holders
of Certificates (the "Certificate Register") or, if specified in the related
Prospectus Supplement, in the case of Certificates that are of a certain minimum
denomination, upon written request by the Certificateholder, by wire transfer or
by such other means as are described therein; PROVIDED, HOWEVER, that the final
distribution in retirement of each class of Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee or other person specified in the notice to Certificateholders of such
final distribution. In general, such amounts will include previously
undistributed payments of principal (including principal prepayments, if any)
and interest on the Mortgage Loans received by the Trustee after a date
specified in the related Prospectus Supplement (the "Cut-Off Date") and prior to
the day preceding each Distribution Date specified in the related Prospectus
Supplement.
ACCOUNTS
Unless otherwise specified in the related Prospectus Supplement, the
Agreement for each Series of Certificates will require the Trustee to establish
an account (the "Certificate Account") into which the Master Servicer(s) will
deposit amounts held in each Collection Account (as defined below). On each
Distribution Date, the Trustee will apply amounts on deposit in the Certificate
Account to make distributions of interest and principal to the
Certificateholders in the manner described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement for each Series of Certificates will provide that the Master
Servicer(s) establish and maintain one or more accounts (each, a "Collection
Account") in the name of the Trustee for the benefit of Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will deposit into each Collection Account, as more fully described in
the related Prospectus Supplement, the following payments and collections
received or advances made by or on behalf of it subsequent to the Cut-off Date
(other than payments due on or before the Cut-off Date and exclusive of any
amounts specified in the related Prospectus Supplement as not being transferred
to the Trust Fund ("Retained Interest"):
(i) all payments on account of principal, including Principal
Prepayments (as defined below), on the Mortgage Loans;
<PAGE>
(ii) all payments on account of interest on the Mortgage Loans and all
Prepayment Premiums (as defined below);
(iii) all proceeds from any insurance policies relating to a Mortgage
Loan other than proceeds applied to the restoration of the related
Mortgaged Property or released to the Mortgagor in accordance with the
express provisions of the Mortgage or the related promissory note (the
"Note") or prudent and customary servicing practices (collectively,
"Insurance Proceeds");
(iv) all proceeds (other than Insurance Proceeds) from the liquidation
of a Mortgage Loan ("Liquidation Proceeds"), including the sale of any
Mortgaged Properties acquired on behalf of the Certificateholders by
foreclosure or deed in lieu of foreclosure ("REO Property");
(v) all proceeds received in connection with the taking of a Mortgaged
Property by eminent domain;
(vi) any amounts required to be deposited by a Master Servicer to
cover net losses on Permitted Investments (as defined below) made with
funds held in the Certificate Account, the Collection Account or any other
accounts (collectively, the "Accounts");
(vii) all payments required to be deposited in connection with the
application of coinsurance clauses, flood damage to REO Properties and
blanket policy deductibles;
(viii) any amounts required to be deposited from income with respect
to any REO Property;
(ix) any amounts received from Mortgagors which represent recoveries
of Property Protection Expenses (as defined below); and
(x) all other amounts required to be deposited pursuant to the
Agreement.
For purposes hereof, "Principal Prepayment" means any payment of
principal received on a Mortgage Loan in advance of its scheduled due date and
which is not accompanied by an amount of interest due on any date or dates in
any month or months subsequent to the month of prepayment and including such
amounts of Insurance Proceeds, Liquidation Proceeds and proceeds from the
repurchase of Mortgage Loans as may be provided in the related Prospectus
Supplement; "Prepayment Premium" means any premium paid or payable by the
related Mortgagor in connection with any principal prepayment on any Mortgage
Loan; and "Property Protection Expenses" means certain costs and expenses
incurred in connection with defaulted Mortgage Loans, acquiring title or
management of REO Property or the sale of defaulted Mortgage Loans or REO
Properties, as more fully described in the related Agreement. As set forth in
the Agreement for each Series, each Master Servicer will be entitled to make
certain withdrawals from the Collection Account to, among other things: (i)
remit certain amounts for the related Distribution Date into the Certificate
Account; (ii) reimburse Property Protection Expenses and pay taxes, assessments
and insurance premiums and certain third-party expenses in accordance with the
Agreement; (iii) pay accrued and unpaid servicing fees to each Master Servicer
out of all Mortgage Loan collections; and (iv) reimburse each Master Servicer,
Special Servicer, if any, the Trustee and the Depositor for certain expenses and
provide indemnification to the Depositor and each Master Servicer and the
Special Servicer, if any, as described in the Agreement.
The amount at any time credited to the Collection Account may be
invested in Permitted Investments that are payable on demand or in general
mature or are subject to withdrawal or redemption on or before the business day
preceding the next succeeding Master Servicer Remittance Date (as defined below)
or such other date as may be provided in the related Agreement. The Master
Servicer will be required to remit amounts required for distribution to
Certificateholders to the Certificate Account on the business day preceding the
related Distribution Date or such other date as may be specified in the related
Prospectus Supplement (the "Master Servicer Remittance Date"). Unless otherwise
provided in the related Prospectus Supplement, the income from the investment of
funds in the Collection Account in Permitted Investments will constitute
additional servicing compensation for the Master Servicer, and the risk of loss
of funds in the Collection Account resulting from such investments will be borne
by the Master Servicer. The amount of each such loss will be required to be
deposited by the Master Servicer in the Collection Account immediately as
realized.
To the extent specified in the related Prospectus Supplement, the
Agreement for each Series of Certificates may provide that a trust account (the
"REO Account") will be established and maintained in order to be used in
connection with REO Properties and, if specified in the related Prospectus
Supplement, certain other Mortgaged Properties. To the extent set forth in the
Agreement, certain withdrawals from the REO Account will be made to, among other
things, (i) make remittances to the Collection Account as required by the
Agreement, (ii) pay taxes, assessments, insurance premiums, other amounts
necessary for the proper operation, management and maintenance of the REO
Properties and such Mortgaged Properties and certain third-party expenses in
accordance with the Agreement and (iii) provide for the reimbursement of certain
expenses in respect of the REO Properties and such Mortgaged Properties.
The amount at any time credited to the REO Account may be invested in
Permitted Investments that mature, or are subject to withdrawal or redemption,
on or before the business day on which such amounts are required to be remitted
to the Master Servicer for deposit in the Collection Account. The income from
the investment of funds in the REO Account in Permitted Investments shall be
deposited in the REO Account for remittance to the Collection Account, and the
risk of loss of funds in the REO Account resulting from such investments will be
borne by the Trust Fund.
Unless otherwise specified in the applicable Prospectus Supplement,
"Permitted Investments" will consist of one or more of the following:
(i) direct obligations of, or 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 of America;
(ii) direct obligations of, or guaranteed as to timely payment of
principal and interest by, the FHLMC, FNMA or the Federal Farm Credit
System, provided that any such obligation, at the time of purchase of such
obligation or contractual commitment providing for the purchase thereof, is
qualified by each Rating Agency as an investment of funds backing
securities having ratings equivalent to each Rating Agency's highest
initial rating of the Certificates;
(iii) demand and time deposits in or certificates of deposit of, or
bankers' acceptances issued by, any bank or trust company, savings and loan
association or savings bank, provided that, in the case of obligations that
are not fully FDIC-insured deposits, the commercial paper and/or long-term
unsecured debt obligations of such depository institution or trust company
(or in the case of the principal depository institution in a holding
company system, the commercial paper or long-term unsecured debt
obligations of such holding company) have the original ratings required by
each Rating Agency initially rating the Certificates, or such lower rating
as will not result in the downgrade or withdrawal of the rating or ratings
then assigned to the Certificates by any such Rating Agency;
(iv) general obligations of or obligations guaranteed by any state of
the United States or the District of Columbia receiving the original
long-term debt ratings required by each Rating Agency initially rating the
Certificates, or such lower ratings as will not result in the downgrading
or withdrawal of the rating or ratings then assigned to the Certificates by
any such Rating Agency;
(v) commercial or finance company paper (including both
non-interest-bearing discount obligations and interest-bearing obligations
payable on demand or on a specified date not more than one year after the
date of issuance thereof) having the original short-term unsecured debt
rating required by each Rating Agency initially rating the Certificates at
the time of such investment or contractual commitment providing for such
investment, and having been issued by a corporation the outstanding senior
long-term debt obligations of which are then rated by each Rating Agency
initially rating the Certificates in such original long-term unsecured
rating categories as are required by each such Rating Agency, or such lower
rating as will not result in the downgrading or withdrawal of the rating or
ratings then assigned to the Certificates by any such Rating Agency;
(vi) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation having such original ratings as are required
by each Rating Agency initially rating the Certificates at the time of such
investment provided that any such agreement must by its terms provide that
it is terminable by the purchaser without penalty in the event any such
rating is at any time lower than such level;
(vii) repurchase obligations with respect to any security described in
clause (i) or (ii) above entered into with a depository institution or
trust company (acting as principal) meeting the ratings standard described
in (iii) above;
(viii) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any state
thereof and having the original long-term unsecured debt rating required by
each Rating Agency initially rating the Certificates at the time of such
investment or contractual commitment providing therefor; PROVIDED, HOWEVER,
that securities issued by any such corporation will not be Permitted
Investments to the extent that investment therein would cause the then
outstanding principal amount of securities issued by such corporation and
held as part of the Collection Account or the Certificate Account to exceed
20% of the aggregate principal amount of all Permitted Investments held in
the Collection Account and the Certificate Account;
(ix) units of taxable money market funds which funds are regulated
investment companies, seek to maintain a constant net asset value per share
and invest solely in obligations backed by the full faith and credit of the
United States, and have been designated in writing by each Rating Agency as
Permitted Investments with respect to this definition;
(x) if previously confirmed in writing to the Trustee, any other
demand, money market or time deposit, or any other obligation, security or
investment, as may be acceptable to each Rating Agency as an investment of
funds backing securities having ratings equivalent to each Rating Agency's
highest initial rating of the Certificates; and
(xi) such other obligations as are acceptable as Permitted Investments
to each Rating Agency;
PROVIDED, HOWEVER, that (a) such instrument or security shall qualify as a "cash
flow investment" pursuant to the Internal Revenue Code of 1986, as amended (the
"Code") and (b) no instrument or security shall be a Permitted Investment if (i)
such instrument or security evidences a right to receive only interest payments
or (ii) the stated interest rate on such investment is in excess of 120% of the
yield to maturity produced by the price at which such investment was purchased.
AMENDMENT
Unless otherwise specified in the Prospectus Supplement, each
Agreement may be amended by the Depositor, each Master Servicer, each Special
Servicer or Standby Servicer, if any, and the Trustee, without the consent of
any of the Certificateholders, (i) to cure any ambiguity; (ii) to correct or
supplement any provision therein which may be defective or inconsistent with any
other provision therein; (iii) to maintain the rating or ratings assigned to the
Certificates by a Rating Agency, or (iv) to make any other revisions with
respect to matters or questions arising under the Agreement which are not
inconsistent with the provisions thereof, provided that such action will not, as
determined by and evidenced in an opinion of counsel acceptable to the Depositor
and the Trustee, adversely affect in any material respect the interests of any
Certificateholder. In addition, to the extent provided in the related Agreement,
an Agreement may be amended without the consent of any of the
Certificateholders, to change the manner in which the Certificate Account, the
Collection Account or any other Accounts are maintained, provided that any such
change does not adversely affect the then current rating on the class or classes
of Certificates of such Series that have been rated. Further, if a REMIC
election is made with respect to a Trust Fund, the related Agreement may be
amended by the Depositor, each Master Servicer, each Special Servicer or Standby
Servicer, if any, and the Trustee to modify, eliminate or add to any of its
provisions to such extent as may be necessary to maintain the qualification of
the related Trust Fund or portion thereof as a REMIC, provided that the Trustee
has received an opinion of counsel to the effect that such action is necessary
or helpful to maintain such qualification.
Unless otherwise specified in the Prospectus Supplement, each
Agreement may also be amended by the Depositor, each Master Servicer, each
Special Servicer or Standby Servicer, if any, and the Trustee with consent of
holders of Certificates of such Series evidencing not less than a percentage
specified in the related Agreement of each class of Certificates affected by the
proposed amendment for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Agreement or of modifying
in any manner the rights of the holders of the related Certificates; PROVIDED,
HOWEVER, that no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Assets which are required to
be distributed on any Certificate without the consent of the holder of such
Certificate, or (ii) reduce the aforesaid percentage of Certificates of any
class, holders of which are required to consent to any such amendment without
the consent of the holders of all Certificates of such class then outstanding or
(iii) alter the servicing standard set forth in the Agreement.
If a REMIC election is made with respect to a Trust Fund or a portion
thereof, the related Agreement may provide that the Trustee will not be entitled
to consent to an amendment to such Agreement without having first received an
opinion of counsel to the effect that such amendment will not cause such Trust
Fund or portion thereof to fail to qualify as a REMIC.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the amendment of the related Agreement.
TERMINATION; REPURCHASE OF MORTGAGE ASSETS
Unless otherwise provided in the related Prospectus Supplement, the
obligations of the parties to the Agreement for each Series will terminate upon:
(i) the purchase of all of the assets of the related Trust Fund, as described in
the related Prospectus Supplement; (ii) the later of (a) the distribution to
Certificateholders of that Series of final payment with respect to the last
outstanding Mortgage Loan or (b) the disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure with respect to the last outstanding
Mortgage Loan and the remittance to the Certificateholders of all funds due
under the Agreement; (iii) the sale of the assets of the related Trust Fund
after the principal amounts of all Certificates have been reduced to zero under
circumstances set forth in the Agreement; (iv) mutual consent of the parties to
the Agreement and all Certificateholders or (v) upon such other event as is
described in the related Prospectus Supplement. In addition, if a REMIC election
has been made with respect to a Series of Certificates, a Trust Fund may be
terminated and the Certificates retired following a determination, based upon an
opinion of counsel, that the REMIC status of the Trust Fund or portion thereof
has been lost or that a substantial risk exists that such status will be lost
for the current taxable year. With respect to each Series, the Trustee will give
or cause to be given written notice of termination of the Agreement to each
Certificateholder and, unless otherwise specified in the applicable Prospectus
Supplement, the final distribution under the Agreement will be made only upon
surrender and cancellation of the related Certificates at an office or agency
specified in the notice of termination. Notwithstanding the above, in no event
will a Trust Fund terminate later than 21 years after the death of the last
surviving lineal descendant of the person named in the applicable Agreement
alive as of the applicable Cut-off Date.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution for each Series, the Trustee (or
such other paying agent as may be identified in the applicable Prospectus
Supplement) will forward to each Certificateholder a statement setting forth
such information relating to such distribution as is specified in the Agreement
and described in the applicable Prospectus Supplement. Such statement also will
disclose, if applicable, any material change in the procedures used in
preparing, or the information contained in, such statements.
CERTIFICATEHOLDER COMMUNICATIONS
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will provide that if any Certificateholder (the "Applicant") applies
in writing to the Trustee, and such application states that the Applicant
desires to communicate with other Certificateholders of the related Series with
respect to their rights under the Agreement or under the Certificates and is
accompanied by a copy of the communications which such Applicant proposes to
transmit, then the Trustee will be required to, at the expense of such
Applicant, within 10 business days after the receipt of such application,
furnish such Applicant a list of the names and addresses of the
Certificateholders.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, a class of
Certificates initially may be represented by one or more certificates registered
in the name of Cede & Co. ("Cede"), the nominee for The Depository Trust Company
("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 New York 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 Participants").
Certificateholders that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of Certificates
registered in the name of Cede, as nominee of DTC, may do so only through
Participants and Indirect Participants. In addition, such Certificateholders
will receive all distributions of principal of and interest on the Certificates
from the Trustee through DTC and its Participants. Under a book-entry format,
Certificateholders will receive payments after the related Distribution 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 them to Indirect Participants or
Certificateholders. Under a book-entry format, it is anticipated that the only
Certificateholder will be Cede, as nominee of DTC, and that the beneficial
holders of Certificates will not be recognized by the Trustee as
Certificateholders under the Agreement. The beneficial holders of such
Certificates will only be permitted to exercise the rights of Certificateholders
under the 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 Certificates and is
required to receive and transmit payments of principal of and interest on the
Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificateholders.
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
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC generally takes any action permitted to be taken by a
Certificateholder under an Agreement only at the direction of one or more
Participants to whose account with DTC the Certificates are credited.
Additionally, DTC in general advises that it will take such actions with respect
to specified percentages of the Certificateholders only at the direction of and
on behalf of Participants whose holdings include current principal amounts of
outstanding Certificates that satisfy such specified percentages. DTC may take
conflicting actions with respect to other current principal amounts of
outstanding Certificates to the extent that such actions are taken on behalf of
Participants whose holdings include such current principal amounts of
outstanding Certificates.
Neither the Depositor, a Master Servicer, the Special Servicer, the
Stand-by Servicer nor the Trustee will have any liability for any aspect of the
records relating to, or payment made on account of, beneficial ownership
interests of any Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Any Certificates initially registered in the name of Cede, as nominee
of DTC, will be issued in fully registered, certificated form to
Certificateholders or their nominees ("Definitive Certificates"), rather than to
DTC or its nominee, only under the events specified in the related Agreement.
Such events may include the following: (i) the Depositor advises the Trustee in
writing that DTC is no longer willing or able to properly discharge its
responsibilities as Depository with respect to the Certificates, and the Trustee
or the Depositor is unable to locate a qualified successor, (ii) the Depositor,
at its option, elects to terminate the book-entry system through DTC, or (iii)
after the occurrence of an Event of Default (defined herein), Certificateholders
representing not less than 50% of the aggregate principal amount of the
applicable series of Certificates advise the Trustee and DTC through
Participants in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the best interest of the
Certificateholders. Upon the occurrence of any of the events specified in the
related Agreement, DTC will be required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the certificates representing the Certificates and instruction for
re-registration, the Trustee will issue the Certificates in the form of
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as Certificateholders. Thereafter, payments of
principal of and interest on the Certificates will be made by the Trustee
directly to Certificateholders in accordance with the procedures set forth
herein and in the Agreement. The final distribution of any Certificate (whether
Definitive Certificates or Certificates registered in the name of Cede),
however, will be made only upon presentation and surrender of such Certificates
on the final Distribution Date at such office or agency as is specified in the
notice of final payment to Certificateholders.
THE TRUST FUND
To the extent specified in the related Prospectus Supplement, a Trust
Fund for a Series of Certificates will include (A) the Mortgage Assets
consisting of a Mortgage Pool** comprised of (i) Commercial Mortgage Loans, (ii)
Multifamily Loans, (iii) Leases, (iv) Agency Securities, and/or (v) Private
Mortgage-Backed Securities, in each case, as specified in the related Prospectus
Supplement, (B) payments in respect of such Mortgage Assets, including, without
limitation, (i) all payments of interest and principal on the Mortgage Assets,
(ii) the proceeds of any real estate tax and insurance escrows created in
connection with any of the Mortgage Assets, (iii) any insurance proceeds or
condemnation awards arising from or in connection with any of the collateral
securing any of the Mortgage Assets; (iv) any security deposits and like
accounts established in connection with any of the Leases; and (v) all real and
personal property and proceeds which secured any Mortgage Asset and which are
acquired on behalf of the Certificateholders by foreclosure, deed-in-lieu of
foreclosure, repossession or otherwise, in each case, as specified in the
related Prospectus Supplement; (C) various forms of credit enhancement,
including without limitation insurance policies on the Mortgage Assets, letters
of credit, guarantees, certificate guarantee insurance policies, the right to
make draws upon one or more Reserve Accounts, or other arrangements acceptable
to each Rating Agency rating the Certificates (see "Credit Enhancement"), in
each case, as specified in the related Prospectus Supplement; and (D) such other
accounts, obligations or agreements, in each case as specified in the related
Prospectus Supplement. As specified in the related Prospectus Supplement, the
Mortgage Loans may be secured by, among other things, liens on commercial real
estate properties, multifamily residential properties, cooperatively owned
multifamily properties and/or mixed residential and commercial properties (each,
a "Mortgaged Property").
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Mortgage Assets.
The Mortgage Assets will be acquired by the Depositor, either directly
or through affiliates, from the Sellers (which may include affiliates of the
Depositor) and conveyed by the Depositor to the related Trust Fund. The Sellers
may have originated the Mortgage Assets or acquired the Mortgage Assets from the
originators or other entities. See "--The Mortgage Loans--Mortgage Underwriting
Standards and Procedures."
The following is a brief description of the Mortgage Assets expected to
be included in the Trust Funds. A copy of the Agreement with respect to each
Series of Certificates will be attached to a report on Form 8-K to be filed with
the Commission within fifteen days after the initial issuance of such
Certificates 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 will be attached to the Agreement
delivered to the Trustee upon delivery of the Certificates.
THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement,
Commercial Mortgage Loans will be secured by first or junior fee or leasehold
mortgage liens on commercial or mixed commercial and residential properties,
including without limitation liens on office buildings, retail facilities,
factories, warehouses, distribution centers, hotels, motels, medical buildings,
hospitals, nursing homes, convalescent homes, shopping centers and industrial
buildings (each, a "Commercial Property").
Multifamily Loans will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by first or junior
liens on rental apartment buildings or projects containing five or more
residential units and may include high-rise, mid-rise and garden apartments.
Such loans may be conventional loans or FHA-insured loans, as specified in the
related Prospectus Supplement. Certain of the Multifamily Loans may be secured
by apartment buildings owned by Cooperatives. The Cooperative owns all the
apartment units in the building and all common areas. The Cooperative is owned
by tenant-stockholders who, through ownership of stock, shares or membership
certificates in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific apartments or units.
Generally, a tenant-stockholder of a Cooperative must make a monthly payment to
the Cooperative representing such tenant-stockholder's pro rata share of the
Cooperative's payments for its mortgage loan, real property taxes, maintenance
expenses and other capital or ordinary expenses. Those payments are in addition
to any payments of principal and interest the tenant-stockholder must make on
any loans to the tenant-stockholder secured by its shares in the Cooperative.
The Cooperative will be directly responsible for building management and, in
most cases, payment of real estate taxes and hazard and liability insurance. A
Cooperative's ability to meet debt service obligations on a Multifamily Loan, as
well as all other operating expenses, will be dependent in large part on the
receipt of maintenance payments from the tenant-stockholders, as well as any
rental income from units or commercial areas the Cooperative might control.
Unanticipated expenditures may in some cases have to be paid by special
assessments on the tenant-stockholders.
Mortgage Loans may also be secured by one or more assignments of leases
and rents, management agreements or operating agreements relating to the
Mortgaged Property and in some cases by certain letters of credit, personal
guarantees or both. Pursuant to an assignment of leases and rents, the related
Mortgagor assigns its rights, title and interest as landlord under each lease
and the income derived therefrom to the related lender, while retaining a
license to collect the rents for so long as there is no default. If the
Mortgagor defaults, the license terminates and the related lender is entitled to
collect the rents from tenants to be applied to the monetary obligations of the
Mortgagor. State law and Federal bankruptcy law may limit or restrict the
enforcement of the assignment of leases and rents by a lender until the lender
takes possession of the related Mortgaged Property and a receiver is appointed.
See "Certain Legal Aspects of the Mortgage Loans and Leases --Bankruptcy Laws."
Alternatively, to the extent specified in the related Prospectus Supplement, the
Mortgagor and the lender may agree that payments under Leases be made directly
to the Master Servicer.
As described in the related Prospectus Supplement, the Lessees will be
required to pay stipulated rent all or part of which may be a fixed payment
and/or may be based upon gross revenues, net revenues or some other measure of
financial performance of the related leased Mortgaged Property. In addition, to
the extent described in the related Prospectus Supplement, the Leases generally
may require the Lessees to pay their pro rata share of the operating expenses,
insurance premiums and real estate taxes associated with the Mortgaged
Properties and in certain cases, above a specified level of such expenses,
insurance premiums and taxes. To the extent specified in the related Prospectus
Supplement, certain of the Leases may require the lessor (who is also the
Mortgagor under the related Mortgage Loan) to bear costs associated with the
maintenance of the exterior or other portions of the Mortgaged Property or
provide for certain limits on the aggregate amount of operating expenses,
insurance premiums, taxes and other expenses that the Lessees are required to
pay. If so specified in the related Prospectus Supplement, under certain
circumstances the Lessees may be permitted to set-off their rental obligations
against the obligations of the Lessors under the Leases. To the extent specified
in the related Prospectus Supplement, the Leases will require the Lessees to pay
rent to the Mortgagors which is sufficient in the aggregate to cover all
scheduled payments of principal and interest on the related Mortgage Loans and,
if applicable, any fixed expenses of operating the related Mortgaged Properties
borne by the Mortgagors under the related Leases. In those cases where payments
under the Leases (net of any operating expenses payable by the Mortgagor) are
insufficient to pay all of the scheduled principal and interest on the related
Mortgage Loans, the Mortgagors must rely on other income or sources (including
security deposits) generated by the related Mortgaged Property, to make payments
on the related Mortgage Loan. To the extent specified in the related Prospectus
Supplement, some Commercial Properties may be leased entirely to one tenant. In
such cases, the Mortgagor must rely entirely on rent paid by such tenant in
order for the Mortgagor to pay all of the scheduled principal and interest on
the related Commercial Mortgage Loan or make such payments from other sources.
To the extent specified in the related Prospectus Supplement, certain of the
Leases may expire prior to the stated maturity of the related Mortgage Loan. In
such cases, upon expiration of the Leases the Mortgagors will have to look to
alternative sources of income, including rent payment by any new tenants or
proceeds from the sale or refinancing of the Mortgaged Property, to cover the
payments of principal and interest due on such Mortgage Loans unless the Leases
are renewed. As specified in the related Prospectus Supplement, certain of the
Leases may provide that upon the occurrence of a casualty affecting a Mortgaged
Property, the Lessee will have the right to terminate its Lease, unless the
landlord is able to cause the Mortgaged Property to be restored within a
specified period of time. Certain Leases provide that it is the landlord's
responsibility, while other Leases provide that it is the Lessee's
responsibility, to restore the Mortgaged Property after a casualty to its
original condition. Certain Leases provide a right of termination to the Lessee
in the event a taking of a material or specified percentage of the leased space
in the Mortgaged Property occurs, or if the ingress or egress to the leased
space has been materially impaired.
The Mortgaged Properties may be located in any one of the fifty states,
the District of Columbia or such other locations as may be specified in the
related Prospectus Supplement. To the extent specified in the related Prospectus
Supplement, the Mortgaged Properties may be owned by the Depositor or one or
more of its affiliates or by a single owner or multiple related or unrelated
owners. Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will be covered by standard hazard insurance policies
insuring against losses due to fire and various other causes. The Multifamily
Loans will be covered by primary mortgage insurance policies to the extent
provided in the related Prospectus Supplement. The Mortgage Loans may be newly
originated or seasoned and unless otherwise specified in the related Prospectus
Supplement, all of the Mortgage Loans will have been purchased by the Depositor,
either directly or through an affiliate, from Sellers. Certain Mortgage Loans
may be conventional loans (I.E., loans that are not insured or guaranteed by any
governmental agency) or may be loans insured by the FHA or insured or guaranteed
by another governmental agency as specified in the Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans in a Mortgage Pool will provide for monthly payments with
payments due on the first day of each month. The payment terms of the Mortgage
Loans to be included in a Trust Fund will be described in the related Prospectus
Supplement and may include any of the following features or combination thereof
or other features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable
from time to time in relation to an index, a rate that is fixed for a
period of time or under certain circumstances and is followed by an
adjustable rate, a rate that otherwise varies from time to time, or a
rate that is convertible from an adjustable rate to a fixed rate.
Interest may be paid in arrears or in advance and certain Mortgage
Loans may be Simple Interest Loans. Changes to an adjustable rate may
be subject to periodic limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued interest may be deferred and
added to the principal of a Mortgage Loan for such periods and under
such circumstances as may be specified in the related Prospectus
Supplement. Mortgage Loans may provide for the payment of interest at a
rate lower than the rate of interest specified in such Mortgage Loan
(the "Mortgage Rate") for a period of time or for the life of the
Mortgage Loan, and the amount of any such difference may be contributed
from funds supplied by the seller of the Mortgaged Property or another
source or may be treated as accrued interest added to the principal of
the Mortgage Loan.
(b) Principal may be payable on a level debt service basis to
fully amortize the Mortgage Loan over its term, may be calculated on
the basis of an assumed amortization schedule that is significantly
longer than the original term to maturity or on an interest rate that
is different from the interest rate on the Mortgage Loan or may not be
amortized during all or a portion of the original term. Payment of all
or a substantial portion of the principal may be due on maturity
("balloon payments"). Principal may include interest that has been
deferred and added to the principal balance of the Mortgage Loan.
(c) Payments of principal and/or interest may be fixed for the
life of the Mortgage Loan, may increase over a specified period of time
or may change from period to period. 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. Certain
Mortgage Loans, sometimes called graduated payment mortgage loans, may
require the monthly payments of principal and interest to increase for
a specified period, provide for deferred payment of a portion of the
interest due monthly during such period, and recoup the deferred
interest through negative amortization whereby the difference between
the scheduled payment of interest and the amount of interest actually
accrued is added monthly to the outstanding principal balance. Other
Mortgage Loans, sometimes referred to as growing equity mortgage loans,
may provide for periodic scheduled payment increases for a specified
period with the full amount of such increases being applied to
principal.
(d) Prepayments of principal, whether voluntary or in
connection with an acceleration of the Mortgage Loan, may be subject to
a Prepayment Premium, which may be fixed for the life of the Mortgage
Loan, may decline over time, may be calculated based upon the
difference between the anticipated rate of return to the lender over
the life of the Mortgage Loan and the return to the date of prepayment
or a different basis to be described in the related Prospectus
Supplement, or may be prohibited for the life of the Mortgage Loan or
for certain lockout periods. Certain Mortgage Loans may permit
prepayments after expiration of the applicable lockout period and may
require the payment of a Prepayment Premium in connection with any such
subsequent prepayment. Other Mortgage Loans may permit prepayments
without payment of a fee unless the prepayment occurs during specified
time periods. The Mortgage Loans may include due-on-sale clauses which
permit the mortgagee to demand payment of the entire Mortgage Loan
(including any Prepayment Premium) in connection with the sale or
certain transfers of the related Mortgaged Property and/or
due-on-encumbrance clauses which permit the mortgagee to demand payment
of the entire Mortgage Loan upon the encumbrance of the related
Mortgaged Property with a lien which is either senior or junior to the
lien securing the Mortgage Loan. Other Mortgage Loans may be assumable
by persons meeting the then applicable underwriting standards of the
Seller.
Each Prospectus Supplement will contain information, as of the
applicable Cut-off Date and to the extent then specifically known to the
Depositor, with respect to the Mortgage Loans contained in the related Mortgage
Pool, including as a general matter (i) the aggregate outstanding principal
balance of the Mortgage Loans, (ii) the interest rate or range of interest rates
of the Mortgage Loans, (iii) the type of property securing the Mortgage Loans,
(iv) the original and, with respect to seasoned Mortgage Loans, the remaining
terms to stated maturity of the Mortgage Loans, (v) the Loan-to-Value Ratios (as
defined below) of the Mortgage Loans at origination and, with respect to
seasoned Mortgage Loans, at the Cut-off Date, (vi) the geographical distribution
of the Mortgaged Properties and (vii) the minimum interest rates, margins,
adjustment caps, adjustment frequencies, indices and other similar information
applicable to adjustable rate Mortgage Loans. The related Prospectus Supplement
may also specify other characteristics of the Mortgage Loans relating to each
Series. If specified in the related Prospectus Supplement, the Depositor may
segregate the Mortgage Loans in a Mortgage Pool into separate groups ("Mortgage
Loan Groups") with certain classes of Certificates of a given Series entitled to
receive payments relating to specified Mortgage Loan Groups. In such case, the
Depositor will disclose the above-specified information by Mortgage Loan Group.
If specific information with respect to the Mortgage Loans is not known to the
Depositor at the time the related Certificates are initially offered, more
general information of the nature described above will be provided in the
Prospectus Supplement and specific information will be set forth in the Detailed
Description.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio, expressed as a percentage, of the then outstanding principal balance of
the Mortgage Loan to the Collateral Value of the related Mortgaged Property.
Unless otherwise specified in the related Prospectus Supplement, the "Collateral
Value" of a Mortgaged Property, other than with respect to certain Mortgage
Loans the proceeds of which were used to refinance an existing mortgage loan
(each, a "Refinance Loan"), is the lesser of (a) the value determined in an
appraisal obtained by the originator at origination of such Mortgage Loan and
(b) the sales price for such property. If a Mortgaged Property is located in a
declining real estate market, the market value of such Mortgaged Property at the
time the related Mortgage Loan is assigned to a Trust or thereafter may be less
than the appraised value at origination of such Mortgage Loan. In such instance,
the Loan-to-Value Ratio of such Mortgage Loan may not be indicative of the
related Mortgagor's equity in the Mortgaged Property. Unless otherwise specified
in the related Prospectus Supplement, in the case of Refinance Loans, the
Collateral Value of the related Mortgaged Property is the value thereof
determined in an appraisal obtained at the time of refinancing.
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates of a Series, the Depositor will cause the Mortgage Loans comprising
the related Trust Fund to be sold and assigned to the Trustee, together with all
principal and interest received by or on behalf of the Depositor on or with
respect to such Mortgage Loans after the Cut-off Date, other than principal and
interest due on or before the Cut-off Date and other than any Retained Interest
specified in the Prospectus Supplement. The Trustee will, concurrently with such
assignment, deliver the Certificates to the Depositor in exchange for the
Mortgage Loans. Each Mortgage Loan will be identified in a schedule appearing as
an exhibit to the related Agreement. Such schedule will include information as
to the outstanding principal balance of each Mortgage Loan after application of
payments due on the Cut-off Date, as well as information regarding the Mortgage
Rate, the current scheduled monthly (or other periodic) payment of principal and
interest, the maturity of the loan, the Loan-to-Value Ratio at origination, the
maturity date of each Note, and certain other information.
In addition, unless otherwise specified in the Prospectus Supplement,
the Depositor will deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) as to each Mortgage Loan, among other things,
(i) the Note endorsed without recourse in blank or to the order of the Trustee,
(ii) the mortgage, deed of trust or similar instrument (a "Mortgage") with
evidence of recording indicated thereon, (iii) an assignment of the Mortgage to
the Trustee, which assignment will be in recordable form, (iv) all intervening
assignments of the Mortgage, if any, with evidence of recording indicated
thereon, (v) any assumption, modification or substitution agreements relating to
the Mortgage Loan, (vi) a lender's title insurance policy together with its
endorsements, or an attorney's opinion of title issued as of the date of
origination of the Mortgage Loan, (vii) if the assignment of leases, rents and
profits is separate from the Mortgage, an executed re-assignment of assignment
of leases, rents and profits to the Trustee, and (viii) such other documents as
may be specified in the related Prospectus Supplement (such documents are
collectively referred to herein as the "Mortgage Loan File"). Unless otherwise
expressly permitted by the Agreement, all documents included in the Mortgage
Loan File are to be original executed documents; PROVIDED, HOWEVER, that in
instances where the original recorded Mortgage or Mortgage assignment, as
described in the related Agreement, has been retained by the applicable
jurisdiction or has not yet been returned from recordation, the Depositor may
deliver a photocopy thereof certified to be the true and complete copy of the
original thereof submitted for recording. Unless otherwise specified in the
related Prospectus Supplement, the Depositor or Master Servicer will promptly
cause the assignments of the related Mortgage Loans and any assignments of
leases, rents and profits to be recorded in the appropriate public office for
real property records, except in the discretion of the Depositor in states in
which, in the opinion of counsel acceptable to the Trustee, such recording is
not required to protect the Trustee's interest in such Mortgage Loans against
the claim of any subsequent transferee or any successor to or creditor of the
Depositor or the originator of such Mortgage Loans.
The Trustee (or the custodian hereinafter referred to) will review the
Mortgage Loan file for each Mortgage Loan after receipt thereof within the time
period specified in the related Prospectus Supplement, and the Trustee will hold
such documents in trust for the benefit of the Certificateholders. Unless
otherwise specified in the related Prospectus Supplement, if any such document
is found to be missing or defective in any material respect, the Trustee (or
such custodian) will notify the Master Servicer and the Depositor, and the
Master Servicer will notify the related Seller. Unless otherwise specified in
the related Prospectus Supplement, if the Seller or other entity provided in the
related Prospectus Supplement cannot cure the omission or defect within 60 days
after receipt of such notice or such other time period as may be stated in the
Agreement, the Seller or such entity will be obligated to purchase the related
Mortgage Loan from the Trustee within the time period specified in such
Prospectus Supplement at a price equal to the principal balance thereof as of
the date of purchase or, in the case of a Series as to which an election has
been made to treat the related Trust Fund or certain assets as a REMIC, at such
other price as may be necessary to avoid a tax on a prohibited transaction, as
described in Section 860F(a) of the Code, in each case together with accrued
interest at the applicable Pass-Through Rate to the first day of the month
following such repurchase, plus the amount of any unreimbursed advances made by
the Master Servicer, or the Special Servicer, if any, in respect of such
Mortgage Loan (the "Repurchase Price"). There can be no assurance that a Seller
or such entity will fulfill this purchase obligation. Although the Master
Servicer may be obligated to enforce such obligation to the extent described
under "-- Representations by Sellers; Repurchases," neither the Master Servicer
nor the Depositor will be obligated to purchase such Mortgage Loan if the Seller
or such entity defaults on its purchase obligation, unless such breach also
constitutes a breach of the representations or warranties of the Master Servicer
or the Depositor, as the case may be. Alternatively, if the related Prospectus
Supplement so specifies, the Depositor, the Master Servicer or the Seller, as
the case may be, may deliver to the Trustee Mortgage Loans ("Substitute Mortgage
Loans") in substitution for any one or more of the Mortgage Loans ("Deleted
Mortgage Loans") initially included in the Trust Fund as to which there are such
missing documents or as to which a document in the related Mortgage Loan File is
defective in any material respect. Certain required characteristics of any
Substitute Mortgage Loan are described under "--Representations by Sellers;
Repurchases" herein. Unless otherwise specified in the related Prospectus
Supplement, this purchase obligation, or if so provided, a substitution option,
constitute the sole remedies available to the Certificateholders or the Trustee
for omission of, or a material defect in, a constituent document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Mortgage Loans as agent of the Trustee.
Mortgage Underwriting Standards and Procedures. The underwriting
standards and procedures for Mortgage Loans included in a Mortgage Pool will be
specified in the related Prospectus Supplement to the extent such procedures and
standards are known or available. Such Mortgage Loans may be originated in
contemplation of the transactions contemplated by this Prospectus and the
related Prospectus Supplement or may have been originated by third-parties and
acquired by the Depositor directly or through its affiliates in negotiated
transactions.
Except as otherwise set forth in the related Prospectus Supplement for
a Series, the originator of a Mortgage Loan will have applied underwriting
procedures intended to evaluate, among other things, the income derived from the
Mortgaged Property, the capabilities of the management of the project, including
a review of management's past performance record, its management reporting and
control procedures (to determine its ability to recognize and respond to
problems) and its accounting procedures to determine cash management ability,
the obligor's credit standing and repayment ability and the value and adequacy
of the Mortgaged Property as collateral. Mortgage Loans ("FHA Loans") insured by
the Federal Housing Administration ("FHA"), a division of the United States
Department of Housing and Urban Development ("HUD") under Title II of the
National Housing Act of 1934, as amended (the "Housing Act") or Title V of the
Housing Act of 1949, will have been originated by mortgage lenders which are
approved by HUD as an FHA mortgagee in the ordinary course of their real estate
lending activities and will comply with the underwriting policies of FHA.
If so specified in the related Prospectus Supplement, the adequacy of a
Mortgaged Property as security for repayment will generally have been determined
by appraisal by appraisers selected in accordance with pre-established
guidelines established by or acceptable to the loan originator for appraisers.
If so specified in the related Prospectus Supplement, the appraiser must have
personally inspected the property and verified that it was in good condition and
that construction, if new, has been completed. Unless otherwise stated in the
applicable Prospectus Supplement, the appraisal will have been based upon a
stabilized net operating income analysis based on market rental values and
operating expenses, vacancies and loss reserves and/or a market data analysis of
recent sales of comparable properties and, when deemed applicable, a replacement
cost analysis based on the current cost of constructing or purchasing a similar
property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans or at the levels on the dates of issuance of the
Certificates relating thereto. Further, there is no assurance that appreciation
of real estate values generally will limit loss experiences on commercial
properties or multifamily residential properties. If the commercial or
multifamily real estate markets should experience an overall decline in property
values such that the outstanding balances of the Mortgage Loans and any
additional financing on, or other liens and encumbrances affecting, the
Mortgaged Properties in a particular Mortgage Pool become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, adverse economic conditions and
other factors (which may or may not affect real property values) may affect the
timely payment by Mortgagors of scheduled payments of principal and interest on
the Mortgage Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to any Mortgage Pool. For Multifamily
Loans, such other factors could include excessive building resulting in an
oversupply of rental housing stock or a decrease in employment reducing the
demand for rental 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; increased real estate taxes
and assessments; and the relative attractiveness to tenants of the Mortgaged
Properties. In addition, in the case of certain Commercial Mortgage Loans, the
value of the Commercial Properties depends in part on the continued occupancy by
given Lessees and/or the creditworthiness of the Lessees which may be adversely
affected by a general economic downturn or an adverse change in the financial
condition of such Lessees. Moreover, to the extent a Commercial Property was
designed for the needs of a specific type of tenant (e.g., a nursing home,
hospital, hotel or motel) the value of the Commercial Property may be adversely
affected because of the difficulty in releasing such Commercial Property in the
event of a default by the Lessee or the early termination of such Lease and, if
such a releasing is not possible, the cost of altering the Mortgaged Property
for another more marketable use. To the extent that such losses are not covered
by the credit enhancements described in the related Prospectus Supplement, the
ability of the Trust Fund to pay principal of and interest on the Certificates
may be adversely affected. Even where credit covers all losses resulting from
defaults and foreclosure, the effect of defaults and foreclosures may be to
increase prepayment experience on the Mortgage Loans, thus shortening weighted
average life and affecting yield to maturity.
Representations by Sellers; Repurchases. Unless otherwise specified in
the related Prospectus Supplement or Agreement, each Seller will have made
representations and warranties in respect of the Mortgage Loans sold by such
Seller. Such representations and warranties generally include, among other
things: (i) that title insurance (or in the case of Mortgaged Properties located
in areas where such policies are generally not available, an attorney's opinion
or certificate of title) and any required hazard insurance was in effect with
respect to each Mortgaged Property on the date of purchase of the Mortgage Loan
from the Seller by or on behalf of the Depositor; (ii) that the Seller had title
to each such Mortgage Loan and such Mortgage Loan was subject to no offsets,
defenses or counterclaims; (iii) that each Mortgage Loan constituted a valid
first (or junior, if applicable) lien on, or a perfected security interest with
respect to, the Mortgaged Property (subject only to permissible title insurance
exceptions, if applicable and certain other exceptions described in the related
Agreement) and that the Mortgaged Property was free from damage and was in good
repair; (iv) that there were no delinquent tax or assessment liens against the
Mortgaged Property, (v) that no required payment on a Mortgage Loan was more
than thirty days delinquent; and (vi) that each Mortgage Loan was made in
compliance with, and is enforceable under, all applicable state and federal laws
and regulations in all material respects.
Unless otherwise specified in the related Prospectus Supplement, all of
the representations and warranties of a Seller in respect of a Mortgage Loan
will have been made as of the date on which such Seller sold the Mortgage Loan
to the Depositor or one of its affiliates. A substantial period of time may have
elapsed between such date and the date of initial issuance of the Series of
Certificates evidencing an interest in such Mortgage Loan. Since the
representations and warranties of a Seller do not address events that may occur
following the sale of a Mortgage Loan by such Seller, its repurchase obligation
described below will not arise if the relevant event that would otherwise have
given rise to such an obligation with respect to a Mortgage Loan occurs after
the date of sale of such Mortgage Loan by such Seller to the Depositor or its
affiliates. However, unless otherwise specified in the related Prospectus
Supplement, the Depositor will not include any Mortgage Loan in the Trust Fund
for any Series of Certificates if anything has come to the Depositor's attention
that would cause it to believe that the representations and warranties of a
Seller will not be accurate and complete in all material respects in respect of
such Mortgage Loan as of the related Cut-off Date. If a Master Servicer is also
a Seller of Mortgage Loans with respect to a particular Series, representations
made by the Master Servicer as a Seller will be in addition to the
representations and warranties, if any, made by such Master Servicer in its
capacity as a Master Servicer. If so specified in the related Prospectus
Supplement, the Depositor will make certain representations and warranties for
the benefit of Holders of Certificates of a Series in respect of a Mortgage Loan
that relate to the period commencing on the date of sale of such Mortgage Loan
to the Depositor or its affiliates.
If specified in the related Prospectus Supplement, the Seller may have
acquired the Mortgage Loans from a third party which made certain
representations and warranties to the Seller as of the time of the sale to the
Seller. In lieu of representations and warranties made by the Seller as of the
time of the sale to the Depositor, the Seller may assign the representations and
warranties from the third party to the Depositor, which will assign them to the
Trustee on behalf of the Certificateholders. In such cases, the third party may
be obligated to purchase a Mortgage Loan upon a breach of such representations
and warranties, and neither the Seller nor the Depositor nor Master Servicer
will be obligated to purchase a Mortgage Loan if the third party defaults on any
such obligation to do so.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer or the Trustee, if the Master Servicer is the Seller, will
promptly notify the relevant Seller of any breach of any representation or
warranty made by such Seller in respect of a Mortgage Loan which materially and
adversely affects the interests of the Certificateholders in such Mortgage Loan.
Unless otherwise specified in the related Prospectus Supplement, if such Seller
cannot cure such breach within 90 days after notice from the Master Servicer or
the Trustee, as the case may be, then such Seller will be obligated to
repurchase such Mortgage Loan from the Trust Fund at the applicable Repurchase
Price. Except in those cases in which the Master Servicer is the Seller, the
Master Servicer will be required under the applicable Agreement to enforce this
obligation for the benefit of the Trustee and the holders of the Certificates,
following the practices it would employ in its good faith business judgment were
it the owner of such Mortgage Loan. Unless otherwise provided in the related
Prospectus Supplement, and subject to the ability of the Seller, the Depositor
or the Master Servicer to deliver Substitute Mortgage Loans for Mortgage Loans
as described below, this repurchase obligation will constitute the sole remedy
available to holders of Certificates or the Trustee for a breach of
representation by a Seller.
Unless otherwise provided in the related Prospectus Supplement, neither
the Depositor nor the Master Servicer (unless the Master Servicer is the Seller)
will be obligated to purchase a Mortgage Loan if a Seller defaults on its
obligation to do so, and no assurance can be given that Sellers will carry out
their respective repurchase obligations with respect to Mortgage Loans. However,
to the extent that a breach of a representation and warranty of a Seller may
also constitute a breach of a representation made by the Master Servicer, the
Master Servicer may have a repurchase obligation as described under "Servicing
of the Mortgage Loans" below.
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** Whenever the terms "Mortgage Pool" and "Certificates" are used in this
Prospectus, such terms are deemed to apply, unless the context indicates
otherwise, to one specific Mortgage Pool and the Certificates representing
certain undivided interests, as described below, in a single Trust Fund
consisting primarily of the Mortgage Loans in such Mortgage Pool.
Similarly, the term "Pass-Through Rate" will refer to the Pass-Through Rate
borne by the Certificates of one specific Series and the term "Trust Fund"
will refer to one specific Trust Fund.
The Seller and any third party which conveyed the Mortgage Loans to
the Seller may experience financial difficulties and in some instances may enter
into insolvency proceedings. As a consequence, the Seller or such third party
may be unable to perform its repurchase obligations with respect to the Mortgage
Loans. Any arrangements for the assignment of representations and the repurchase
of Mortgage Loans must be acceptable to each Rating Agency rating the related
Certificates.
If so specified in the related Prospectus Supplement, the Depositor
will make representations and warranties with respect to the Mortgage Loans in a
Mortgage Pool. Upon a breach of any representation or warranty by the Depositor
that materially and adversely affects the interests of the Certificateholders,
the Depositor will be obligated either to cure the breach in all material
respects or to purchase the Mortgage Loan at the applicable Repurchase Price and
in the manner set forth above. Unless otherwise specified in the applicable
Prospectus Supplement and subject to the ability of the Depositor to deliver
Substitute Mortgage Loans for certain Mortgage Loans as described below, this
repurchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of a representation or warranty
by the Depositor.
If and within the period of time specified in the related Prospectus
Supplement, following the date of issuance of a Series of Certificates, the
Depositor, the Master Servicer or the Seller, as the case may be, may deliver to
the Trustee Substitute Mortgage Loans in substitution for any Deleted Mortgage
Loans initially included in the Trust Fund but which do not conform in one or
more respects to the description thereof contained in the related Prospectus
Supplement and Mortgage Loan Schedule, as to which a breach of a representation
or warranty is discovered, which breach materially and adversely affects the
interests of the Certificateholders, or as to which a document in the related
Mortgage Loan File is defective in any material respect. Unless otherwise
specified in the related Prospectus Supplement, the required characteristics of
any Substitute Mortgage Loan will generally include, among other things, that
such Substitute Mortgage Loan on the date of substitution, will (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 distributed to
Certificateholders in the month of substitution), (ii) have a Mortgage Rate of
not less than (and not more than 1% greater than) the Mortgage Rate of the
Deleted Mortgage Loan, (iii) have a remaining term to maturity not greater than
(and not more than one year less than) that of the Deleted Mortgage Loan, (iv)
have a current Loan-to-Value Ratio and Debt Service Coverage Ratio not higher
than those of the Deleted Mortgage Loan and (v) comply with all the
representations and warranties set forth in the related Agreement as of the date
of substitution.
AGENCY SECURITIES
Assignment of Agency Securities. The Depositor will cause Agency
Securities to be registered in the name of the Trustee or its nominee. Each
Agency Security will be identified in a schedule appearing as an exhibit to the
Agreement, which will specify as to each Agency Security the original principal
amount and outstanding principal balance as of the Cut-off Date, the annual
pass-through rate (if any) and the maturity date.
Government National Mortgage Association. GNMA is a wholly-owned
corporate instrumentality of the United States within the United Stated
Department of Housing and Urban Development HUD. Section 306(g) of Title II of
the National Housing Act of 1934, as amended (the "Housing Act"), authorizes
GNMA to, among other things, guarantee the timely payment of the principal of
and interest on certificates which represent an interest in a pool of mortgage
loans insured by FHA under the Housing Act, or Title V of the Housing Act of
1949 ("FHA Loans"), or partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended, or chapter 37 of Title 38, United States
Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guarantee under this subsection." In order to
meet its obligations under any such guarantee, GNMA may, under Section 306(d) of
the Housing Act, borrow from the United States Treasury in an amount which is at
any time sufficient to enable GNMA, with no limitations as to amount, to perform
its obligations under its guarantee.
GNMA Certificates. Each GNMA Certificate held in a Trust Fund (which
may be a GNMA I Certificate or a GNMA II Certificate) will be a "fully modified
pass-through" mortgaged-backed certificate issued and serviced by a mortgage
banking company or other financial concern ("GNMA Issuer") approved by GNMA or
approved by FNMA as a seller-servicer of FHA Loans and/or VA Loans. The mortgage
loans underlying the GNMA Certificates held in a Trust Fund will consist of FHA
Loans and/or VA Loans. Each such mortgage loan is secured by a one- to
four-family residential property or a manufactured home. GNMA will approve the
issuance of each such GNMA Certificate in accordance with a guaranty agreement
(a "Guaranty Agreement") between GNMA and the GNMA Issuer. Pursuant to its
Guaranty Agreement, a GNMA Issuer will be required to advance its own funds in
order to make timely payments of all amounts due on each such GNMA Certificate,
even if the payments received by the GNMA Issuer on the FHA Loans or VA Loans
underlying each such GNMA Certificate are less than the amounts due on each such
GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 40 years (but may have original maturities of
substantially less than 40 years). Each such GNMA Certificate will provide for
the payment by or on behalf of the GNMA Issuer to the registered holder of such
GNMA Certificate of scheduled monthly payments of principal and interest equal
to the registered holder's proportionate interest in the aggregate amount of the
monthly principal and interest payment on each FHA Loan or VA Loan underlying
such GNMA Certificate, less the applicable servicing and guarantee fee which
together equal the difference between the interest on the FHA Loans or VA Loans
and the pass-through rate on the GNMA Certificate. In addition, each payment
will include proportionate pass-through payments of any prepayments of principal
on the FHA Loans or VA Loans underlying such GNMA Certificate and liquidation
proceeds in the event of a foreclosure or other disposition of any such FHA
Loans or VA Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate
as it becomes due, it must promptly notify GNMA and request GNMA to make such
payment. Upon notification and request, GNMA will make such payments directly to
the registered holder of such GNMA Certificate. In the event no payment is made
by a GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make
such payment, the holder of such GNMA Certificate will have recourse only
against GNMA to obtain such payment. The Trustee or its nominee, as registered
holder of the GNMA Certificates held in a Trust Fund, will have the right to
proceed directly against GNMA under the terms of the Guaranty Agreements
relating to such GNMA Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular GNMA Certificate must have
the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on such GNMA I
Certificate will equal the interest rate on the mortgage loans included in the
pool of mortgage loans underlying such GNMA I Certificate, less one-half
percentage point per annum of the unpaid principal balance of the mortgage
loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate held in a
Trust Fund will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate is due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate held in a Trust Fund or
any other early recovery of principal on such loan will be passed through to the
Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or
by "buydown" mortgage loans for which funds will have been provided (and
deposited into escrow accounts) for application to the payment of a portion of
the borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other GNMA Certificates and will include amounts to be
collected from both the borrower and the related escrow account. The graduated
payment mortgage loans will provide for graduated interest payments that, during
the early years of such mortgage loans, will be less than the amount of stated
interest on such mortgage loans. The interest not so paid will be added to the
principal of such graduated payment mortgage loans and, together with interest
thereon, will be paid in subsequent years. The obligations of GNMA and of a GNMA
Issuer will be the same irrespective of whether the GNMA Certificates are backed
by graduated payment mortgage loans or "buydown" mortgage loans. No statistics
comparable to the FHA's prepayment experience on level payment, non-buydown
loans are available in respect of graduated payment or buydown mortgages. GNMA
Certificates related to a Series of Certificates may be held in book-entry form.
GNMA also guarantees the timely payment of principal of and interest on
"fully modified pass-through" mortgage-backed securities issued and serviced by
certain mortgage banking companies and other financial concerns ("FNMA Project
Issuers") based upon and backed by pools of multi-family residential mortgage
loans coinsured by FHA and GNMA Project Issuers under the Housing Act ("GNMA
Project Certificates"). The Prospectus Supplement for a Series of Certificates
that includes GNMA Project Certificates will set forth additional information
regarding the GNMA guaranty program, servicing of the mortgage pool, the payment
of principal and interest on GNMA Project Certificates and other matters with
respect to multi-family residential mortgage loans that qualify for the GNMA
guaranty.
Federal National Mortgage Association. FNMA is a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act (the "Charter Act"). FNMA was
originally established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by legislation enacted in
1968.
FNMA provides funds to the mortgage market primarily by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending. FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are either Guaranteed Mortgage
Pass-Through Certificates ("FNMA MBS") or Stripped Mortgage-Backed Securities
("FNMA SMBS"). The following discussion of FNMA Certificates applies equally to
both FNMA MBS and FNMA SMBS, except as otherwise indicated. Each FNMA
Certificate included in the Trust for a Series will represent a fractional
undivided interest in a pool of mortgage loans formed by FNMA. Each such pool
will consist of mortgage loans of one of the following types: (i) fixed-rate
level installment conventional mortgage loans; (ii) fixed-rate level installment
mortgage loans that are insured by FHA or partially guaranteed by the VA; (iii)
adjustable rate conventional mortgage loans; or (iv) adjustable rate mortgage
loans that are insured by the FHA or partially guaranteed by the VA. Each
mortgage loan must meet the applicable standards set forth under the FNMA
purchase program. Each such mortgage loan will be secured by a first lien on a
one-family or two- to four-family residential property. The original maturities
of substantially all of the conventional, level payment mortgage loans are
expected to be between either 8 to 15 years or 20 to 30 years. Each such FNMA
Certificate will be issued pursuant to a trust indenture. Original maturities of
substantially all of the conventional, level payment mortgage loans underlying a
FNMA Certificate are expected to be between either 8 to 15 years or 20 to 30
years. The original maturities of substantially all of the fixed rate level
payment FHA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest
rates that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA MBS (and the series pass-through rate payable with
respect to a FNMA SMBS) is equal to the lowest interest rate of any mortgage
loan in the related pool, less a specified minimum annual percentage
representing servicing compensation and FNMA's guaranty fee. Under a regular
servicing option (pursuant to which the mortgagee or other servicer assumes the
entire risk of foreclosure losses), the annual interest rates on the mortgage
loans underlying a FNMA Certificate will be between 50 basis points and 250
basis points greater than the annual pass-through rate if a FNMA MBS or the
series pass-through rate if a FNMA SMBS; and under a special servicing option
(pursuant to which FNMA assumes the entire risk for foreclosure losses), the
annual interest rates on the mortgage loans underlying a FNMA Certificate will
generally be between 55 basis points and 255 basis points greater than the
annual FNMA Certificate pass-through rate if a FNMA MBS, or the series
pass-through rate if a FNMA SMBS.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute on a timely basis amounts representing such holder's
proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by such FNMA Certificate on the
underlying mortgage loans, whether or not received, and such holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of FNMA under its guarantees are obligations
solely of FNMA and are not backed by, nor entitled to, the full faith and credit
of the United States. If FNMA were unable to satisfy its obligations,
distributions to holders of FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
FNMA SMBS are issued in series of two or more classes, with each class
representing a specified undivided fractional interest in principal
distributions and interest distributions (adjusted to the series pass-through
rate) on the underlying pool of mortgage loans. The fractional interests of each
class in principal and interest distributions are not identical, but the classes
in the aggregate represent 100% of the principal distributions and interest
distributions (adjusted to the series pass-through rate) on the respective pool.
Because of such difference between the fractional interests in principal and
interest of each class, the effective rate of interest on the principal of each
class of FNMA SMBS may be significantly higher or lower than the series
pass-through rate and/or the weighted average interest rate of the underlying
mortgage loans.
Unless otherwise specified by FNMA, FNMA Certificates evidencing
interests in pools of mortgages formed on or after May 1, 1985 will be available
in book-entry form only. Distributions of principal and interest on each FNMA
Certificate will be made by FNMA on the 25th day of each month to the persons in
whose name the FNMA Certificate is entered in the books of the Federal Reserve
Banks (or registered on the FNMA Certificate register in the case of fully
registered FNMA Certificates) as of the close of business on the last day of the
preceding month. With respect to FNMA Certificates issued in book-entry form,
distributions thereon will be made by wire, and with respect to fully registered
FNMA Certificates, distributions thereon will be made by check.
Federal Home Loan Mortgage Corporation. FHLMC is a publicly held United
States government-sponsored enterprise created pursuant to the Federal Home Loan
Mortgage Corporation Act, Title III of the Emergency Home Finance Act of 1970,
as amended (the "FHLMC Act"). The common stock of FHLMC is owned by the Federal
Home Loan Banks. FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of urgently needed
housing. It seeks to provide an enhanced degree of liquidity for residential
mortgage investments primarily by assisting in the development of secondary
markets for conventional mortgages. The principal activity of FHLMC currently
consists of the purchase of first lien conventional mortgage loans or
participation interests in such mortgage loans and the sale of the mortgage
loans or participations so purchased in the form of mortgage securities,
primarily FHLMC Certificates. FHLMC is confined to purchasing, so far as
practicable, mortgage loans that it deems to be of such quality, type and class
as to meet generally the purchase standards imposed by private institutional
mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien conventional
loans, FHA Loans or VA Loans (a "FHLMC Certificate Group"). FHLMC Certificates
are sold under the terms of a Mortgage Participation Certificate Agreement. A
FHLMC Certificate may be issued under either FHLMC's Cash Program or Guarantor
Program.
Unless otherwise described in the Prospectus Supplement, Mortgage loans
underlying the FHLMC Certificates held by a Trust Fund will consist of mortgage
loans with original terms to maturity of between 10 and 30 years. Each such
mortgage loan must meet the applicable standards set forth in the FHLMC Act. A
FHLMC Certificate Group may include whole loans, participation interests in
whole loans and undivided interests in whole loans and/or participations
comprising another FHLMC Certificate Group. Under the Guarantor Program, any
such FHLMC Certificate Group may include only whole loans or participation
interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable Certificate rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying mortgage loans in the
FHLMC Certificate Group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
ultimate receipt by such holder of all principal on the underlying mortgage
loans, without any offset or deduction, to the extent of such holder's pro rata
share thereof, but does not, except if and to the extent specified in the
Prospectus Supplement for a Series of Certificates, guarantee the timely payment
of scheduled principal. Under FHLMC's Gold PC Program, FHLMC guarantees the
timely payment of principal based on the difference between the pool factor,
published in the month preceding the month of distribution and the pool factor
published in such month of distribution. Pursuant to its guarantees, FHLMC
indemnifies holders of FHLMC Certificates against any diminution in principal by
reason of charges for property repairs, maintenance and foreclosure. FHLMC may
remit the amount due on account of its guarantee of collection of principal at
any time after default on an underlying mortgage loan, but not later than (i) 30
days following foreclosure sale, (ii) 30 days following payment of the claim by
any mortgage insurer, or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing of
demand for acceleration, FHLMC reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which it
has purchased but not sold. The length of time necessary for FHLMC to determine
that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and FHLMC has not adopted standards which
require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of FHLMC Certificates would
be affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial prepayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC Certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, with respect to pools formed prior to June
1, 1987, there is no limitation on the amount by which interest rates on the
mortgage loans underlying a FHLMC Certificate may exceed the pass-through rate
on the FHLMC Certificate. With respect to FHLMC Certificates issued on or after
June 1, 1987, the maximum interest rate on the mortgage loans underlying such
FHLMC Certificates may exceed the pass through rate of the FHLMC Certificates by
50 to 100 basis points. Under such program, FHLMC purchases groups of whole
mortgage loans from sellers at specified percentages of their unpaid principal
balances, adjusted for accrued or prepaid interest, which when applied to the
interest rate of the mortgage loans and participations purchased, results in the
yield (expressed as a percentage) required by FHLMC. The required yield, which
includes a minimum servicing fee retained by the servicer, is calculated using
the outstanding principal balance. The range of interest rates on the mortgage
loans and participations in a FHLMC Certificate group under the Cash Program
will vary since mortgage loans and participations are purchased and assigned to
a FHLMC Certificate group based upon their yield to FHLMC rather than on the
interest rate on the underlying mortgage loans.
Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC
Certificate is established based upon the lowest interest rate on the underlying
mortgage loans, minus a minimum servicing fee and the amount of FHLMC's
management and guaranty income as agreed upon between the seller and FHLMC. For
FHLMC Certificate Groups formed under the Guarantor Program with certificate
numbers beginning with 18-012, the range between the lowest and the highest
annual interest rates on the mortgage loans in a FHLMC Certificate group may not
exceed two percentage points.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of the FHLMC Certificates. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.
FHLMC also issues mortgage participation certificates representing an
undivided interest in a group of multi-family residential mortgage loans or
participations in multi-family residential mortgage loans purchased by FHLMC
("FHLMC Project Certificates"). The Prospectus Supplement for a Series of
Securities issued by a Trust that included FHLMC Project Certificates will set
forth additional information regarding multi-family residential mortgage loans
that qualify for purchase by FHLMC.
Stripped Mortgage-Backed Securities. Agency Securities may consist of
one or more stripped mortgage-backed securities, each as described herein and in
the related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of either the principal distributions (but not
the interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA, GNMA
or other government agency or government-sponsored agency Certificates. The
underlying securities will be held under a trust agreement by FHLMC, FNMA, GNMA
or another government agency or government-sponsored agency, each as trustee, or
by another trustee named in the related Prospectus Supplement. FHLMC, FNMA, GNMA
or another government agency or government-sponsored agency will guarantee each
stripped Agency Security to the same extent as such entity guarantees the
underlying securities backing such stripped Agency Security, unless otherwise
specified in the related Prospectus Supplement.
Other Agency Securities. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by GNMA, FNMA, FHLMC or other government agencies or
government-sponsored agencies. The characteristics of any such mortgage
pass-through certificates will be described in such Prospectus Supplement. If so
specified, a combination of different types of Agency Securities may be held in
a Trust Fund.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates evidencing an undivided interest in a pool of Mortgage
Loans, or (b) collateralized mortgage obligations secured by Mortgage Loans.
Private Mortgage-Backed Securities will have been issued pursuant to a PMBS
agreement (the "PMBS Agreement"). The seller/servicer of the underlying Mortgage
Loans will have entered into the PMBS Agreement with the PMBS Trustee under the
PMBS Agreement. The PMBS Trustee or its agent, or a custodian, will hold the
Mortgage Loans underlying such Private Mortgage-Backed Security. Mortgage Loans
underlying a Private Mortgage-Backed Security will be serviced by the PMBS
Servicer directly or by one or more sub-servicers who may be subject to the
supervision of the PMBS Servicer. Unless otherwise described in the Prospectus
Supplement, the PMBS Servicer will be a FNMA or FHLMC approved servicer and, if
FHA Loans underlie the Private Mortgage-Backed Securities, approved by HUD as an
FHA mortgagee.
The PMBS Issuer will be a financial institution or other entity engaged
generally in the business of mortgage lending or the acquisition of mortgage
loans, a public agency or instrumentality of a state, local or federal
government, or a limited purpose or other corporation organized for the purpose
of among other things, establishing trusts and acquiring and selling housing or
other mortgage loans to such trusts and selling beneficial interests in such
trusts. If so specified in the Prospectus Supplement, the PMBS Issuer may be an
affiliate of the Depositor. The obligations of the PMBS Issuer will generally be
limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust. Unless otherwise specified in the related
Prospectus Supplement, the PMBS Issuer will not have guaranteed any of the
assets conveyed to the related trust or any of the Private Mortgage-Backed
Securities issued under the PMBS Agreement. Additionally, although the Mortgage
Loans underlying the Private Mortgage-Backed Securities may be guaranteed by an
agency or instrumentality of the United States, the Private Mortgage-Backed
Securities themselves will not be so guaranteed.
All Private Mortgage-Backed Securities will have originally been issued
in publicly registered offerings or have been outstanding for at least three
years and will have been acquired for inclusion in a Trust Fund in purely
secondary transactions, not from the PMBS Issuer or an affiliate thereof. To
help ensure that each Private Mortgage-Backed Security will have been acquired
in secondary transactions, no Private Mortgage-Backed Security will constitute
part of an underwriter's or dealer's unsold allotment and no Private
Mortgage-Backed Security will be acquired from a person that purchased such
security from the PMBS Issuer or an affiliate thereof with the intent of
reselling such security for inclusion in a Trust Fund.
The Depositor will cause Private Mortgage-Backed Securities to be
registered in the name of the Trustee. The Trustee (or the custodian) will have
possession of any certificated Private Mortgage-Backed Securities. Unless
otherwise specified in the related Prospectus Supplement, the Trustee will not
be in possession of or be assignee of record of any underlying assets for a
Private Mortgage-Backed Security. Each Private Mortgage-Backed Security will be
identified in a schedule appearing as an exhibit to the related Agreement which
will specify the original principal amount, outstanding principal balance as of
the Cut-off Date, annual pass-through rate or interest rate and maturity date
for each Private Mortgage-Backed Security conveyed to the Trustee.
Distributions of principal and interest will he made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions and/or nominal or no interest
distributions. Principal and interest distributions will be made on the Private
Mortgage-Backed Securities by the PMBS Trustee or the PMBS Servicer. The PMBS
Issuer or the PMBS Servicer may have the right to repurchase assets underlying
the Private Mortgage-Backed Securities after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Underlying Loans. The Mortgage Loans underlying the Private
Mortgage-Backed Securities may consist of fixed rate, level payment, fully
amortizing loans or graduated payment mortgage loans, buydown loans, adjustable
rate mortgage loans, or loans having balloon or other special payment features.
Such Mortgage Loans may be secured by multifamily property, by an assignment of
the proprietary lease or occupancy agreement relating to a specific dwelling
within a Cooperative and the related shares issued by such Cooperative or such
other mortgage loans as may be described in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, (i) no
Mortgage Loan will have had a Loan-to-Value Ratio at origination in excess of
95%, (ii) each Mortgage Loan will have had an original term to stated maturity
of not less than 5 years and not more than 40 years, (iii) no Mortgage Loan that
was more than 30 days delinquent more than once in the past 12 months or was
delinquent as of the Cut-off Date as to the payment of principal or interest
will have been eligible for inclusion in the assets under the related PMBS
Agreement, (iv) each Mortgage Loan (other than a Cooperative Loan) will be
required to be covered by a standard hazard insurance policy (which may be a
blanket policy, and (v) each Mortgage Loan (other than a Cooperative Loan) will
be covered by a title insurance policy.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of subordination of other private mortgage certificates
issued under the PMBS Agreement, reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies, guarantees or other types of
credit support may be provided with respect to the Mortgage Loans underlying the
Private Mortgage-Backed Securities or with respect to the Private
Mortgage-Backed Securities themselves.
Additional Information. The Prospectus Supplement for a Series for
which the Trust Fund includes Private Mortgage-Backed Securities will specify to
the extent such information is available and relevant, among other matters (i)
the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the Mortgage Loans which comprise the underlying assets for
the Private Mortgage-Backed Securities including (A) the payment features of
such Mortgage Loans, (B) the approximate aggregate principal balance, if known,
of underlying Mortgage Loans insured or guaranteed by a governmental entity and
(C) the minimum and maximum stated maturities of the underlying Mortgage Loans
at origination, (iii) the security therefor, (iv) whether the Mortgage Loans are
recourse or nonrecourse, (v) the pass-through or certificate rate of the Private
Mortgage-Backed Securities, (v) the weighted average pass-through or certificate
rate of the Private Mortgage-Backed Securities, (vi) the PMBS Issuer, the PMBS
Servicer (if other than the PMBS Issuer) and the PMBS Trustee for such Private
Mortgage-Backed Securities, (vii) certain characteristics of credit support, if
any, such as subordination, reserve funds, insurance policies, letters of credit
or guarantees relating to the Mortgage Loans underlying the Private
Mortgage-Backed Securities or to such Private Mortgage-Backed Securities
themselves, and (viii) the terms on which the underlying Mortgage Loans for such
Private Mortgage-Backed Securities may, or are required to, be purchased prior
to their stated maturity or the stated maturity of the Private Mortgage-Backed
Securities.
USE OF PROCEEDS
The Depositor intends to use the net proceeds to be received from the
sale of the Certificates of each Series to repay short-term loans incurred to
finance the purchase of the Mortgage Assets related to such Certificates, to
acquire certain of the Mortgage Assets to be deposited in the related Trust
Fund, and/or to pay other expenses connected with pooling Mortgage Assets and
issuing Certificates, including establishing Reserve Accounts and paying for
certain credit enhancements. If so specified in the related Prospectus
Supplement, the Depositor may use such net proceeds to originate Mortgage Loans
or to refinance indebtedness incurred in connection with the origination of
Mortgage Loans or the acquisition of Mortgage Assets. Any amounts remaining
after such payments may be used for general corporate purposes. The Depositor
expects to sell Certificates in Series from time to time.
THE DEPOSITOR
Bear Stearns Commercial Mortgage Securities Inc., the Depositor, is a
Delaware corporation organized on April 20, 1987. It has remained inactive until
the filing of the Registration Statement of which this Prospectus is a part. The
primary business of the Depositor is to acquire Mortgage Assets and sell
interests therein or bonds secured thereby. It is a wholly owned subsidiary of
CMC Commercial Assets Corporation, which is a wholly owned subsidiary of The
Bear Stearns Companies Inc., a Delaware corporation, and an affiliate of Bear,
Stearns & Co. Inc. The Depositor maintains its principal office at 245 Park
Avenue, New York, New York 10167. Its telephone number is (212) 272-2000.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Prospectus Supplement related to a Series will identify the Master
Servicer or Master Servicers for that Series and will set forth certain
information concerning the Master Servicer(s). Each Master Servicer will be
responsible for servicing the Mortgage Loans pursuant to the Agreement of the
related Series. If so specified in the related Prospectus Supplement, a Master
Servicer may subcontract the servicing of all or a portion of the Mortgage Loans
to one or more sub-servicers (each, a "Sub-Servicer"). In addition, a Master
Servicer may subcontract the servicing of certain Mortgage Loans that are in
default or otherwise require special servicing (the "Specially Serviced Mortgage
Loans") to one or more special servicers (each, a "Special Servicer"), and
certain information with respect to each Special Servicer will be set forth in
such Prospectus Supplement. With respect to Mortgage Loans serviced by a Master
Servicer through a Sub-Servicer, unless otherwise specified in the related
Prospectus Supplement such Master Servicer will remain liable for its servicing
obligations under the related Agreement as if such Master Servicer alone were
servicing such Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, neither the Master Servicer, nor the Special Servicer, if
any, will be liable for the obligations of the other under the related
Agreement. Any Master Servicer, Sub-Servicer, and Special Servicer may be an
affiliate of the Depositor and may have other business relationships with
Depositor and its affiliates. While there may be more than one Master Servicer
or Special Servicer with respect to a given Series of Certificates, for ease of
reference, the remainder of this Section assumes there will be only one of each.
COLLECTIONS AND OTHER SERVICING PROCEDURES
The Master Servicer will make reasonable efforts to collect all
payments called for under the Mortgage Loans and will, consistent with the
related Agreement, follow such collection procedures as it deems necessary or
desirable. Consistent with the above, the Master Servicer may, in its
discretion, waive any late payment or assumption charge or penalty interest in
connection with late payment or assumption of a Mortgage Loan and, if so
specified in the related Prospectus Supplement, may extend the due dates for
payments due on a Note.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement for each Series will require the Master Servicer to establish and
maintain an escrow account (the "Escrow Account") in which the Master Servicer
will be required to deposit amounts received from each Mortgagor, if required by
the terms of the related Note, for the payment of taxes, assessments, certain
mortgage and hazard insurance premiums and other comparable items. The Special
Servicer, if any, will be required to remit amounts received for such purposes
on Specially Serviced Mortgage Loans for deposit in the Escrow Account, and will
be entitled to direct the Master Servicer to make withdrawals from the Escrow
Account as may be required for servicing of such Specially Serviced Mortgage
Loans. Withdrawals from the Escrow Account may be made to effect timely payment
of taxes, assessments, mortgage and hazard insurance premiums, to refund to
Mortgagors amounts determined to be overages, to remove amounts deposited
therein in error, to pay interest to Mortgagors on balances in the Escrow
Account, if required, to repair or otherwise protect the Mortgaged Properties
and to clear and terminate such account. Unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will be entitled to all
income on the funds in the Escrow Account invested in Permitted Investments not
required to be paid to Mortgagors under applicable law. The Master Servicer will
be responsible for the administration of the Escrow Account. If amounts on
deposit in the Escrow Account are insufficient to pay any tax, insurance premium
or other similar item when due, such item will be payable from amounts on
deposit in the Collection Account or, to the extent such amounts are
insufficient or if otherwise provided in the related Prospectus Supplement, in
the manner set forth in the Prospectus Supplement and Agreement for the related
Series.
INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement for each Series will require that the Master Servicer maintain or
require each Mortgagor to maintain insurance in accordance with the related
Mortgage, which generally will include a standard fire and hazard insurance
policy with extended coverage. To the extent required by the related Mortgage,
the coverage of each such standard hazard insurance policy will be in an amount
that is not less than the lesser of the full replacement cost of the
improvements securing such Mortgage Loan or the outstanding principal balance
owing on such Mortgage Loan. If a Mortgaged Property was located at the time of
origination of the related Mortgage Loan in a federally designated special flood
hazard area, the Master Servicer will also maintain or require the related
Mortgagor to maintain flood insurance in an amount equal to the lesser of the
unpaid principal balance of the related Mortgage Loan and the maximum amount
obtainable with respect to such Mortgage Loan. Unless otherwise specified in the
related Prospectus Supplement, the cost of any such insurance maintained by the
Master Servicer will be an expense of the Trust Fund payable out of the
Collection Account.
The Master Servicer, or if so specified in the related Prospectus
Supplement, the Special Servicer, if any, will cause to be maintained fire and
hazard insurance with extended coverage on each REO Property in an amount which
is at least equal to the greater of (i) an amount not less than the amount
necessary to avoid the application of any coinsurance clause contained in the
related insurance policy and (ii) the replacement cost of the improvements which
are a part of such property. Unless otherwise specified in the related
Prospectus Supplement, the cost of any such insurance with respect to an REO
Property will be an expense of the Trust Fund payable out of amounts on deposit
in the related REO Account or, if such amounts are insufficient, from the
Collection Account. The Master Servicer, or if so specified in the related
Prospectus Supplement, the Special Servicer, if any, will maintain flood
insurance providing substantially the same coverage as described above on any
REO Property which was located in a federally designated special flood hazard
area at the time the related Mortgage Loan was originated. The related Agreement
will provide that the Master Servicer or the Special Servicer, as the case may
be, may satisfy its obligation to cause hazard policies to be maintained by
maintaining a master, or single interest blanket, insurance policy insuring
against losses on the Mortgage Loans or REO Properties, as the case may be.
Unless otherwise provided in the related Prospectus Supplement, the incremental
cost of such insurance allocable to any particular Mortgage Loan, if not borne
by the related Mortgagor, will be an expense of the Trust Fund. Alternatively,
the Master Servicer or the Special Servicer, as the case may be, may satisfy its
obligation by maintaining, at its expense, a blanket policy (i.e., not a single
interest or master policy) insuring against losses on the Mortgage Loans or REO
Properties, as the case may be. If such a blanket policy contains a deductible
clause, the Master Servicer or the Special Servicer, as the case may be, will be
obligated to deposit in the Collection Account all sums which would have been
deposited therein but for such clause.
In general, the standard form of fire and hazard extended coverage
policy will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Since the standard hazard insurance policies
relating to the Mortgage Loans will be underwritten by different insurers and
will cover Mortgaged Properties located in various states, such policies will
not contain identical terms and conditions. The most significant terms thereof,
however, generally will be determined by state law and conditions. Most such
policies typically will not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), nuclear reaction, wet
or dry rot, vermin, rodents, insects or domestic animals, theft and, in certain
cases, vandalism. The foregoing list is merely indicative of certain kinds of
uninsured risks and is not intended to be all-inclusive. Any losses incurred
with respect to Mortgage Loans of a Trust Fund due to uninsured risks (including
earthquakes, mudflows and floods) or insufficient hazard insurance proceeds
could affect distributions to the related Certificateholders.
The standard hazard insurance policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which, in
effect, will require the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the Mortgaged Property in order
to recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause will provide that the insurer's
liability in the event of partial loss will not exceed the greater of (i) the
actual cash value (the replacement cost less physical depreciation) of the
structures and other improvements damaged or destroyed and (ii) such proportion
of the loss, without deduction for depreciation, as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
dwellings, structures and other improvements.
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the Mortgagor to maintain other forms of insurance
including, but not limited to, loss of rent endorsements, business interruption
insurance and comprehensive public liability insurance, and the related
Agreement may require the Master Servicer or Special Servicer, if any, to
maintain public liability insurance with respect to any REO Properties. Any cost
incurred by the Master Servicer in maintaining any such insurance policy will be
added to the amount owing under the Mortgage Loan where the terms of the
Mortgage Loan so permit; PROVIDED, HOWEVER, that the addition of such cost will
not be taken into account for purposes of calculating the distribution to be
made to Certificateholders. Such costs may be recovered by the Master Servicer
or Special Servicer, as the case may be, from the Collection Account, with
interest thereon, as provided by the Agreement.
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under the National Housing Act of 1934,
as amended, and the United States Housing Act of 1937, as amended. To the extent
specified in the related Prospectus Supplement, all or a portion of the
Multi-family Mortgage Loans may be insured by the FHA. The Master Servicer will
be required to take such steps as are reasonably necessary to keep such
insurance in full force and effect.
Unless otherwise specified in the applicable Prospectus Supplement, no
pool insurance policy, special hazard insurance policy, bankruptcy bond,
repurchase bond or guarantee insurance will be maintained with respect to the
Mortgage Loans, nor will any Mortgage Loan be subject to FHA insurance.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement for each Series will require that the Master Servicer and the Special
Servicer, if any, obtain and maintain in effect a fidelity bond or similar form
of insurance coverage (which may provide blanket coverage) or any combination
thereof insuring against loss occasioned by fraud, theft or other intentional
misconduct of the officers, employees and agents of the Master Servicer or the
Special Servicer, as applicable. The related Agreement will allow the Master
Servicer and the Special Servicer, if any, to self-insure against loss
occasioned by the errors and omissions of the officers, employees and agents of
the Master Servicer so long as certain criteria set forth in the Agreement are
met.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer's principal compensation for its activities under
the Agreement for each Series will come from the payment to it or retention by
it with respect to each Mortgage Loan of a "Servicing Fee" (as defined in the
related Prospectus Supplement). The exact amount and calculation of such
Servicing Fee will be established in the Prospectus Supplement and Agreement for
the related Series. Since the Master Servicer's primary compensation is often
based upon the aggregate unpaid principal balance of the Mortgage Loans, the
Master Servicer's servicing compensation will decrease as the Mortgage Loans
amortize. The compensation of the Master Servicer will not ordinarily give rise
to either a conflict of interest or acts which may be contrary to the interests
of Certificateholders.
In addition to primary compensation, the Agreement for a Series of
Certificate may provide that the Master Servicer or the Sub-Servicers will be
entitled to retain all assumption fees and late payment charges, to the extent
collected from Mortgagors, any prepayment penalties and any interest or other
income which may be earned on funds held in any Collection Account or
Certificate Account and, except to the extent such income is required to be paid
to the related Mortgagors, the Escrow Account. Unless otherwise specified in the
related Prospectus Supplement, any Sub-Servicer will receive a portion of the
Master Servicer's primary compensation as its sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, to the extent
specified in the related Agreement, the Master Servicer will pay from its
servicing compensation certain expenses incurred in connection with its
servicing of the Mortgage Loans, including, without limitation, payment in
certain cases of premiums for insurance policies, guarantees, sureties or other
forms of credit enhancement, payment of the fees and disbursements of the
Trustee and independent accountants, payment of expenses incurred in connection
with distributions and reports to Certificateholders, and payment of certain
other expenses.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will pay the fees and expenses of the Trustee.
The principal compensation for the activities of any Special Servicer
under the Agreement for each Series will come from payment to it or retention by
it, with respect to each Specially Serviced Mortgage loan, of the Special
Servicer fee. The exact amount and calculation of such special Servicer fee will
be established in the Prospectus Supplement and Agreement for the related
Series.
In addition to the compensation described above, the Master Servicer or
the Special Servicer (or any other party specified in the applicable Prospectus
Supplement) may retain, or be entitled to the reimbursement of, such other
amounts and expenses as are described in the applicable Prospectus Supplement.
ADVANCES
The applicable Prospectus Supplement will set forth the obligations, if
any, of the Master Servicer or any Special Servicer or Sub-Servicer to make any
advances with respect to delinquent payments on Mortgage Loans, payments of
taxes, insurance and Property Protection Expenses or otherwise. Any such
advances will be made in the form and manner, and will be reimbursable, as
described in the Prospectus Supplement and Agreement for the related Series. If
so specified in the related Prospectus Supplement, one or more Standby
Servicer(s) may be obligated to make such advances in addition to, or in lieu
of, a Master Servicer or Sub-Servicer.
MODIFICATIONS, WAIVERS AND AMENDMENTS
If so specified in the related Prospectus Supplement, the Agreement for
each Series will provide that the Master Servicer or any Special Servicer may
have the discretion, subject to certain conditions set forth therein, to modify,
waive or amend certain of the terms of any Mortgage Loan without the consent of
the Trustee or any Certificateholder. The extent to which the Master Servicer or
any Special Servicer may modify, waive or amend any terms of the Mortgage Loans
without such consent will be specified in the related Prospectus Supplement.
A Special Servicer may, with respect to any Specially Serviced Mortgage
Loan, subject to the terms and conditions set forth in the Agreement, modify,
waive or amend the terms of such Mortgage Loan if such Special Servicer
determines that a material default has occurred or a payment default has
occurred or is reasonably foreseeable. A Special Servicer may extend the
maturity date of such Mortgage Loan to a date no later than the date described
in the related Prospectus Supplement.
Unless otherwise provided in the applicable Prospectus Supplement, a
Special Servicer will not agree to any modification, waiver or amendment of the
payment terms of a Mortgage Loan unless a Special Servicer has determined that
such modification, waiver or amendment is reasonably likely to produce a greater
recovery on a present value basis than liquidation of the Mortgage loan. Prior
to agreeing to any such modification, waiver or amendment of the payment terms
of a Mortgage Loan, a Special Servicer will give notice thereof in the manner
set forth in the Prospectus Supplement and Agreement for the related Series.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the modification, waiver or amendment of the terms of the
related Mortgage Loans.
EVIDENCE AS TO COMPLIANCE
The Agreement for each Series will provide that the Master Servicer, at
its expense, will cause a firm of independent public accountants to furnish to
the Trustee, annually on or before a date specified in the Agreement, a
statement as to compliance by the Master Servicer with the Agreement.
Each Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by an
officer of each Master Servicer and Special Servicer to the effect that based
upon a review of its activities during the preceding calendar year, to the best
of such officer's knowledge, such Master Servicer or Special Servicer, as
applicable, has fulfilled its obligations under the Agreement throughout the
preceding year or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof.
Copies of the annual accountants statement and the statement of
officers of each Master Servicer and Special Servicer may be obtained by
Certificateholders of the related Series without charge upon written request to
the Trustee at the address set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL
SERVICER, THE DEPOSITOR AND THE TRUSTEE
Each Agreement will further provide that neither the Depositor, the
Master Servicer, the Special Servicer and the Trustee nor any of their
directors, officers, employees, or agents will be under any liability to the
related Trust Fund or Certificateholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Agreement, or for
errors in judgment; PROVIDED, HOWEVER, that neither the Depositor, the Master
Servicer, the Special Servicer nor any such person will be protected against any
breach of warranties or representations made in the Agreement or any liability
which would otherwise be imposed (i) by reason of willful misfeasance, bad faith
or gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder or (ii) in certain other
circumstances specified in the Agreement. Each Agreement will further provide
that the Depositor, the Master Servicer, the Special Servicer and the Trustee
and their directors, officers, employees and agents will be entitled to
indemnification by the related Trust Fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder or in certain other circumstances specified in
the Agreement. In addition, each Agreement will provide that neither the
Depositor, the Master Servicer nor the Special Servicer and the Trustee will be
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its respective responsibilities under the Agreement and which
in its opinion may involve it in any expense or liability. The Depositor, the
Master Servicer, the Special Servicer or the Trustee may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom, unless
otherwise provided in the Agreement, will be expenses, costs and liabilities of
the Trust Fund and the Depositor, the Master Servicer, the Special Servicer or
the Trustee, as the case may be, will be entitled to be reimbursed therefor out
of funds otherwise distributable to Certificateholders.
Any person into which the Master Servicer or the Special Servicer may
be merged or consolidated, or any person resulting from any merger or
consolidation to which the Master Servicer or the Special Servicer is a party,
or any person succeeding to the business of the Master Servicer or the Special
Servicer, will be the successor of the Master Servicer or the Special Servicer
under each Agreement, provided that such person is qualified to sell mortgage
loans to, and service mortgage loans on behalf of, FNMA or FHLMC and further
provided that such merger, consolidation or succession does not adversely affect
the then current rating or ratings of the class or classes of Certificates of
such Series that have been rated.
If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to one or more Special Servicers, any variation from the standard
of care for, and any indemnification to be provided to, the Special Servicer as
described above will be set forth in the related Agreement.
The Trustee under each Agreement will be identified, and its
obligations under that Agreement will be described, in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor, each Master Servicer,
Sub-Servicer, Special Servicer and any of their respective affiliates.
The Trustee may resign from its obligations under the Agreement at any
time, in which event a successor Trustee will be appointed. In addition, the
Depositor may remove the Trustee if the Trustee ceases to be eligible to act as
Trustee under the Agreement or if the Trustee becomes insolvent, at which time
the Depositor will become obligated to appoint a successor Trustee. The Trustee
may also be removed at any time by the Holders of Certificates evidencing the
percentage interests specified in the applicable Prospectus Supplement. Any
resignation and removal of the Trustee, and the appointment of a successor
Trustee, will not become effective until acceptance of such appointment by the
successor Trustee.
EVENTS OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement or
Agreement, "Events of Default" with respect to the Master Servicer or the
Special Servicer under each Agreement will include (i) in the case of the Master
Servicer, any failure by the Master Servicer to cause to be deposited in the
Certificate Account any amount so required to be deposited pursuant to the
Agreement at least one business day prior to the related Distribution Date; (ii)
in the case of the Special Servicer, any failure by the Special Servicer to
remit to the Master Servicer for deposit in the Collection Account any
remittance required to be made by the Special Servicer on the day such
remittance is required to be made under the Agreement; (iii) any failure by the
Master Servicer or Special Servicer, as applicable, duly to observe or perform
in any material respect any of its other covenants or agreements in the
Agreement which failure continues unremedied for ninety days or such other time
period as is specified in the Agreement after the giving of written notice of
such failure to the Master Servicer or the Special Servicer, as applicable; and
(iv) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceeding and certain actions by or on behalf of the
Master Servicer or the Special Servicer, as applicable, indicating its
insolvency, reorganization or inability to pay its obligations.
RIGHTS UPON EVENT OF DEFAULT
Except as otherwise specified in the related Agreement, so long as an
Event of Default under an Agreement remains unremedied, the Trustee may, and (a)
at the written direction of holders of Certificates (other than Class R
Certificates if so provided in the Agreement) entitled to at least 25% of the
aggregate Voting Rights (as defined below) of any affected Class of Certificates
in the case of Events of Default described under clauses (i) and (ii) above, (b)
at the written direction of holders of Certificates entitled to at least 25% of
the aggregate Voting Rights or (c) in the case of an Event of Default described
in clauses (iii) and (iv) above, shall terminate all of the rights and
obligations of the Master Servicer or Special Servicer, as the case may be,
under the Agreement relating to such Trust Fund and in and to the Mortgage
Loans, whereupon the Trustee or another successor Master Servicer or Special
Servicer appointed by the Trustee will succeed to all of the responsibilities,
duties and liabilities of the Master Servicer or Special Servicer, as the case
may be, under the Agreement, and will be entitled to similar compensation
arrangements. "Voting Rights" means the portion of the voting rights of all
Certificates that is allocated to any Certificate in accordance with the terms
of the Agreement.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes
of a Series of Certificates or with respect to the Mortgage Assets in the
related Trust Fund. Credit enhancement may be in the form of (i) the
subordination of one or more classes of the Certificates of such Series, (ii)
the use of letters of credit, financial guaranty insurance, Reserve Accounts,
FHA Insurance, other third party guarantees, over collateralization,
cross-support or cross-collateralization provisions or another method of credit
enhancement described in the related Prospectus Supplement, or (iii) any
combination of the foregoing. Unless otherwise specified in the Prospectus
Supplement, any credit enhancement will not provide protection against all risks
of loss and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by credit enhancement or which are not covered by the credit
enhancement, holders of one or more classes of Certificates will bear their
allocable share of deficiencies. If a form of credit enhancement applies to
several classes of Certificates, and if principal payments of certain classes
will be distributed prior to such distributions to other classes, the classes
which receive such distributions at a later time are more likely to bear any
losses which exceed the amount covered by credit enhancement. Unless otherwise
specified in the Prospectus Supplement, coverage under any credit enhancement
may be canceled or reduced by the Master Servicer or the Depositor if such
cancellation or reduction would not adversely affect the [then-current] rating
or ratings of the related Certificates.
If credit enhancement is provided with respect to a Series of
Certificates, or the related Mortgage Loans, the related Prospectus Supplement
will include a description of (i) the amount payable under such credit
enhancement, (ii) any conditions to payment thereunder not otherwise described
herein, (iii) the conditions (if any) under which the amount payable under such
credit enhancement may be reduced and under which such credit enhancement may be
terminated or replaced and (iv) the material provisions of any agreement
relating to such credit enhancement. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the issuer of any
third-party credit enhancement, including (i) a brief description of its
principal business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to do
business, (iii) if applicable, the identity of regulatory agencies which
exercise primary jurisdiction over the conduct of its business and (iv) its
total assets, and its stockholders' equity or policyholders' surplus, if
applicable, or other relevant financial information as of the date specified in
such related Prospectus Supplement.
SUBORDINATION
If so specified in the related Prospectus Supplement, distributions in
respect of scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been payable to one or more
classes of Subordinated Certificates of a Series will instead be payable to
holders of one or more classes of Senior Certificates under the circumstances
and to the extent specified in the related Prospectus Supplement. If specified
in the related Prospectus Supplement, delays in receipt of scheduled payments on
the Mortgage Loans and losses on defaulted Mortgage Loans will be borne first by
the various classes of Subordinated Certificates and thereafter by the various
classes of Senior Certificates, in each case under the circumstances and subject
to the limitations specified in the related Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Mortgage Loans over the
lives of the Certificates or at any time, the aggregate losses in respect of
defaulted Mortgage Loans which must be borne by the Subordinated Certificates by
virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Certificateholders that will be distributable
to Senior Certificateholders on any Distribution Date may be limited as
specified in the related Prospectus Supplement. If aggregate distributions in
respect of delinquent payments on the Mortgage Loans or aggregate losses in
respect of such Mortgage Loans were to exceed the total amounts payable and
available for distribution to holders of Subordinated Certificates or, if
applicable, were to exceed the specified maximum amount, holders of Senior
Certificates would experience losses on the Certificates.
If so specified in the related Prospectus Supplement, the same class of
Certificates may be Senior Certificates with respect to certain types of
payments or certain types of losses or delinquencies and Subordinated
Certificates with respect to other types of payment or types of losses or
delinquencies. If specified in the related Prospectus Supplement, various
classes of Senior Certificates and Subordinated Certificates may themselves be
subordinate in their right to receive certain distributions to other classes of
Senior and Subordinated Certificates, respectively, through a cross support
mechanism or otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
LETTERS OF CREDIT
If specified in the related Prospectus Supplement, one or more letters
of credit with respect to a Series of Certificates will be issued by the L/C
Bank. Under a letter of credit, the L/C Bank will be obligated to honor drawings
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, equal to the percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Loans on the
applicable Cut-Off Date or of one or more classes of Certificates or otherwise
as specified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the letter of credit may permit drawings in the
event of losses not covered by insurance policies or other credit support, such
as losses arising from damage not covered by standard hazard insurance policies
or due to the bankruptcy of a Mortgagor. The amount available under the letter
of credit will, in all cases, be reduced to the extent of the unreimbursed
payments thereunder. The obligations of the L/C Bank under the letter of credit
for each Series of Certificates will expire at the earlier of the date specified
in the related Prospectus Supplement or the termination of the applicable Trust
Fund.
FINANCIAL GUARANTY INSURANCE
If so specified in the related Prospectus Supplement, financial
guaranty insurance with respect to a Series of Certificates will be provided by
one or more insurance companies. Such financial guaranty insurance will
guaranty, with respect to one or more classes of Certificates of the applicable
Series, timely distributions of interest and full distributions of principal on
the basis of a schedule of principal distributions set forth in or determined in
the manner specified in the related Prospectus Supplement. If so specified in
the related Prospectus Supplement, the financial guaranty insurance will also
guaranty against any payment made to a Certificateholder which is subsequently
recovered as a "voidable preference" payment under the United States Bankruptcy
Code, 11 U.S.C.ss. 101 ET SEQ., as amended (the "Bankruptcy Code").
RESERVE ACCOUNTS
If specified in the related Prospectus Supplement, one or more Reserve
Accounts may be established with respect to a Series in which cash, a letter of
credit, Permitted Investments or a combination thereof, in the amounts, if any,
so specified in the related Prospectus Supplement will be deposited. The Reserve
Accounts for a Series may also be funded over time by depositing therein a
specified amount of the distributions received on the applicable Mortgage Assets
if specified in the related Prospectus Supplement. The Depositor may pledge the
Reserve Accounts to a separate collateral agent specified in the related
Prospectus Supplement.
Amounts on deposit in any Reserve Account for a Series, together if
specified in the related Prospectus Supplement with the reinvestment income
thereon, will be applied by the related Trustee in the manner, and to the extent
specified in the related Prospectus Supplement. A Reserve Account may be
provided to increase the likelihood of timely payments of principal of and
interest on the Certificates, if required as a condition to the rating of such
Series by each Rating Agency. If so specified in the related Prospectus
Supplement, Reserve Accounts may be established to provide limited protection,
in an amount satisfactory to each Rating Agency, against certain types of losses
not covered by insurance policies or other credit support, such as losses
arising from damage not covered by standard hazard insurance policies or due to
the bankruptcy of a Mortgagor. Reserve Accounts may also be established for
other purposes and in such amounts as will be specified in the related
Prospectus Supplement. Following each Distribution Date, amounts in any Reserve
Account in excess of any amount required to be maintained therein may be
released from the Reserve Account under the conditions and to the extent
specified in the related Prospectus Supplement and upon their release will not
be available for further application by the Trustee.
Moneys deposited in any Reserve Account will be invested, to the extent
acceptable to the applicable Rating Agency, in Permitted Investments at the
direction of the Depositor, except as otherwise specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, any reinvestment income or other gain from such investments will be
credited to the related Reserve Account for such Series, and any loss resulting
from such investments will be charged to such Reserve Account. If specified in
the related Prospectus Supplement, such income or other gain may be payable to
the Master Servicer as additional servicing compensation, and any loss resulting
from such investment will be borne by the Master Servicer. To the extent
specified in the related Prospectus Supplement, the Reserve Account, if any, for
a Series may not be a part of the Trust Fund, in which event the right of the
Trustee to make draws on the Reserve Account will be an asset to the Trust Fund.
Additional information concerning any Reserve Account will be set forth
in the related Prospectus Supplement, including the initial balance of such
Reserve Account, the balance required to be maintained in the Reserve Account,
the manner in which such required balance will increase or decrease over time,
the manner of funding such Reserve Account, the purpose for which funds in the
Reserve Account may be applied to make distributions to Certificateholders and
the use of investment earnings, if any, from the Reserve Account.
FHA INSURANCE ON MULTIFAMILY LOANS
There are two primary FHA insurance programs that are available for
Multifamily Loans. Sections 221(d)(3) and (d)(4) of the Housing Act allow HUD to
insure mortgage loans that are secured by newly constructed and substantially
rehabilitated multifamily rental projects. Section 244 of the Housing Act
provides for coinsurance of such mortgage loans made under Sections 221(d)(3)
and (d)(4) by HUD, FHA and a HUD-approved co-insurer. Generally, the term of
such a mortgage loan may be up to 43 years and the ratio of loan amount to
property replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for coinsurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general, the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
FHA insurance is generally payable in cash or, at the option of the
mortgagee, in debentures. Such insurance does not cover 100% of the mortgage
loan but is instead subject to certain deductions and certain interest
reimbursement limitations from the date of the default.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the related Prospectus Supplement, a Trust Fund may
include in lieu of some or all of the foregoing or in addition thereto insurance
policies or third party guarantees and other arrangements for maintaining timely
payments or providing additional protection against losses on the assets
included in such Trust Fund, paying administrative expenses, or accomplishing
such other purpose as may be described in the related Prospectus Supplement. The
Trust Fund 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 Certificates has a floating interest rate,
or if any of the Mortgage Assets has a floating interest rate, the Trust Fund
may include an interest rate swap contract, an interest rate cap agreement or
similar contract providing limited protection against interest rate risks. The
obligations of Lessees under Leases may be guaranteed by the Mortgagor, which
guarantees would be collaterally assigned to the Trustee.
CROSS SUPPORT
If specified in the related Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust Fund may be evidenced
by separate classes of the related Series of Certificates. In such case, credit
support may be provided by a cross-support feature which requires that
distributions be made with respect to Certificates evidencing a beneficial
ownership interest in other asset groups within the same Trust Fund. The related
Prospectus Supplement for a Series which includes a cross-support feature will
describe the manner and conditions for applying such cross-support feature.
If specified in the related Prospectus Supplement, the coverage
provided by one or more forms of credit support may apply concurrently to two or
more separate Trust Funds. If applicable, the related Prospectus Supplement will
identify the Trust Funds to which such credit support relates and the manner of
determining the amount of the coverage provided thereby and of the application
of such coverage to the identified Trust Funds.
CROSS-COLLATERALIZATION
If so specified in the related Prospectus Supplement, certain of the
Mortgage Loans may be secured not only by the mortgage securing the Mortgaged
Property in respect of which the related Mortgage Loan was made, but by a
mortgage on some or all of the other Mortgaged Properties in the related
Mortgage Pool for such Series of Certificates. Under such circumstances it may
be possible, in a situation where foreclosure of a particular Mortgaged Property
does not result in sufficient net proceeds to fully repay the related Mortgage
Loan, that the balance of such Mortgage Loan may nevertheless be paid as a
result of dispositions or refinancings of other Mortgaged Properties in the
related Mortgage Pool in subsequent transactions or from cash flows generated by
such other Mortgaged Properties in the related Mortgage Pool. To the extent
specified in the related Prospectus Supplement, however, it may not be possible
to accelerate the payment of other Mortgage Loans that are cross-collateralized
with a defaulted Mortgage Loan or to foreclose on the cross- collateralized
Mortgage Loans except in connection with a default on such Mortgage Loans that
results in the acceleration of their payment.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND LEASES
The following discussion contains summaries, which are general in
nature, of certain legal matters relating to the Mortgage Loans and the Leases.
Because many of such legal aspects are governed by applicable state laws (which
laws may differ substantially), the following summaries do not purport to be
complete, to reflect the laws of any particular state, to reflect all of the
laws applicable to a particular Mortgage Loan or Lease or to encompass the laws
of all states in which the security for the Mortgage Loans is situated. The
summaries are qualified in their entirety by reference to the applicable federal
and state laws governing the Mortgage Loans.
MORTGAGE LOANS
General. The Mortgage Loans will be secured by mortgages, deeds of
trust, security deeds or deeds to secure debt, depending upon the prevailing
practice in the state in which the property subject to the loan is located.
There are two parties to a mortgage, the mortgagor, who is the borrower and
owner of the mortgaged property, and the mortgagee, who is the lender. A
mortgage creates a lien upon the real property encumbered by the mortgage as
security for the obligation evidenced by the note, bond or other evidence of
indebtedness, which lien is generally not prior to the lien for unpaid real
estate taxes and assessments. Priority between mortgages depends on their terms
and generally on the order of recording with a state, county or municipal
office. The mortgagor delivers to the mortgagee a note, bond or other written
evidence of indebtedness and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust formally has three parties, the borrower-property
owner called the trustor (similar to a mortgagor), a lender called the
beneficiary (similar to a mortgagee), and a third-party grantee called the
trustee. Under a deed of trust, the borrower grants the property, irrevocably
until the debt is paid, in trust, generally with a power of sale, to the trustee
to secure payment of the obligation. A security deed and a deed to secure debt
are special types of deeds which indicate on their face that they are granted to
secure an underlying debt. By executing a security deed or deed to secure debt,
the grantor conveys title to, as opposed to merely creating a lien upon, the
subject property to the grantee until such time as the underlying debt is
repaid. The mortgagee's authority under a mortgage, the trustee's authority
under a deed of trust and the grantee's authority under a security deed or deed
to secure debt are governed by applicable law, the express provisions of the
mortgage, deed of trust or deed to secure debt and, with respect to some deeds
of trust, the directions of the beneficiary.
The real property covered by a mortgage, deed of trust, security deed
or deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. The Seller will make certain representations and warranties
in the Agreement with respect to the Mortgage Loans which are secured by an
interest in a leasehold estate. See "Description of Certificates--Assignment of
the Mortgage Loans" and "--Representations by Sellers; Repurchases."
The priority of the lien on a mortgaged property created by mortgages
and deeds of trust, security deeds and deeds to secure debt depends on their
terms and, generally, on the order of filing with a state, county or municipal
office, although such priority may in some states be altered by the mortgagee's
or beneficiary's knowledge of unrecorded liens, leases or encumbrances against
the mortgaged property. However, filing or recording does not establish priority
over governmental claims for real estate taxes and assessments or, in some
states, for reimbursement of remediation costs of certain environmental
conditions. In addition, the Code provides priority to certain tax liens over
the lien of the mortgage, deed of trust, security deed or deed to secure debt.
Foreclosure/Repossession. Foreclosure of a deed of trust is generally
accomplished by a non-judicial sale under a specific provision in the deed of
trust which authorizes the trustee to sell the property at public auction upon
any default by the borrower under the terms of the note or deed of trust. In
some states, the trustee must record a notice of default and send a copy to the
borrower-trustor, to any person who has recorded a request for a copy of any
notice of default and notice of sale, to any successor in interest to the
borrower-trustor, to the beneficiary of any junior deed of trust and to certain
other persons. Before such non-judicial sale takes place, typically a notice of
sale must be posted in a public place and published during a specific period of
time in one or more newspapers, posted on the property, and sent to parties
having an interest of record in the property.
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the real property. Delays in completion of the foreclosure
may occasionally result from difficulties in locating necessary parties. When
the mortgagee's right to foreclose is contested, the legal proceedings necessary
to resolve the issue can be time-consuming. A judicial foreclosure may be
subject to most of the delays and expenses of other litigation, sometimes
requiring up to several years to complete. After the completion of a judicial
foreclosure proceeding, if the mortgagee prevails, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. Such sales are made in accordance with procedures
which vary from state to state. The purchaser at such sale acquires the estate
or interest in real property covered by the mortgage. If the mortgage covered
the tenant's interest in a lease and leasehold estate, the purchaser will
acquire such tenant's interest subject to the tenant's obligations under the
lease to pay rent and perform other covenants contained therein.
In a majority of cases, foreclosure of a deed of trust is accomplished
by a non-judicial trustee's sale under a specific provision in the deed of trust
and/or applicable statutory requirements which authorizes the trustee, generally
following a request from the beneficiary/lender, to sell the property at public
sale upon any default by the borrower under the terms of the note or deed of
trust. A number of states may also require that a lender provide notice of
acceleration of a note to the borrower. Notice requirements under a trustee's
sale vary from state to state. In some states, prior to the trustee's sale the
trustee must record a notice of default and send a copy to the borrower-trustor,
to any person who has recorded a request for a copy of a notice of default and
notice of sale and to any successor in interest to the trustor. In addition, the
trustee must provide notice in some states to any other person having an
interest in the real property, including any junior lienholders, and to certain
other persons connected with the deed of trust. In some states, the borrower, or
any other person having a junior encumbrance on the real estate, may, during a
statutorily prescribed reinstatement period, cure a monetary default by paying
the entire amount in arrears plus other designated costs and expenses incurred
in enforcing the obligation. Generally, state law may limit the amount of
foreclosure expenses and costs, including attorneys' fees, which may be
recovered by a lender. After the reinstatement period has expired without the
default having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale. If the mortgage is not reinstated, a notice of sale
must be posted in a public place and, in most states, published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest in the real property.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated official or by the trustee is often a
public sale. However, because of the difficulty a potential buyer at the sale
might have in determining the exact status of title to the property subject to
the lien of the mortgage or deed of trust and the redemption rights that may
exist (see "--Rights of Redemption" below), and because the physical condition
and financial performance of the property may have deteriorated during the
foreclosure proceedings and/or for a variety of other reasons, a third party may
be unwilling to purchase the property at the foreclosure sale. Some states
require that the lender disclose to potential bidders at a trustee's sale all
known facts materially affecting the value of the property. Such disclosure may
have an adverse effect on the trustee's ability to sell the property or the sale
price thereof. Potential buyers may further question the prudence of purchasing
property at a foreclosure sale as a result of the 1980 decision of the United
States Court of Appeals for the Fifth Circuit in Durrett v. Washington National
Insurance Company, other decisions that have followed the reasoning of Durrett
and the codification of the Durrett reasoning in the federal bankruptcy code, as
amended from time to time (11 U.S.C.) (the "Bankruptcy Code"). Under the
reasoning of Durrett, even a non-collusive, regularly conducted foreclosure sale
may be a fraudulent transfer, regardless of the parties' intent, and, therefore,
may be rescinded in favor of the bankrupt's estate, if (i) the foreclosure sale
is held while the debtor is insolvent and not more than one year prior to the
filing of the bankruptcy petition (or if applicable state fraudulent conveyance
law also allows the avoidance of such a foreclosure sale, the applicable state
statute of limitations if the bankruptcy trustee elects to proceed under state
fraudulent conveyance law), and (ii) the price paid for the foreclosed property
does not represent "fair consideration." In May 1994 the Supreme Court held in
BFP v. RTC that in the absence of actual intent to defraud a non-collusive,
regularly conducted foreclosure sale cannot be rescinded as a fraudulent
transfer under federal bankruptcy law. However, BFP does not address state law,
and the impact of BFP on potential buyers' willingness to purchase property at a
foreclosure sale can not yet be assessed. Prior to BFP, a common practice was
for the lender to purchase the property from the trustee, referee or other
designated official for an amount equal to the outstanding principal amount of
the indebtedness secured by the mortgage or deed of trust, together with accrued
and unpaid interest and the expenses of foreclosure, in which event, if the
amount bid by the lender equals the full amount of such debt, interest and
expenses, the mortgagee's debt will be extinguished. Thereafter, the lender will
assume the burdens of ownership, including paying operating expenses and real
estate taxes and making repairs, subject to the obligation of tenants under
leases. The lender is then obligated as an owner until it can arrange a sale of
property to a third party. Frequently, the lender employs a third party
management company to manage and operate the property. The costs of operating
and maintaining commercial or multifamily properties may be significant and may
be greater than the income derived from the property. The costs of management
and operation of those mortgaged properties which are hotels, motels, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the effect
which foreclosure and a change in ownership may have on the public's and the
industry's (including franchisors') perception of the quality of such
operations. 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. Moreover, a
lender commonly incurs substantial legal fees and court costs in acquiring a
mortgaged property through contested foreclosure and/or bankruptcy proceedings
and in negotiating management agreements. Furthermore, an increasing number of
states require that any environmental hazards be eliminated before a property
may be resold. In addition, a lender may be responsible under federal or state
law for the cost of cleaning up a mortgaged property that is environmentally
contaminated. See "--Environmental Risks" below. As a result, a lender could
realize an overall loss on a mortgage loan even if the related mortgaged
property is sold at foreclosure or resold after it is acquired through
foreclosure for an amount equal to the full outstanding principal amount of the
mortgage loan, plus accrued interest.
In foreclosure proceedings, some courts have applied general equitable
principles, which are generally designed to mitigate the legal consequences to
the borrower of the borrower's 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
of the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substitute 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's failing to maintain adequately the property or
the borrower's executing a second mortgage or deed of trust affecting the
property. Some courts have been faced with the issue of whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under deeds of trust receive notice longer than that
prescribed by statute. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust, or under a mortgage having a power of sale, does not involve
sufficient state action to afford constitutional protection to the borrower.
Under the REMIC provision of the Code and the related Agreement, the
Master Servicer or Special Servicer, if any, may be permitted to hire an
independent contractor to operate any REO Property. The costs of such operation
may be significantly greater than the costs of direct operation by the Master
Servicer or Special Servicer, if any. See "Servicing of The Mortgage
Loans--Collections and Other Servicing Procedures."
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to certain
tenants who elected to remain in the building but who did not purchase shares in
the Cooperative when the building was so converted.
Rights of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In 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 right of redemption may defeat the title of any purchaser at a
foreclosure sale or any purchaser from the lender subsequent to foreclosure or
sale under a deed of trust. Certain states permit a lender to avoid a post-sale
redemption by waiving its right to a deficiency judgment. Consequently, the
practical effect of the redemption right is often to force the lender to retain
the property and pay the expenses of ownership until the redemption period has
run. In some states, there is no right to redeem property after a trustee's sale
under a deed of trust.
Anti-Deficiency Legislation. Certain of the Mortgage Loans may be
nonrecourse loans as to which, in the event of a default by a Mortgagor,
recourse may be had only against the specific Mortgaged Property encumbered to
secure the related Mortgage Loan and not against the Mortgagor's other assets.
Even if recourse is available pursuant to the terms of the Mortgage Loan against
the Mortgagor's assets in addition to the Mortgaged Property, certain states
have imposed statutory prohibitions which impose prohibitions against or
limitations on such recourse. For example, certain states have adopted statutory
prohibitions restricting the right of the beneficiary or mortgagee to obtain a
deficiency judgment against borrowers following a sale under a deed of trust or
certain other foreclosure proceedings. A deficiency judgment is a personal
judgment against the borrower equal in most cases to the difference between the
net amount realized upon the public sale of the real property and the amount due
to the lender. 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 states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower. Other statutory provisions limit any deficiency
judgment against the former borrower following a judicial sale to the excess of
the outstanding debt over the fair market value of the property at the time of
the public sale. The purpose of these statutes is generally to prevent a
beneficiary or a mortgagee from obtaining a large deficiency judgment against
the former borrower as a result of low bids or the absence of bids in the
judicial sale.
Due-on-Sale Clauses. Unless otherwise provided in the related
Prospectus Supplement, each Mortgage Loan will contain a due-on-sale clause
which will generally provide that if the mortgagor or obligor sells, transfers
or conveys the Mortgaged Property, the loan or contract may be accelerated by
the mortgager or secured party. The enforceability of due-on-sale clauses has
been the subject of legislation or litigation in many states, and in some cases,
typically involving single family residential mortgage transactions, their
enforceability has been limited or denied. In any event, 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 exceptions. As a result, due-on-sale
clauses have become generally enforceable except in those states whose
legislatures exercised their authority to regulate the enforceability of such
clauses with respect to mortgage loans that were (i) originated or assumed
during the "window period" under the Garn-St Germain Act, which ended in all
cases not later than October 15, 1982, and (ii) originated by lenders other than
national banks, federal savings institutions and federal credit unions. FHLMC
has taken the position in its published mortgage servicing standards that, out
of a total of eleven "window period states," five states (Arizona, Michigan,
Minnesota, New Mexico and Utah) have enacted statutes extending, on various
terms and for varying periods, the prohibition on enforcement of due-on-sale
clauses with respect to certain categories of window period loans. Also, 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 rates. As to loans secured by an owner-occupied
residence, the Garn-St Germain Act sets forth nine specific instances in which a
mortgagee covered by the Act may not exercise its rights under a due-on-sale
clause, notwithstanding the fact that a transfer of the property may have
occurred. The inability to enforce a due-on-sale clause may result in transfer
of the related Mortgaged Property to an uncreditworthy person, which could
increase the likelihood of default.
In addition, under federal bankruptcy law, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
Prepayment Provisions. Courts generally enforce claims requiring
prepayment fees unless enforcement would be unconscionable. However, the laws of
certain states may render prepayment fees unenforceable after a mortgage loan
has been outstanding for a certain number of years, or may limit the amount of
any prepayment fee to a specified percentage of the original principal balance
of the mortgage loan, to a specified percentage of the outstanding principal
balance of a mortgage loan or to a fixed number of months' interest on the
prepaid amount. In certain states, prepayment fees payable on default or other
involuntary acceleration of a mortgage loan may not be enforceable against the
mortgagor. Some state statutory provisions may also treat certain prepayment
fees as usurious if in excess of statutory limits. See "--Applicability of Usury
Laws" below. Some of the Mortgage Loans included in the Trust Fund for a Series
may not require the payment of specified fees as a condition to prepayment or
such requirements may have expired resulting in a lower deterrence to
prepayment. To the extent some of the Mortgage Loans included in a Trust Fund
for a Series impose fees, such fees may not deter mortgagors from prepaying
their Mortgage Loans.
Acceleration on Default. Unless otherwise specified in the related
Prospectus Supplement, some of the Mortgage Loans included in the Mortgage Pool
for a Series will include a "debt-acceleration" clause, which permits the lender
to accelerate the full debt upon a monetary or nonmonetary default of the
Mortgagor. The courts of all states will enforce clauses providing for
acceleration in the event of a material payment default after giving effect to
any appropriate notices. The equity courts of any state, however, may refuse to
foreclose a mortgage or deed of trust when an acceleration of the indebtedness
would be inequitable or unjust or the circumstances would render the
acceleration unconscionable. Furthermore, in some states, the mortgagor may
avoid foreclosure and reinstate an accelerated loan by paying only the defaulted
amounts and the costs and attorneys' fees incurred by the lender in collecting
such defaulted payments.
Applicability of Usury Laws. State and federal usury laws limit the
interest that lenders are entitled to receive on a mortgage loan. In determining
whether a given transaction is usurious, courts may include charges in the form
of "points" and "fees" as "interest," but may exclude payments in the form of
"reimbursement of foreclosure expenses" or other charges found to be distinct
from "interest." If, however, the amount charged for the use of the money loaned
is found to exceed a statutorily established maximum rate, the form employed and
the degree of overcharge are both immaterial. Statutes differ in their
provisions as to the consequences of a usurious loan. One group of statutes
requires the lender to forfeit the interest due above the applicable limit or
imposes a specified penalty. Under this statutory scheme, the borrower may have
the recorded mortgage or deed of trust cancelled upon paying its debt with
lawful interest, or the lender may foreclose, but only for the debt plus lawful
interest. A second group of statutes is more severe. A violation of this type of
usury law results in the invalidation of the transaction, thereby permitting the
borrower to cancel the recorded mortgage and deed of trust without any payment
and prohibiting the lender from foreclosing.
Soldiers' and Sailors' Civil Relief Act. Generally, under the terms of
the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief
Act"), a borrower who enters military service after the origination of such
borrower's mortgage loan (including a borrower who is a member of the National
Guard or is in reserve status at the time of the origination of the mortgage
loan and is later called to active duty) may not be charged interest above an
annual rate of 6% during the period of such borrower's active duty status,
unless a court orders otherwise upon application of the lender. It is possible
that such interest rate limitation could have an effect, for an indeterminate
period of time, on the ability of the Master Servicer to collect full amounts of
interest on certain of the Mortgage Loans. Unless otherwise provided in the
applicable Prospectus Supplement, any shortfall in interest collections
resulting from the application of the Relief Act could result in losses to the
holders of the Certificates. 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 later called to active duty) after
origination of the related Mortgage Loan, no information can be provided as to
the number of Mortgage Loans that may be affected by the Relief Act. Some of the
Mortgaged Properties relating to Mortgage Loans included in the Mortgage Pool
for a Series may be owned by Borrowers who are individuals. In addition, the
Relief Act imposes limitations which would impair the ability of the Master
Servicer, or a Special Servicer, if any, to foreclose on an affected Mortgage
Loan during the borrower's period of active duty status and, under certain
circumstances, during an additional three months thereafter. 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.
Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries. To the
extent specified in the related Prospectus Supplement, some of the Mortgage
Loans included in the Mortgage Pool for a Series will be secured by junior
mortgages or deeds of trust which are subordinated to senior mortgages or deeds
of trust held by other lenders or institutional investors. The rights of the
Trust Fund (and therefore the related Certificateholders), as beneficiary under
a junior deed of trust or as mortgagee under a junior mortgage, are subordinate
to those of the mortgagee or beneficiary under the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive rents, hazard insurance and condemnation proceeds and to cause the
Mortgaged Property securing the Mortgage Loan to be sold upon default of the
mortgagor or trustor, thereby extinguishing the junior mortgagee's or junior
beneficiary's lien unless the Master Servicer or Special Servicer, as
applicable, asserts its subordinate interest in a Mortgaged Property in
foreclosure litigation or satisfies the defaulted senior loan. As discussed more
fully below, in many states a junior mortgagee or beneficiary may satisfy a
defaulted senior loan in full, or may cure such default and bring the senior
loan current, in either event adding the amounts expended to the balance due on
the junior loan. Absent a provision in the senior mortgage, no notice of default
is required to be given to the junior mortgagee, unless otherwise required by
law.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or 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 mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. 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, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under the hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed. The laws of
certain states may limit the ability of mortgagees or beneficiaries to apply the
proceeds of hazard insurance and partial condemnation awards to the secured
indebtedness. In such states, the mortgagor or trustor must be allowed to use
the proceeds of hazard insurance to repair the damage unless the security of the
mortgagee or beneficiary has been impaired. Similarly, in certain states, the
mortgagee or beneficiary is entitled to the award for a partial condemnation of
the real property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional
lenders typically contains a "future advance" clause, which provides, in
essence, that additional amounts advanced to or on behalf of the mortgagor or
trustor by the mortgagee or beneficiary are to be secured by the mortgage or
deed of trust. While such a clause is valid under the laws of most states, the
priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the mortgagee
or beneficiary is obligated to advance the additional amounts, the advance may
be entitled to receive the same priority as amounts initially made under the
mortgage or deed of trust, notwithstanding that there may be intervening junior
mortgages or deeds of trust and other liens between the date of recording of the
mortgage or deed of trust and the date of the future advance, and
notwithstanding that the mortgagee or beneficiary had actual knowledge of such
intervening junior mortgages or deeds of trust and other liens at the time of
the advance. Where the mortgagee or beneficiary is not obligated to advance the
additional amounts and has actual knowledge of the intervening junior mortgages
or deeds of trust and other liens, the advance may be subordinated to such
intervening junior mortgages or deeds of trust and other liens. Priority of
advances under a "future advance" clause rests, in many other states, on state
law giving priority to all advances made under the loan agreement up to a
"credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed
of trust used by many institutional lenders obligates the mortgagor or 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 mortgage or 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 mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary is given the right under
the mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary
for any sums expended by the mortgagee or beneficiary on behalf of the mortgagor
or trustor. All sums so expended by the mortgagee or beneficiary become part of
the indebtedness secured by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional
lenders typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged property,
including, without limitation, leasing activities (including new leases and
termination or modification of existing leases), alterations and improvements to
buildings forming a part of the mortgaged property and management and leasing
agreements for the mortgaged property. Tenants will often refuse to execute a
lease unless the mortgagee or beneficiary executes a written agreement with the
tenant not to disturb the tenant's possession of its premises in the event of a
foreclosure. A senior mortgagee or beneficiary may refuse to consent to matters
approved by a junior mortgagee or beneficiary with the result that the value of
the security for the junior mortgage or deed of trust is diminished. For
example, a senior mortgagee or beneficiary may decide not to approve a lease or
to refuse to grant a tenant a non-disturbance agreement. If, as a result, the
lease is not executed, the value of the mortgaged property may be diminished.
Secondary Financing. To the extent specified in the related Prospectus
Supplement, some of the Mortgage Loans may not restrict secondary financing,
thereby permitting the Mortgagor to use the Mortgaged Property as security for
one or more additional loans. Some of the Mortgage Loans may preclude secondary
financing (often by permitting the first lender to accelerate the maturity of
its loan if the Borrower further encumbers the Mortgage Property) or may require
the consent of the senior lender to any junior or substitute financing; however,
such provisions may be unenforceable in certain jurisdictions under certain
circumstances.
Where the Mortgagor encumbers the Mortgaged Property with one or more
junior liens, the senior lender is subjected to additional risk. First, the
Mortgagor may have difficulty servicing and repaying multiple loans. In the case
of certain Mortgage Loans, the rent payments under the Leases may be
insufficient to service and repay multiple loans. Second, acts of the senior
lender which prejudice the junior lender or impair the junior lender's security
may create a superior equity in favor of the junior lender. For example, if the
borrower and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the borrower is
additionally burdened. Third, if the borrower defaults on the senior loan, any
junior loan or both loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender and can
interfere with, delay and even prevent taking of action by the senior lender,
including any action to workout the loan. Fourth, the bankruptcy of a junior
lender may operate to stay foreclosure or similar proceedings by the senior
lender.
Forfeitures In Drug and Rico Proceedings. Federal law provides that
property owned by persons convicted of drug-related crimes or of criminal
violations of the Racketeer Influenced and Corrupt Organizations ("RICO")
statute can be seized by the government if the property was used in, or
purchased with the proceeds of such crimes. Under procedures contained in the
Comprehensive Crime Control Act of 1984 (the "Crime Control Act"), the
government may seize the property even before conviction. The government must
publish notice of the forfeiture proceeding and may give notice to all parties
"known to have an alleged interest in the property," including the holders of
mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate 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 (the "NCUA") 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 mortgage banking companies, may originate
alternative mortgage instruments in accordance with the regulations promulgated
by the Federal Home Loan Bank Board (now 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 provision 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.
LEASES AND RENTS
To the extent specified in the related Prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series may be secured by
an assignment of leases and rents, either through a separate document of
assignment or as incorporated in the mortgage. Under such assignments, the
mortgagor typically assigns its right, title and interest as landlord under each
lease and the income derived therefrom to the lender, while retaining a license
to collect the rents for so long as there is no default under the mortgage loan
documentation. The manner of perfecting the lender's interest in rents may
depend on whether the mortgagor's assignment was absolute or one granted as
security for the loan. Failure to properly perfect the lender's interest in
rents may result in the loss of a substantial pool of funds, which could
otherwise serve as a source of repayment for the loan. In the event the
Mortgagor defaults, the license terminates and the lender may be entitled to
collect rents. Some state laws may require that to perfect its interest in
rents, the lender must take possession of the property and/or obtain judicial
appointment of a receiver before becoming entitled to collect the rents. Lenders
that actually take possession of the property, however, may incur potentially
substantial risks attendant to being a mortgagee in possession. Such risks
include liability for environmental clean-up costs and other risks inherent in
property ownership. See "--Mortgage Loans--Environmental Risks" below. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the Mortgagor, the lender's ability to collect the rents may be adversely
affected. Certain bankruptcy courts have held that a lender's security interest
in rents, income and profit generated by a hotel or motel does not include room
revenues. Room revenues have been characterized by bankruptcy courts as accounts
receivable, entitling the debtor to use the cash without the consent of the
Lender. In the event of a mortgagor default, the amount of rent the lender is
able to collect from the tenants can significantly affect the value of the
lender's security interest.
BANKRUPTCY LAWS
Numerous statutory provisions, including the Bankruptcy Code and state
laws affording relief to debtors, may interfere with and delay the ability of a
secured mortgage lender to obtain payment of a loan, to realize upon collateral
and/or to enforce a deficiency judgment. For example, under the Bankruptcy Code,
virtually all actions (including foreclosure actions and deficiency judgment
proceedings) are automatically stayed upon the filing of the bankruptcy
petition, and, often no interest or principal payments are made during the
course of the bankruptcy proceeding. The delay and consequences thereof caused
by such automatic stay can be significant. For example, under the Bankruptcy
Code, the filing of a petition in bankruptcy by or on behalf of a junior lienor,
including, without limitation, any junior mortgagee or beneficiary, may stay the
senior lender from taking action to foreclose such junior lien. To the extent
specified in the related Prospectus Supplement, certain of the Mortgaged
Properties may have a junior "wraparound" mortgage or deed of trust encumbering
such Mortgage Property. In general terms, a "wraparound" mortgage is a junior
mortgage where the full amount of the mortgage is increased by an amount equal
to the principal balance of the senior mortgage and where the junior lender
agrees to pay the senior mortgage out of the payments received from the
mortgagor under the "wraparound" mortgage. As with other junior mortgages, the
filing of a petition under the Bankruptcy Code by or on behalf of such a "wrap"
mortgagee may stay the senior lender from taking action to foreclose upon such
junior "wrap" mortgage.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage or deed of
trust secured by property of the debtor may be modified under certain
circumstances. In a bankruptcy, the outstanding amount of the loan secured by
the real property may be reduced to the then current value of the property
pursuant to a confirmed plan, thus leaving the lender a general unsecured
creditor for the difference between such value and the outstanding balance of
the loan. Other modifications may include the reduction in the rate of interest
and/or the alteration of the repayment schedule (with or without affecting the
unpaid principal balance of the loan), and/or an extension (or reduction) of the
final maturity date. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the reorganization case, that
affected the curing of a mortgage loan default by paying arrearages over a
number of years. Also, under the Bankruptcy Code, a bankruptcy court may permit
a debtor through its plan of reorganization to de-accelerate a secured loan and
to reinstate the loan even though the lender accelerated the mortgage loan and
final judgment of foreclosure had been entered in state court (provided no sale
of the property had yet occurred) prior to the filing of the debtor's petition.
Other types of significant modifications to the terms of the mortgage may be
acceptable to the bankruptcy court, often depending on the particular facts and
circumstances of the specific case. In addition, in certain circumstances, a
bankruptcy court may authorize the trustee to obtain credit or incur debt
secured by a senior or equal lien on the property of the estate that is subject
to a mortgage.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of certain payments made by a Mortgagor
under a related Mortgage Loan to the Trust Fund. Payments on long-term debt may
be protected from recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course of business.
Whether any particular payment would be protected depends upon the facts
specific to a particular transaction.
Section 365(e) of the Bankruptcy Code provides generally that rights
and obligations under an unexpired lease of the debtor/lessee may not be
terminated or modified at any time after the commencement of a case under the
Bankruptcy Code solely because of a provision in the lease conditioned upon the
commencement of a case under the Bankruptcy Code or certain other similar
events. To the extent that any of the Leases included in a Trust Fund for a
Series constitute executory contracts, the Bankruptcy Code similarly prohibits
the exercise of any provision purporting to enable a Trustee to terminate or
modify the rights or obligations of the Lessee solely as a result of an event of
default based upon any such occurrence. This prohibition on so-called "ipso
facto clauses" could limit the ability of the Trustee for a Series of
Certificates to exercise certain contractual remedies with respect to the
Leases. In addition, Section 362 of the Bankruptcy Code operates as an automatic
stay of, among other things, any act to obtain possession of property of or from
a debtor's estate, which may delay a Trustee's exercise of such remedies for a
related Series of Certificates in the event that a related Lessee or a related
Mortgagor becomes the subject of a proceeding under the Bankruptcy Code.
Moreover, Section 365(a) of the Bankruptcy Code generally provides that
a trustee or a debtor-in-possession in a bankruptcy or reorganization case has
the power to assume or to reject an executory contract or an unexpired lease of
the debtor, in each case subject to the approval of the bankruptcy court
administering such case. If the trustee or debtor-in-possession rejects an
executory contract or an unexpired lease, such rejection generally constitutes a
breach of the executory contract or unexpired lease as of immediately before the
date of the filing of the petition. As a consequence, the other party or parties
to such executory contract or unexpired lease, such as the Mortgagor, as lessor
under a Lease, would have only an unsecured claim against the debtor for damages
resulting from such breach, which could adversely affect the security for the
related Mortgage Loan. Moreover, under Section 502(b)(6) of the Bankruptcy Code,
the claim of a lessor for such damages from the termination of a lease of real
property will be limited to the sum of (i) the rent reserved by such lease,
without acceleration, for the greater of one year or 15 percent, not to exceed
three years, of the remaining term of such lease, following the earlier of the
date of the filing of the petition and the date on which such lender
repossessed, or the lessee surrendered, the leased property, and (ii) any unpaid
rent due under such lease, without acceleration, on the earlier of such dates.
Under Section 365(h) of the Bankruptcy Code, if a trustee for a lessor,
or a lessor as a debtor-in-possession, rejects an unexpired lease of real
property, the lessee may treat such lease as terminated by such rejection, or in
the alternative, the lessee may retain its rights under the lease (including
rights such as those relating to the amount and timing of payment of rent and
other amounts payable by the lessee and any right of use, possession, quiet
enjoyment, subletting, assignment or hypothecation for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable nonbankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or extension
thereof, the value of any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such date
but the lessee will not have any other right against the estate. To the extent
provided in the related Prospectus Supplement, the Lessee will agree under
certain Leases to pay all amounts owing thereunder to the Master Servicer
without offset. To the extent that such a contractual obligation remains
enforceable against the Lessee, the Lessee would not be able to avail itself of
the rights of offset generally afforded to lessees of real property under the
Bankruptcy Code.
Under Section 365(f) of the Bankruptcy Code, if a trustee for a lessee
or a lessee as debtor-in-possession assumes an executory contract or an
unexpired lease of the debtor, the trustee or debtor-in-possession generally may
assign such executory contract or unexpired lease, notwithstanding any provision
therein or in applicable law that prohibits, restricts or conditions such
assignment, provided, among other things, that the trustee or
debtor-in-possession provides adequate assurance of future performance by the
assignee. In addition, no party to any executory contract or an unexpired lease
may terminate or modify any rights or obligations under an executory contract or
an unexpired lease at any time after the commencement of a case under the
Bankruptcy Code solely because of a provision in the executory contract or
unexpired lease or in applicable law conditioned upon the assignment of the
executory contract or unexpired lease. Thus, an undetermined third party may
assume the obligations of the Lessee under a Lease in the event of commencement
of a proceeding under the Bankruptcy Code with respect to the Lessee.
A court may determine that the rent paid by a Lessee to the Trustee of
a Series of Certificates constitutes property of the bankruptcy estate of a
Mortgagor and must instead be paid to the Mortgagor, (but subject to protecting
the Trustee's interest in the rent), which could affect the cash flow on such
Series of Certificates to such Trustee.
Under Sections 363(b) and (f) of the Bankruptcy Code, provided that the
requirements of such Sections are met, a trustee for a lessor, or a lessor as
debtor-in-possession, may, despite the provisions of the related Mortgage Loan
to the contrary, sell the Mortgaged Property free and clear of all liens, which
liens would generally then attach to the proceeds of such sale.
To the extent described in the related Prospectus Supplement, certain
of the Mortgagors may be partnerships. The laws governing limited partnerships
in certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in writing
in the limited partnership agreement. This provision may be construed as an
"ipso facto" clause and, in the event of the general partner's bankruptcy, may
not be enforceable. To the extent described in the related Prospectus
Supplement, certain limited partnership agreements of the Mortgagors may provide
that the commencement of a case under the Bankruptcy Code with respect to the
related general partner constitutes an event of withdrawal (assuming the
enforceability of the clause is not challenged in bankruptcy proceedings or, if
challenged, is upheld) that might trigger the dissolution of the limited
partnership, the winding up of its affairs and the distribution of its assets,
unless (i) at the time there was at least one other general partner and the
written provisions of the limited partnership permit the business of the limited
partnership to be carried on by the remaining general partner and that general
partner does so or (ii) the written provisions of the limited partnership
agreement permit the limited partners to agree within a specified time frame
(often 60 days) after such withdrawal to continue the business of the limited
partnership and to the appointment of one or more general partners and the
limited partners do so. In addition, the laws governing general partnerships in
certain states provide that the commencement of a case under the Bankruptcy Code
or state bankruptcy laws with respect to a general partner of such partnerships
triggers the dissolution of such partnership, the winding up of its affairs and
the distribution of its assets. Such state laws, however, may not be enforceable
or effective in a bankruptcy case. The dissolution of a Mortgagor, the winding
up of its affairs and the distribution of its assets could result in an
acceleration of its payment obligation under a related Mortgage Loan, which may
reduce the yield on the related Series of Certificates in the same manner as a
principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the corporate
veil. In such a case, the respective Mortgaged Property, for example, would
become property of the estate of such bankrupt general partner. Not only would
the Mortgaged Property be available to satisfy the claims of creditors of such
general partner, but an automatic stay would apply to any attempt by the Trustee
to exercise remedies with respect to such Mortgaged Property. However, such an
occurrence should not affect the Trustee's status as a secured creditor with
respect to the Mortgagor or its security interest in the Mortgaged Property.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial or disposal activity. Such environmental liabilities may give rise to
(i) a diminution in value of property securing any Mortgage Loan, (ii)
limitation on the ability to foreclose against such property or (iii) in certain
circumstances as more fully described below, liability for clean-up costs or
other remedial actions, which liability could exceed the value of the principal
balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of certain states, the existence of contamination on the
property, investigation or cleanup activities by government or others or failure
to perform the remediation of any condition or circumstance that (i) may pose an
imminent or substantial endangerment to the public health or welfare or the
environment, (ii) may result in a release or threatened release of any hazardous
material, or (iii) may give rise to any environmental claim or demand (each such
condition or circumstance, an "Environmental Condition") may give rise to a lien
on the property to ensure the reimbursement of costs incurred or required for
remediation of the property. In certain states such lien has priority over the
lien of an existing mortgage against such property. The value of a Mortgaged
Property as collateral for a Mortgage Loan could therefore be adversely affected
by the existence of any such Environmental Condition.
Under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), a lender may be liable as an "owner or operator" for costs of
addressing releases or threatened releases of hazardous substances on a
mortgaged property if such lender or its agents or employees have participated
in the management of the operations of the mortgagor, even though the
environmental damage or threat was not caused by such lender. Excluded from
CERCLA's definition of "owner or operator", however, is a person "who without
participating in the management of the facility, holds indicia of ownership
primarily to protect his security interest". The state of the law is currently
unclear as to whether and under what circumstances clean-up costs, or the
obligation to take remedial actions, could be imposed on a secured lender such
as the Trust Fund with respect to each Series. This exemption for holders of a
security interest such as a secured lender is of particular concern in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. If a lender's activities, for example, in
workout situations encroach on the actual management of such facility or
property, the lender faces potential liability as an "owner or operator" under
CERCLA. When a lender forecloses and takes title to a contaminated facility or
property (whether it holds the facility or property as an investment or leases
it to a third party), the lender may incur potential CERCLA liability.
Conflicting judicial interpretations as to the scope of the
secured-creditor exemption under CERCLA have opened the possibility that lenders
would be held liable for the cost of cleaning up contaminated property that they
hold merely as collateral. There is a lack of clear guidance as to the extent to
which a lender can be involved in the management of a mortgaged property without
incurring liability and also as to whether a lender would forfeit the exemption
by exercising their right of management in foreclosure, as foreclosure could be
thought to convert their "indicia of ownership" - the security interest - into
actual ownership. One court has construed the secured-creditor exemption
narrowly, suggesting that the exemption could be lost if the lender's
involvement with the management of the facility is broad enough to support the
inference that the lender had the capacity to influence the borrower's treatment
of hazardous waste. This interpretation raises the question of the level of
participation in management that would void the exemption, and generated
considerable apprehension among secured lenders. A subsequent decision by
another court held that a secured lender had no liability absent "some actual
management of the facility" on the part of the lender.
The EPA attempted to provide by rule a standard for judging when a
lender's participation in management causes the lender to jeopardize its
exemption. The rule protected a secured creditor that acquired title to the
collateral property through foreclosure so long as the creditor did not
participate in the facility's management prior to foreclosure and undertook
diligent efforts to divest itself of the property. This rule was vacated in the
decision of KELLEY V. EPA, 15 F.3d 1100 (D.C. Cir. 1994), CERT. DENIED, 115
S.Ct. 900, 130 L.Ed.2d 784 (1995). Pending legislation may reinstate the EPA
final rule, but whether and when such legislation would be passed by Congress is
uncertain.
The related Agreement will provide that neither the Master Servicer nor
the Special Servicer, if applicable, acting on behalf of the Trust Fund, may
acquire title to, or possession of, a Mortgaged Property underlying a Mortgage
Loan, take over its operation or take any other action that might subject a
given Trust Fund to liability under CERCLA or comparable laws unless such Master
Servicer or Special Servicer, as the case may be, has previously determined,
based upon an appropriate environmental inquiry conducted by a person who
regularly conducts such environmental inquiries, that the Mortgaged Property is
either (1) in compliance with applicable environmental laws and that there are
no circumstances relating to use, management or disposal of any Hazardous
Materials (as defined below) for which investigation, monitoring, containment,
clean-up or remediation could be required under applicable environmental laws,
or (2) that it would be in the best economic interest of a given Trust Fund to
take such actions as are necessary to bring the Mortgaged Property into
compliance therewith or to otherwise address such environmental contamination.
This requirement effectively precludes enforcement of the security for the
related Note until a satisfactory environmental inquiry is undertaken or any
required remedial action is provided for, reducing the likelihood that a given
Trust Fund will become liable for any Environmental Condition affecting a
Mortgaged Property, but making it more difficult to realize on the security for
the Mortgage Loan. However, there can be no assurance that any environmental
assessment obtained by the Master Servicer or Special Servicer, as the case may
be, will detect all possible Environmental Conditions or that the other
requirements of the Agreement, even if fully observed by the Master Servicer or
Special Servicer, as the case may be, will in fact insulate a given Trust Fund
from liability for Environmental Conditions.
"Hazardous Materials" are defined under several federal and state
statutes, and generally include dangerous toxic or hazardous pollutants,
chemicals, wastes or substances, including, without limitation, asbestos and
asbestos containing materials, polychlorinated biphenyls, radon gas, petroleum
and petroleum products, urea formaldehyde and any substances classified as being
"in inventory," "usable work in process" or similar classification which would,
if classified as unusable, be included in the foregoing definition.
If a lender is or becomes liable for clean-up costs, it may bring an
action under federal or certain state laws for contribution against the current
owners or operators, the owners or operators at the time of on-site disposal
activity or any other party who contributed to, or is legally responsible for,
the Environmental Condition, but such persons or entities may be bankrupt or
otherwise judgment proof. Furthermore, such action against the Mortgagor may be
adversely affected if and to the extent the Mortgage Loan contains limitations
on recourse. Similarly, in some states anti-deficiency legislation and other
statutes requiring the lender to exhaust its security before bringing a personal
action against the borrower-trustor (see "--Anti-Deficiency Legislation" above)
may curtail the lender's ability to recover from its borrower the environmental
clean-up and other related costs and liabilities incurred by the lender.
Shortfalls occurring as the result of imposition of any clean-up costs will be
addressed in the Prospectus Supplement and Agreement for the related Series.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely that
any environmental assessments which would have been conducted with respect to
any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, the Depositor or the Seller will represent
and warrant that, as of the date of initial issuance of the Certificates of a
Series or as of another specified date, no related Mortgaged Property is
affected by a Disqualifying Condition (as defined below). In the event that,
following a default in payment on a Mortgage Loan that continues for 60 days,
(i) the environmental inquiry conducted by the Master Servicer or Special
Servicer, as the case may be, prior to any foreclosure indicates the presence of
a Disqualifying Condition that arose prior to the date of initial issuance of
the Certificates of a Series and (ii) each of the Master Servicer and the
Special Servicer certify that it has acted in compliance with the servicing
standard set forth in the related Agreement and has not, by any action, created,
caused or contributed to a Disqualifying Condition, the Depositor or the Seller,
at its option, will either cure such Disqualifying Condition or repurchase the
affected Mortgage Loan. No such person will however, be responsible for any
Disqualifying Condition which may arise on a Mortgaged Property after the date
of initial issuance of the Certificates of the related Series, whether due to
actions of the Mortgagor, the Master Servicer, the Special Servicer or any other
person. It may not always be possible to determine whether a Disqualifying
Condition arose prior or subsequent to the date of the initial issuance of the
Certificates of a Series.
A "Disqualifying Condition" is defined generally as a condition,
existing as a result of, or arising from, the presence of Hazardous Materials on
a Mortgaged Property, such that the Mortgage Loan secured by the affected
Mortgaged Property would be ineligible, solely by reason of such condition, for
purchase by FNMA under the relevant provisions of FNMA's Multifamily
Seller/Servicer Guide in effect as of the date of initial issuance of the
Certificates of such Series, including a condition that would constitute a
material violation of applicable federal, state or local law in effect as of the
date of initial issuance of the Certificates of such Series.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan. Mortgages on
Mortgaged Properties which are owned by the Mortgagor under a condominium form
of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchase or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and
rules promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the anticipated
federal income tax consequences of the purchase, ownership and disposition of
the Certificates offered hereby. The discussion, and the opinions referred to
below, are based on laws, regulations, rulings and decisions now in effect (or,
in the case of certain regulations, proposed), all of which are subject to
change, possibly retroactively, or possibly differing interpretations. The
discussion below does not purport to deal with 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 other tax consequences to them of the purchase,
ownership and disposition of Certificates. For purposes of this tax discussion
(except with respect to information reporting, or where the context indicates
otherwise), the terms "Certificateholder" and "holder" mean the beneficial owner
of a Certificate.
REMIC ELECTIONS
Under the Internal Revenue Code of 1986, as amended (the "Code"), an
election may be made with respect to each Trust Fund related to a series of
Certificates to treat such Trust Fund or certain assets of such Trust Fund as a
"real estate mortgage investment conduit" ("REMIC"). The Prospectus Supplement
for each series of Certificates will indicate whether a REMIC election will be
made with respect to the related Trust Fund. To the extent provided in the
Prospectus Supplement for a series, Certificateholders may also have the benefit
of a Reserve Account and of certain agreements (each, a "Yield Supplement
Agreement") under which payment will be made from the Reserve Account in the
event that interest accrued on the Mortgage Loans at their Mortgage Rates is
insufficient to pay interest on the Certificates of such Series (a "Basis Risk
Shortfall"). If a REMIC election is to be made, the Prospectus Supplement will
designate the Certificates of such series as "regular interests" ("REMIC Regular
Certificates") in the REMIC (within the meaning of Section 860G(a)(1) of the
Code) or as the "residual interest" ("REMIC Residual Certificates") in the REMIC
(within the meaning of Section 860G(a)(2) of the Code). The terms "REMIC
Certificates" and "Non-REMIC Certificates" denote, respectively, Certificates of
a series with respect to which a REMIC election will, or will not, be made. The
discussion below is divided into two parts, the first part applying only to
REMIC Certificates and the second part applying only to Non-REMIC Certificates.
REMIC CERTIFICATES
With respect to each series of REMIC Certificates, the Trustee will
agree in the Agreement to elect to treat the related Trust Fund or certain
assets of such Trust Fund as a REMIC. Qualification as a REMIC requires ongoing
compliance with certain conditions. Upon the issuance of each series of REMIC
Certificates, Stroock & Stroock & Lavan, counsel to the Depositor, will deliver
its opinion generally to the effect that, with respect to each series of REMIC
Certificates for which a REMIC election is to be made, under then existing law
and assuming a proper and timely REMIC election and ongoing compliance with the
provisions of the Agreement and applicable provisions of the Code and applicable
Treasury regulations, the related Trust Fund or certain assets of such Trust
Fund will be a REMIC and the REMIC Certificates will be considered to evidence
ownership of "regular interests" or "residual interests" within the meaning of
the REMIC provisions of the Code.
To the extent provided in the Prospectus Supplement for a series,
Holders of REMIC Regular Certificates who are entitled to payments from the
Reserve Account in the event of a Basis Risk Shortfall will be required to
allocate their purchase price between their beneficial ownership interests in
the related REMIC regular interests and Yield Supplement Agreements, and will be
required to report their income realized with respect to each, calculated taking
into account such allocation. In general, such allocation would be based on the
respective fair market values of the REMIC regular interests and the related
Yield Supplement Agreements on the date of purchase of the related Certificate.
However, a portion of the purchase price of a REMIC Regular Certificate should
be allocated to accrued but unpaid interest. No representation is or will be
made as to the fair market value of the Yield Supplement Agreements or the
relative values of the REMIC regular interests and the Yield Supplement
Agreements, upon initial issuance of the related REMIC Regular Certificates or
at any time thereafter. REMIC Regular Certificateholders are advised to consult
their own tax advisors concerning the determination of such fair market values.
Under the Agreement, holders of applicable classes of REMIC Regular Certificates
will agree that, for federal income tax purposes, they will be treated as owners
of the respective class of regular interests and of the corresponding Yield
Supplement Agreement.
Status of REMIC Certificates as Real Property Loans. The REMIC
Certificates will be "qualifying real property loans" within the meaning of
Section 593(d) of the Code, "real estate assets" for purposes of Section
856(c)(5)(A) of the Code and assets described in Section 7701(a)(19)(C) of the
Code (assets qualifying under one or more of those sections, applying each
section separately, "qualifying assets") to the extent that the REMIC's assets
are qualifying assets, but not to the extent that the REMIC's assets consist of
Yield Supplement Agreements. However, if at least 95 percent of the REMIC's
assets are qualifying assets, then 100 percent of the REMIC Certificates will be
qualifying assets. Similarly, income on the REMIC Certificates will be treated
as "interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, subject to the limitations of the
preceding two sentences. In addition to Mortgage Loans, the REMIC's assets will
include payments on Mortgage Loans held pending distribution to holders of REMIC
Certificates, amounts in Reserve Accounts (if any), other Credit Enhancements
(if any) and possibly buydown funds. Except to the extent provided in the
Prospectus Supplement the Mortgage Loans generally will be qualifying assets
under Section 593(d) and Section 856(c)(5) of the Code and the Mortgage Loans
other than Commercial Mortgage Loans generally will be qualifying assets under
Section 7701(a)(19)(C) of the Code. The regulations under Sections 860A through
860G of the Code (the "REMIC Regulations") treat Credit Enhancements as part of
the mortgage or pool of mortgages to which they relate, and therefore Credit
Enhancements generally should be qualifying assets. Regulations issued in
conjunction with the REMIC Regulations provide that amounts paid on Mortgage
Loans and held pending distribution to holders of Certificates ("cash flow
investments") will be treated as qualifying assets. It is unclear whether
amounts in Reserve Accounts or buydown funds would also constitute qualifying
assets under any of those provisions. The Prospectus Supplement for each series
will indicate (if applicable) that it has buydown funds.
TIERED REMIC STRUCTURES
For certain series of Certificates, two or more separate elections may
be made to treat designated portions of the related Trust Fund as REMICs
("Tiered REMICs") for federal income tax purposes. Upon the issuance of any such
series of Certificates, Stroock & Stroock & Lavan will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
related Pooling and Servicing Agreement and applicable provisions of the Code
and applicable Treasury regulations, the Tiered REMICs will each qualify as a
REMIC and the REMIC Certificates issued by the Tiered REMICs, respectively, will
be considered to evidence ownership of "regular interests" or "residual
interests" in the related REMIC within the meaning of the REMIC provisions of
the Code.
Solely for purposes of determining whether the REMIC Certificates will
be "qualifying real property loans" under Section 593(d) of the Code, "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code, and
assets described in Section 7701(a)(19)(C) of the Code, and whether the income
on such Certificates is interest described in Section 856(c)(3)(B) of the Code,
the Tiered REMICs will be treated as one REMIC.
REMIC REGULAR CERTIFICATES
Current Income on REMIC Regular Certificates--General. Except as
otherwise indicated herein, the REMIC Regular Certificates will be treated for
federal income tax purposes (but not necessarily for accounting or other
purposes) as debt instruments that are issued by the REMIC on the date of
issuance of the REMIC Regular Certificates and not as ownership interests in the
REMIC or the REMIC's assets. Holders of REMIC Regular Certificates who would
otherwise report income under a cash method of accounting will be required to
report income with respect to REMIC Regular Certificates under an accrual
method.
Payments of interest on REMIC Regular Certificates may be based on a
fixed rate, a variable rate as permitted by the REMIC Regulations, or may
consist of a specified portion of the interest payments on qualified mortgages
where such portion does not vary during the period the REMIC Regular Certificate
is outstanding. The definition of a variable rate for purposes of the REMIC
Regulations is based on the definition of a qualified floating rate for purposes
of the rules governing original issue discount set forth in sections 1271
through 1275 of the Code and the regulations thereunder (the "OID Regulations")
with certain modifications and permissible variations. See "REMIC Regular
Certificates--Current Income on REMIC Regular Certificates--Original Issue
Discount--Variable Rate REMIC Regular Certificates," below, for a discussion of
the definition of a qualified floating rate for purposes of the OID Regulations.
In contrast to the OID Regulations, for purposes of the REMIC Regulations, a
qualified floating rate does not include any multiple of a qualified floating
rate (also excluding multiples of qualified floating rates that themselves would
constitute qualified floating rates under the OID Regulations), and the
characterization of a variable rate that is subject to a cap, floor or similar
restriction as a qualified floating rate for purposes of the REMIC Regulations
will not depend upon the OID Regulations relating to caps, floors, and similar
restrictions. See "REMIC Regular Certificates--Current Income on REMIC Regular
Certificates--Original Issue Discount--Variable Rate REMIC Regular
Certificates," below, for a discussion of the OID Regulations relating to caps,
floors and similar restrictions. A qualified floating rate, as defined above for
purposes of the REMIC Regulations (a "REMIC qualified floating rate"), qualifies
as a variable rate for purposes of the REMIC Regulations if such REMIC qualified
floating rate is set at a "current rate" as defined in the OID Regulations. In
addition, a rate equal to the highest, lowest or an average of two or more REMIC
qualified floating rates qualifies as a variable rate for REMIC purposes. A
REMIC Regular Certificate may also have a variable rate based on a weighted
average of the interest rates on some or all of the qualified mortgages held by
the REMIC where each qualified mortgage taken into account has a fixed rate or a
variable rate that is permissible under the REMIC Regulations. Further, a REMIC
Regular Certificate may have a rate that is the product of a REMIC qualified
floating rate or a weighted average rate and a fixed multiplier, is a constant
number of basis points more or less than a REMIC qualified floating rate or a
weighted average rate, or is the product, plus or minus a constant number of
basis points, of a REMIC qualified floating rate or a weighted average rate and
a fixed multiplier. An otherwise permissible variable rate for a REMIC Regular
Certificate, described above, will not lose its character as such because it is
subject to a floor or a cap, including a "funds available cap" as that term is
defined in the REMIC Regulations. Lastly, a REMIC Regular Certificate will be
considered as having a permissible variable rate if it has a fixed or otherwise
permissible variable rate during one or more payment or accrual periods and
different fixed or otherwise permissible variable rates during other payment or
accrual periods.
Original Issue Discount. REMIC Regular Certificates of certain series
may be issued with "original issue discount" within the meaning of Section
1273(a) of the Code. Holders of REMIC Regular Certificates issued with original
issue discount generally must include original issue discount in gross income
for federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income, under a method that takes account of the
compounding of interest. The Code requires that information with respect to the
original issue discount accruing on any REMIC Regular Certificate be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Certificates.
Each Trust Fund will report original issue discount, if any, to the
holders of REMIC Regular Certificates based on the OID Regulations. Proposed OID
Regulations concerning contingent
payments have not been finalized.
These rules provide that, in the case of a debt instrument such as a
REMIC Regular Certificate, (i) the amount and rate of accrual of original issue
discount will be calculated based on a reasonable assumed prepayment rate (the
"Prepayment Assumption"), and (ii) adjustments will be made in the amount and
rate of accrual of such discount to reflect differences between the actual
prepayment rate and the Prepayment Assumption. The method for determining the
appropriate assumed prepayment rate will eventually be set forth in Treasury
regulations, but those regulations have not yet been issued. The applicable
legislative history indicates, however, that such regulations will provide that
the assumed prepayment rate for securities such as the REMIC Regular
Certificates will be the rate used in pricing the initial offering of the
securities. The Prospectus Supplement for each series of REMIC Regular
Certificates will specify the Prepayment Assumption, but no representation is
made that the REMIC Regular Certificates will, in fact, prepay at a rate based
on the Prepayment Assumption or at any other rate.
In general, a REMIC Regular Certificate will be considered to be issued
with original issue discount if its stated redemption price at maturity exceeds
its issue price. Except as discussed below under "Payment Lag REMIC Regular
Certificates; Initial Period Considerations" and "Qualified Stated Interest,"
and in the case of certain Variable Rate REMIC Regular Certificates (as defined
below) and accrual certificates, the stated redemption price at maturity of a
REMIC Regular Certificate is its principal amount. Under the REMIC Regulations,
the issue price of a REMIC Regular Certificate is the initial offering price to
the public (excluding bond houses and brokers) at which a substantial amount of
the class of REMIC Regular Certificates was sold. The issue price will be
reduced if any portion of such price is allocable to a related Yield Supplement
Agreement. Notwithstanding the general definition of original issue discount,
such discount will be considered to be zero for any REMIC Regular Certificate on
which such discount is less than 0.25% of its stated redemption price at
maturity multiplied by its weighted average life. The weighted average life of a
REMIC Regular Certificate apparently is computed for purposes of this de minimis
rule as the sum, for all distributions included in the stated redemption price
at maturity of the REMIC Regular Certificate, of the amounts determined by
multiplying (i) the number of complete years (rounding down for partial years)
from the Closing Date to the date on which each such distribution is expected to
be made, determined under the Prepayment Assumption, by (ii) a fraction, the
numerator of which is the amount of such distribution and the denominator of
which is the REMIC Regular Certificate's stated redemption price at maturity.
The OID Regulations provide that holders will include any de minimis original
issue discount ratably as payments of stated principal are made on the REMIC
Regular Certificates.
The holder of a REMIC Regular Certificate issued with original issue
discount must include in gross income the sum of the "daily portions" of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Certificate. In the case of an original holder of a REMIC
Regular Certificate, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an "accrual period") that begins on the day
following a Distribution Date (or in the case of the first such period, begins
on the Closing Date) and ends on the next succeeding Distribution Date.
The original issue discount accruing during each accrual period is then
allocated ratably to each day during such period to determine the daily portion
of original issue discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on the REMIC Regular Certificate during the accrual period
that are included in such REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the REMIC Regular Certificates will be prepaid in future periods
at a rate computed in accordance with the Prepayment Assumption and (ii) using a
discount rate equal to the original yield to maturity of the REMIC Regular
Certificates. For these purposes, the original yield to maturity of the REMIC
Regular Certificates will be calculated based on their issue price and assuming
that the REMIC Regular Certificates will be prepaid in accordance with the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such REMIC
Regular Certificate, increased by the portion of the original issue discount
that has accrued during prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
that were included in such REMIC Regular Certificate's stated redemption price
at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Certificate in future accrual
periods. Although not entirely free from doubt, such a holder may be entitled to
deduct a loss to the extent that its remaining basis would exceed the maximum
amount of future payments to which such holder is entitled. It is unclear
whether the Prepayment Assumption is taken into account for this purpose.
A subsequent holder that purchases a REMIC Regular Certificate issued
with original issue discount at a cost less than its remaining stated redemption
price at maturity will also generally be required to include in gross income,
for each day on which it holds such REMIC Regular Certificate, the daily
portions of original issue discount with respect to the REMIC Regular
Certificate, calculated as described above. However, if (i) the excess of the
remaining stated redemption price at maturity over such cost is less than (ii)
the aggregate amount of such daily portions for all days after the date of
purchase until final retirement of such REMIC Regular Certificate, then such
daily portions will be reduced proportionately in determining the income of such
holder.
Qualified Stated Interest. Interest payable on a REMIC Regular
Certificate which qualifies as "qualified stated interest" for purposes of the
OID Regulations will not be includable in stated redemption price at maturity of
the REMIC Regular Certificate. Interest payments will not qualify as qualified
stated interest unless the interest payments are "unconditionally payable." The
OID Regulations state that interest is unconditionally payable if late payment
of interest (other than late payment that occurs within a reasonable grace
period) or nonpayment of interest is expected to be penalized or reasonable
remedies exist to compel payment. The meaning of "penalized" under the OID
Regulations is unclear. The Internal Revenue Service has taken the position that
a penalty must inure directly to the benefit of the debt instrument holder and
must be large enough to ensure that, at the time the debt instruments are
issued, it is reasonably certain that, absent insolvency, the issuer will make
interest payments when due. In a Revenue Ruling, the Internal Revenue Service
concluded that the accrual of interest on past-due interest payments at a
penalty rate that is two percentage points above the stated yield of a debt
instrument is not a sufficient penalty, but the accrual of interest on past-due
interest payments at a penalty rate that is twelve percentage points above the
stated yield of the debt instrument might be a sufficient penalty, depending on
the facts and circumstances. Therefore, interest payments on REMIC Regular
Certificates which do not have reasonable remedies to compel timely payment of
interest may not be qualified stated interest, and such REMIC Regular
Certificates may have original issue discount.
Premium. A purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such REMIC Regular
Certificate at a premium, and may, under Section 171 of the Code, elect to
amortize such premium under a constant yield method over the life of the REMIC
Regular Certificate. The Prepayment Assumption is probably taken into account in
determining the life of the REMIC Regular Certificate for this purpose. Except
as provided in regulations, amortizable premium will be treated as an offset to
interest income on the REMIC Regular Certificate.
Payment Lag REMIC Regular Certificates; Initial Period Considerations.
Certain REMIC Regular Certificates will provide for distributions of interest
based on a period that is the same length as the interval between Distribution
Dates but ends prior to each Distribution Date. Any interest that accrues prior
to the Closing Date may be treated under the OID Regulations either (i) as part
of the issue price and the stated redemption price at maturity of the REMIC
Regular Certificates or (ii) as not included in the issue price or the stated
redemption price. The OID Regulations would provide a special application of the
de minimis rule for debt instruments with long first accrual periods where the
interest payable for the first period is at a rate which is effectively less
than that which applies in all other periods. In such cases, for the sole
purpose of determining whether original issue discount is de minimis, the OID
Regulations provide that the stated redemption price is equal to the
instrument's issue price plus the greater of the amount of foregone interest or
the excess (if any) of the instrument's stated principal amount over its issue
price.
Variable Rate REMIC Regular Certificates. Under the OID Regulations,
REMIC Regular Certificates paying interest at a variable rate (a "Variable Rate
REMIC Regular Certificate") are subject to special rules. A Variable Rate REMIC
Regular Certificate will qualify as a "variable rate debt instrument" if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Certificate by more than a specified de minimis
amount and (ii) it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a single fixed rate
and one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate.
A "qualified floating rate" is any variable rate where variations in
the value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Certificate is denominated. A multiple of a
qualified floating rate will generally not itself constitute a qualified
floating rate for purposes of the OID Regulations. However, a variable rate
equal to (i) the product of a qualified floating rate and a fixed multiple that
is greater than zero but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than zero but not more than
1.35, increased or decreased by a fixed rate will constitute a qualified
floating rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate REMIC Regular Certificate will be treated as a single qualified
floating rate (a "Presumed Single Qualified Floating Rate"). Two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Rate REMIC Regular Certificate's issue date will be
conclusively presumed to be a Presumed Single Qualified Floating Rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate, but which is subject to one or more restrictions such
as a cap or floor, will not be a qualified floating rate under the OID
Regulations unless the restriction is fixed throughout the term of the Variable
Rate REMIC Regular Certificate or the restriction is not reasonably expected as
of the issue date to significantly affect the yield of the Variable Rate REMIC
Regular Certificate.
An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula and which is based
upon (i) one or more qualified floating rates, (ii) one or more rates where each
rate would be a qualified floating rate for a debt instrument denominated in a
currency other than the currency in which the Variable Rate REMIC Regular
Certificate is denominated, (iii) either the yield or changes in the price of
one or more items of actively traded personal property or (iv) a combination of
rates described in (i), (ii) and (iii). The OID Regulations also provide that
other variable rates may be treated as objective rates if so designated by the
Internal Revenue Service in the future. Despite the foregoing, a variable rate
of interest on a Variable Rate REMIC Regular Certificate will not constitute an
objective rate if it is reasonably expected that the average value of such rate
during the first half of the Variable Rate REMIC Regular Certificate's term will
be either significantly less than or significantly greater than the average
value of the rate during the final half of the Variable Rate REMIC Regular
Certificate's term. An objective rate will qualify as a "qualified inverse
floating rate" if such rate is equal to a fixed rate minus a qualified floating
rate and variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds. The OID
Regulations also provide that if a Variable Rate REMIC Regular Certificate
provides for stated interest at a fixed rate for an initial period of less than
one year followed by a variable rate that is either a qualified floating rate or
an objective rate and if the variable rate on the Variable Rate REMIC Regular
Certificate's issue date is intended to approximate the fixed rate, then the
fixed rate and the variable rate together will constitute either a single
qualified floating rate or objective rate, as the case may be (a "Presumed
Single Variable Rate"). If the value of the variable rate and the initial fixed
rate are within 25 basis points of each other as determined on the Variable Rate
REMIC Regular Certificate's issue date, the variable rate will be conclusively
presumed to approximate the fixed rate.
For Variable Rate REMIC Regular Certificates that qualify as a
"variable rate debt instrument" under the OID Regulations and provide for
interest at either a single qualified floating rate, a single objective rate, a
Presumed Single Qualified Floating Rate or a Presumed Single Variable Rate
throughout the term (a "Single Variable Rate REMIC Regular Certificate"),
original issue discount is computed as described in "REMIC Regular Certificates-
Current Income on REMIC Regular Certificates--Original Issue Discount" based on
the following: (i) stated interest on the Single Variable Rate REMIC Regular
Certificate which is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually will constitute qualified
stated interest and (ii) by assuming that the variable rate on the Single
Variable Rate REMIC Certificate is a fixed rate equal to: (a) in the case of a
Single Variable Rate REMIC Regular Certificate with a qualified floating rate or
a qualified inverse floating rate, the value, as of the issue date, of the
qualified floating rate or the qualified inverse floating rate or (b) in the
case of a Single Variable Rate REMIC Regular Certificate with an objective rate
(other than a qualified inverse floating rate), a fixed rate which reflects the
reasonably expected yield for such Single Variable Rate REMIC Regular
Certificate.
In general, any Variable Rate REMIC Regular Certificate other than a
Single Variable Rate REMIC Regular Certificate (a "Multiple Variable Rate REMIC
Regular Certificate") that qualifies as a "variable rate debt instrument" will
be converted into an "equivalent" fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Certificate. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Certificate be converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Certificate with a fixed rate equal to the value of the qualified floating rate
or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate REMIC Regular Certificate's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Multiple Variable Rate REMIC Regular Certificate is converted into a fixed rate
that reflects the yield that is reasonably expected for the Multiple Variable
Rate REMIC Regular Certificate. (A Multiple Variable Rate REMIC Regular
Certificate may not bear more than one objective rate.) In the case of a
Multiple Variable Rate REMIC Regular Certificate that qualifies as a "variable
rate debt instrument" and provides for stated interest at a fixed rate in
addition to either one or more qualified floating rates or a qualified inverse
floating rate, the fixed rate is initially converted into a qualified floating
rate (or a qualified inverse floating rate, if the Multiple Variable Rate REMIC
Regular Certificate provides for a qualified inverse floating rate). Under such
circumstances, the qualified floating rate or qualified inverse floating rate
that replaces the fixed rate must be such that the fair market value of the
Multiple Variable Rate REMIC Regular Certificate as of the Multiple Variable
Rate REMIC Regular Certificate's issue date is approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Multiple
Variable Rate REMIC Regular Certificate is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Multiple Variable Rate REMIC Regular Certificate is converted
into an "equivalent" fixed rate debt instrument pursuant to the foregoing rules,
the amount of original issue discount and qualified stated interest, if any, are
determined for the "equivalent" fixed rate debt instrument by applying the
original issue discount rules to the "equivalent" fixed rate debt instrument in
the manner described in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount". A holder of the Multiple
Variable Rate REMIC Regular Certificate will account for such original issue
discount and qualified stated interest as if the holder held the "equivalent"
fixed rate debt instrument. In each accrual period, appropriate adjustments will
be made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate REMIC Regular Certificate
during the accrual period.
The OID Regulations do not clearly address the treatment of a Variable
Rate REMIC Regular Certificate that is based on a weighted average of the
interest rates on underlying qualified mortgages. Under the OID Regulations,
interest payments on such a Variable Rate REMIC Regular Certificate may be
characterized as qualified stated interest which is includable in income in a
manner similar to that described in the previous paragraph. However, it is also
possible that interest payments on such a Variable Rate REMIC Regular
Certificate would be treated as contingent interest (possibly includable in
income when the payments become fixed) or in some other manner.
If a Variable Rate REMIC Regular Certificate does not qualify as a
"variable rate debt instrument" under the OID Regulations, then the Variable
Rate REMIC Regular Certificate would be treated as a contingent payment debt
obligation. It is not clear under current law how a Variable Rate REMIC Regular
Certificate would be taxed if such REMIC Regular Certificate were treated as a
contingent payment debt obligation.
Interest-Only REMIC Regular Certificates. The Trust Fund intends to
report income from interest-only classes of REMIC Regular Certificates to the
Internal Revenue Service and to holders of interest-only REMIC Regular
Certificates based on the assumption that the stated redemption price at
maturity is equal to the sum of all payments determined under the Prepayment
Assumption. As a result, such interest-only REMIC Regular Certificates will be
treated as having original issue discount.
Market Discount. A holder that acquires a REMIC Regular Certificate at
a market discount (that is, a discount that exceeds any unaccrued original issue
discount) will recognize gain upon receipt of a principal distribution,
regardless of whether the distribution is scheduled or a prepayment. In
particular, the holder of a REMIC Regular Certificate will be required to
allocate that principal distribution first to the portion of the market discount
on such REMIC Regular Certificate that has accrued but has not previously been
includable in income, and will recognize ordinary income to that extent. In
general terms, unless Treasury regulations when issued provide otherwise, market
discount on a REMIC Regular Certificate may be treated, at the holder's
election, as accruing either (i) under a constant yield method, taking into
account the Prepayment Assumption, or (ii) in proportion to accruals of original
issue discount (or, if there is no original issue discount, in proportion to
stated interest at the Pass-Through Rate).
In addition, a holder may be required to defer deductions for a portion
of the holder's interest expense on any debt incurred or continued to purchase
or carry a REMIC Regular Certificate purchased with market discount. The
deferred portion of any interest deduction would not exceed the portion of the
market discount on the REMIC Regular Certificate that accrues during the taxable
year in which such interest would otherwise be deductible and, in general, would
be deductible when such market discount is included in income upon receipt of a
principal distribution on, or sale of, the REMIC Regular Certificate. The Code
requires that information necessary to compute accruals of market discount be
reported periodically to the Internal Revenue Service and to certain categories
of holders of REMIC Regular Certificates.
Notwithstanding the above rules, market discount on a REMIC Regular
Certificate will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular
Certificate multiplied by its weighted average remaining life. Weighted average
remaining life presumably is calculated in a manner similar to weighted average
life (described above under "Current Income on REMIC Regular Certificates-
Original Issue Discount"), taking into account distributions (including
prepayments) prior to the date of acquisition of such REMIC Regular Certificate
by the subsequent purchaser. If market discount on a REMIC Regular Certificate
is treated as zero under this rule, the actual amount of such discount must be
allocated to the remaining principal distributions on the REMIC Regular
Certificate in proportion to the amounts of such principal distributions, and
when each such distribution is made, gain equal to the discount, if any,
allocated to the distribution will be recognized.
Election to Treat All Interest Under the Constant Yield Rules. Under
the OID Regulations all holders may elect to include in gross income all
interest that accrues on a debt instrument issued after April 4, 1994 by using
the constant yield method. For purposes of this election, interest includes
stated interest, original issue discount, and market discount, as adjusted to
account for any premium. Holders of REMIC Regular Certificates should consult
their own tax advisors regarding the availability or advisability of such an
election.
Single-Class REMICs. In the case of "single-class REMICs," certain
expenses of the REMIC will be allocated to the holders of the REMIC Regular
Certificates. The deductibility of such expenses may be subject to certain
limitations. See "Deductibility of Trust Fund Expenses" below.
Sales of REMIC Regular Certificates. If a REMIC Regular Certificate is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Certificate. A holder's adjusted basis in a REMIC Regular Certificate generally
equals the cost of the REMIC Regular Certificate to the holder, increased by
income reported by the holder with respect to the REMIC Regular Certificate and
reduced (but not below zero) by distributions on the REMIC Regular Certificate
received by the holder and by amortized premium. Except as indicated in the next
two paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Certificate is held as a capital asset.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includable in the seller's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of "the applicable Federal
rate" (generally, an average of current yields on Treasury securities),
determined as of the date of purchase of the REMIC Regular Certificate, over
(ii) the amount actually includable in the seller's income. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount would be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period the REMIC Regular Certificate was held by such seller, reduced
by any market discount includable in income under the rules described above
under "Current Income on REMIC Regular Certificates--Market Discount."
REMIC Regular Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1) of the Code, so that gain or loss recognized
from a sale of a REMIC Regular Certificate by a bank or other financial
institution to which such section applies would be ordinary income or loss.
Termination. The REMIC will terminate, if not earlier,
shortly following the REMIC's receipt of the final payment in respect of the
Mortgage Loans. The last distribution on a REMIC Regular Certificate will be
treated as a payment in full retirement of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a holder of a REMIC Regular Certificate of a Series will have a
separate contractual right to payments under a Yield Supplement Agreement, and
the tax treatment of such payments, if any, will be addressed in the related
Prospectus Supplement.
REMIC RESIDUAL CERTIFICATES
Because the REMIC Residual Certificates will be treated as "residual
interests" in the REMIC, each holder of a REMIC Residual Certificate will be
required to take into account its daily portion of the taxable income or net
loss of the REMIC for each day during the calendar year on which it holds its
REMIC Residual Certificate. The daily portion is determined by allocating to
each day in a calendar quarter a ratable portion of the taxable income or net
loss of the REMIC for that quarter and allocating such daily amounts among the
holders on such day in proportion to their holdings. All income or loss of the
REMIC taken into account by a REMIC Residual Certificateholder must be treated
as ordinary income or loss as the case may be. Income from residual interests is
"portfolio income" which cannot be offset by "passive activity losses" in the
hands of individuals or other persons subject to the passive loss rules. The
Code also provides that all residual interests must be issued on the REMIC's
startup day and designated as such. For this purpose, "startup day" means the
day on which the REMIC issues all of its regular and residual interests, and
under the REMIC Regulations may, in the case of a REMIC to which property is
contributed over a period of up to ten consecutive days, be any day designated
by the REMIC within such period.
The taxable income of the REMIC, for purposes of determining the
amounts taken into account by holders of REMIC Residual Certificates, is
determined in the same manner as in the case of an individual, with certain
exceptions. The accrual method of accounting must be used and the taxable year
of the REMIC must be the calendar year. The basis of property contributed to the
REMIC in exchange for regular or residual interests is its fair market value
immediately after the transfer. The REMIC Regulations determine the fair market
value of the contributed property by deeming it equal to the aggregate issue
prices of all regular and residual interests in the REMIC.
A REMIC Regular Certificate will be considered indebtedness of the
REMIC. Market discount on any of the Mortgage Loans held by the REMIC must be
included in the income of the REMIC as it accrues, rather than being included in
income only upon sale of the Mortgage Loans or as principal on the Mortgage
Loans is paid. The REMIC is not entitled to any personal exemptions or to
deductions for taxes paid to foreign countries and U.S. possessions, charitable
contributions or net operating losses, or to certain other deductions to which
individuals are generally entitled. Income or loss in connection with a
"prohibited transaction" is disregarded. See "Prohibited Transactions."
As previously discussed, the timing of recognition of negative original
issue discount, if any, on a REMIC Regular Certificate is uncertain. As a
result, the timing of recognition of the related REMIC taxable income is also
uncertain. Although not entirely free from doubt, the related REMIC taxable
income may be recognized when the adjusted issue price of such REMIC Regular
Certificate would exceed the maximum amount of future payments with respect to
such REMIC Regular Certificate. It is unclear whether the Prepayment Assumption
is taken into account for this purpose.
A REMIC Residual Certificate has a tax basis in its holder's hands that
is distinct from the REMIC's basis in its assets. The tax basis of a REMIC
Residual Certificate in its holder's hands will be its cost (i.e., the purchase
price of the REMIC Residual Certificate), and will be reduced (but not below
zero) by the holder's share of cash distributions and losses and increased by
its share of taxable income from the REMIC.
If, in any year, cash distributions to a holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a holder of a REMIC
Residual Certificate in any quarter may not exceed the holder's basis in its
REMIC Residual Certificate. Any excess losses may be carried forward
indefinitely to future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
interest. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce his share of the
REMIC's taxable income.
Mismatching of Income and Deductions; Excess Inclusions. The taxable
income recognized by the holder of a REMIC Residual Certificate in any taxable
year will be affected by, among other factors, the relationship between the
timing of recognition of interest and discount income (or deductions for
amortization of premium) with respect to Mortgage Loans, on the one hand, and
the timing of deductions for interest (including original issue discount) on the
REMIC Regular Certificates, on the other. In the case of multiple classes of
REMIC Regular Certificates issued at different yields, and having different
weighted average lives, taxable income recognized by the holders of REMIC
Residual Certificates may be greater than cash flow in earlier years of the
REMIC (with a corresponding taxable loss or less taxable income than cash flow
in later years). This may result from the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Certificates, will increase over time as the shorter term, lower
yielding classes of REMIC Regular Certificates are paid, whereas interest income
from the Mortgage Loans may not increase over time as a percentage of the
outstanding principal amount of the Mortgage Loans.
In the case of Tiered REMICs, the OID Regulations provide that the
regular interests in the REMIC which directly owns the Mortgage Loans (the
"Lower Tier REMIC") will be treated as a single debt instrument for purposes of
the original issue discount provisions. Therefore, the Trust Fund will calculate
the taxable income of Tiered REMICs by treating the Lower Tier REMIC regular
interests as a single debt instrument.
Any "excess inclusions" with respect to a REMIC Residual Certificate
will be subject to certain special rules. The excess inclusions with respect to
a REMIC Residual Certificate are equal to the excess, if any, of its share of
REMIC taxable income for the quarterly period over the sum of the daily accruals
for such quarterly period. The daily accrual for any day on which the REMIC
Residual Certificate is held is determined by allocating to each day in a
quarter its allocable share of the product of (A) 120% of the long-term
applicable Federal rate (for quarterly compounding) that would have applied to
the REMIC Residual Certificates (if they were debt instruments) on the closing
date under Code Section 1274(d)(1) and (B) the adjusted issue price of such
REMIC Residual Certificates at the beginning of a quarterly period. For this
purpose, the adjusted issue price of such REMIC Residual Certificate at the
beginning of a quarterly period is the issue price of such Certificate plus the
amount of the daily accruals of REMIC taxable income for all prior quarters,
decreased by any distributions made with respect to such Certificates prior to
the beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be offset
by other deductions, including net operating loss carryforwards, on a holder's
return. An exception exists for organizations to which Code Section 593 applies
(generally, certain thrift institutions); however, the Code grants the Treasury
Department authority to issue regulations providing that this exception will not
apply to the extent necessary or appropriate to prevent avoidance of tax. The
REMIC Regulations provide that the exception for thrifts applies only if a REMIC
Residual Certificate has "significant value." For this purpose, a REMIC Residual
Certificate has significant value if (i) the aggregate issue price of the
residual interest in the REMIC equals at least two percent of the total issue
prices of all interests in the REMIC, and (ii) the REMIC Residual Certificate
has an anticipated weighted average life at least equal to 20 percent of the
anticipated weighted average life of the REMIC. The anticipated weighted average
life of the REMIC is the weighted average of the anticipated weighted average
lives of all classes of interests in the REMIC. This weighted average is
determined under a formula provided in the REMIC Regulations, applied by
treating all payments taken into account in computing the anticipated weighted
average lives of the regular and residual interests in the REMIC as principal
payments on a single regular interest.
Legislation has been introduced with respect to the relationship
between excess inclusions and the alternative minimum tax. This legislation
provides that (i) the alternative minimum taxable income of a taxpayer is based
on the taxpayer's regular taxable income computed without regard to the rule
that taxable income cannot be less than the amount of excess inclusions, (ii)
the alternative minimum taxable income of a taxpayer for a taxable year cannot
be less than the amount of excess inclusions for that year, and (iii) the amount
of any alternative minimum tax net operating loss is computed without regard to
any excess inclusions. No prediction can be made whether such legislation or
similar legislation will be enacted.
The rule permitting thrift institutions to offset excess inclusions
with their net operating losses generally applies only when the thrift
institution itself (rather than an affiliate of the thrift) holds the residual
interest. However, excess inclusions of a "qualified subsidiary" of a thrift
institution (defined generally as a subsidiary organized and operated
exclusively in connection with the organization and operation of one or more
REMICs) may be offset by net operating losses of its parent thrift as if the
parent thrift held the residual interest directly.
If the holder of a REMIC Residual Certificate is an organization
subject to the tax on unrelated business income imposed by Code Section 511, the
excess inclusions will be treated as unrelated business taxable income of such
holder for purposes of Code Section 511. In addition, the Code provides that
under Treasury regulations, if a real estate investment trust ("REIT") owns a
REMIC Residual Certificate, to the extent excess inclusions of the REIT exceed
its real estate investment trust taxable income (excluding net capital gains),
the excess inclusions would be allocated among the shareholders of the REIT in
proportion to the dividends received by the shareholders from the REIT. Excess
inclusions derived by regulated investment companies ("RICs"), common trust
funds, and subchapter T cooperatives must be allocated to the shareholders of
such entities using rules similar to those applicable to REITs. The Internal
Revenue Service has not yet adopted or proposed such regulations as to REITs,
RICs, or similar entities. A life insurance company cannot adjust its reserve
with respect to variable contracts to the extent of any excess inclusion, except
as provided in regulations.
The Internal Revenue Service has authority to promulgate regulations
providing that if the aggregate value of the REMIC Residual Certificates is not
considered to be "significant," then the entire share of REMIC taxable income of
a holder of a REMIC Residual Certificate (including a holder which is a thrift
institution) may be treated as excess inclusions subject to the foregoing
limitations. This authority has not been exercised to date.
The REMIC is subject to tax at a rate of 100 percent on any net income
it derived from "prohibited transactions." In general, "prohibited transaction"
means the disposition of a qualified mortgage other than pursuant to specified
exceptions, the receipt of income as compensation for services, the receipt of
income from a source other than a qualified mortgage or certain other permitted
investments, or gain from the disposition of an asset representing a temporary
investment of payments on qualified mortgages pending distribution on the REMIC
Certificates. In addition, a tax is imposed on the REMIC equal to 100 percent of
the value of certain property contributed to the REMIC after its "startup day."
No REMIC in which interests are offered hereunder will accept contributions that
would be subject to such tax. This provision will not affect the REMIC's ability
in accordance with the Agreement to accept substitute Mortgage Loans or to sell
defective Mortgage Loans. A REMIC is subject to a tax (deductible from its
income) on any "net income from foreclosure property" (determined in accordance
with Section 857(b)(4)(B) of the Code as if the REMIC were a REIT).
Any tax described in the preceding paragraph that may be imposed on the
Trust Fund initially would be borne by the holders of the REMIC Residual
Certificates in the related REMIC rather than by the holders of the REMIC
Regular Certificates, unless otherwise specified in the Prospectus Supplement.
Dealers' Ability to Mark to Market REMIC Residual Certificates.
Temporary regulations provide that "negative-value" REMIC Residual Certificates
are not securities and cannot be marked to market pursuant to Section 475 of the
Code (relating to the requirement that dealers in securities mark them to
market). A REMIC Residual Certificate is a negative-value REMIC Residual
Certificate if on the date the dealer acquires the REMIC Residual Certificate
the present value of the anticipated tax liabilities associated with holding the
REMIC Residual Certificate (net of the present value of the tax savings
resulting from losses associated with holding the REMIC Residual Certificate)
exceeds the present value of the expected future distributions on the REMIC
Residual Certificate. Pursuant to the temporary regulations, the Commissioner
has the authority to treat REMIC Residual Certificates which have the same
economic effect as a negative-value REMIC Residual Certificate as not being a
security for purposes of Section 475 of the Code. The anticipated and expected
tax consequences and distributions are determined by taking into account events
that have occurred through the date of acquisition, the Prepayment Assumption
and reinvestment assumption adopted when the residual was created, and by taking
account of required liquidations and required or permitted clean up calls.
Moreover, proposed regulations provide that all REMIC Residual Certificates
acquired on or after January 4, 1995 are not securities for purposes of Section
475 of the Code and cannot be marked to market pursuant to Section 475 of the
Code.
TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Tax on Disposition of REMIC Residual Certificates. The sale of a REMIC
Residual Certificate by a holder will result in gain or loss equal to the
difference between the amount realized on the sale and the adjusted basis of the
REMIC Residual Certificate.
If the seller of a REMIC Residual Certificate held the REMIC Residual
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Code Section 582(c), the sale of a REMIC Residual
Certificate by certain banks and other financial institutions will be considered
a sale of property other than a capital asset, resulting in ordinary income or
loss. Although the tax treatment with respect to a REMIC Residual Certificate
that has unrecovered basis after all funds of the Trust Fund have been
distributed is unclear, the holder presumably would be entitled to claim a loss
in the amount of the unrecovered basis.
The Code provides that, except as provided in Treasury regulations
(which have not yet been issued), if a holder sells a REMIC Residual Certificate
and acquires the same or other REMIC Residual Certificates, residual interests
in another REMIC, or any similar interests in a "taxable mortgage pool" (as
defined in Section 7701(i) of the Code) during the period beginning six months
before, and ending six months after, the date of such sale, such sale will be
subject to the "wash sale" rules of Section 1091 of the Code. In that event, any
loss realized by the seller on the sale generally will not be currently
deductible.
A tax is imposed on the transfer of any residual interest in a REMIC to
a "disqualified organization." The tax is imposed on the transferor, or, where
the transfer is made through an agent of the disqualified organization, on the
agent. "Disqualified organizations" include for this purpose the United States,
any State or political subdivision thereof, any foreign government, any
international organization or agency or instrumentality of the foregoing (with
an exception for certain taxable instrumentalities of the United States, of a
State or of a political subdivision thereof), any rural electrical and telephone
cooperative, and any tax-exempt entity (other than certain farmers'
cooperatives) not subject to the tax on unrelated business income.
The amount of tax to be paid by the transferor on a transfer to a
disqualified organization is equal to the present value of the total anticipated
excess inclusions for periods after such transfer with respect to the interest
transferred multiplied by the highest corporate rate of tax. The transferor (or
agent, as the case may be) will be relieved of liability so long as the
transferee furnishes an affidavit that it is not a disqualified organization and
the transferor or agent does not have actual knowledge that the affidavit is
false. Under the REMIC Regulations, an affidavit will be sufficient if the
transferee furnishes (A) a social security number, and states under penalties of
perjury that the social security number is that of the transferee, or (B) a
statement under penalties of perjury that it is not a disqualified organization.
Treatment of Payments to a Transferee in Consideration of Transfer of a
REMIC Residual Certificate. The federal income tax consequences of any
consideration paid to a transferee on a transfer of an interest in a REMIC
Residual Certificate are unclear. The preamble to the REMIC Regulations
indicates that the Internal Revenue Service is considering the tax treatment of
these types of residual interests. A transferee of such an interest should
consult its own tax advisors.
Restrictions on Transfer; Holding by Pass-Through Entities.
An entity or segregated pool of assets cannot qualify as a
REMIC absent reasonable arrangements designed to ensure that (1) residual
interests in such entity or segregated pool are not held by disqualified
organizations and (2) information necessary to calculate the tax due on
transfers to disqualified organizations (i.e., a computation of the present
value of the excess inclusions) is made available by the REMIC. The governing
instruments of a Trust Fund will contain provisions designed to ensure the
foregoing, and any transferee of a REMIC Residual Certificate must execute and
deliver an affidavit stating that neither the transferee nor any person for
whose account such transferee is acquiring the REMIC Residual Certificate is a
disqualified organization. In addition, as to the requirement that reasonable
arrangements be made to ensure that disqualified organizations do not hold a
residual interest in the REMIC, the REMIC Regulations require that notice of the
prohibition be provided either through a legend on the certificate that
evidences ownership, or through a conspicuous statement in the prospectus or
other offering document used to offer the residual interest for sale. As to the
requirement that sufficient information be made available to calculate the tax
on transfers to disqualified organizations (or the tax, discussed below, on
pass-through entities, interests in which are held by disqualified
organizations), the REMIC Regulations further require that such information also
be provided to the Internal Revenue Service.
A tax is imposed on "pass-through entities" holding residual interests
where a disqualified organization is a record holder of an interest in the
pass-through entity. "Pass-through entity" is defined for this purpose to
include RICs, REITs, common trust funds, partnerships, trusts, estates, and
subchapter T cooperatives. Except as provided in regulations, nominees holding
interests in a "pass-through entity" for another person will also be treated as
"pass-through entities" for this purpose. The tax is equal to the amount of
excess inclusions allocable to the disqualified organization for the taxable
year multiplied by the highest corporate rate of tax, and is deductible by the
"pass-through entity" against the gross amount of ordinary income of the entity.
The Agreement provides that any attempted transfer of a beneficial or
record interest in a REMIC Residual Certificate will be null and void unless the
proposed transferee provides to the Trustee an affidavit that such transferee is
not a disqualified organization.
Legislation has been introduced in Congress which would provide that
certain partnerships having a large number of partners will be treated as
disqualified organizations for purposes of the tax imposed on pass-through
entities if such partnerships hold residual interests in a REMIC. When
applicable, the legislation would disallow 70 percent of large partnership's
miscellaneous itemized deductions, including deductions for servicing and
guaranty fees and any expenses of the REMIC, although the remaining deductions
would not be subject to the 2 percent floor applicable to individual partners.
See "Deductibility of Trust Fund Expenses" below. No prediction can be made
regarding whether such legislation or similar legislation will be enacted or, if
enacted, what the ultimate effective date will be.
The REMIC Regulations provide that a transfer of a "noneconomic
residual interest" will be disregarded for all federal income tax purposes
unless impeding the assessment or collection of tax was not a significant
purpose of the transfer. A residual interest will be treated as a "noneconomic
residual interest" unless, at the time of the transfer (1) the present value of
the expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35 percent, and (2) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from the
REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had "improper knowledge") that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that (A)
the transferee understands that it might incur tax liabilities in excess of any
cash received with respect to the residual interest and (B) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. Any transferee of a REMIC Residual Certificate must execute and
deliver to the transferor an affidavit containing the representations described
in (ii) above. A different formulation of this rule applies to transfers of
REMIC Residual Certificates by or to foreign transferees. See "Foreign
Investors" below.
DEDUCTIBILITY OF TRUST FUND EXPENSES
A holder that is an individual, estate or trust will be subject to the
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such deductions, in the aggregate, do not exceed two
percent of the holder's adjusted gross income, and such holder may not be able
to deduct such fees and expenses to any extent in computing such holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the "applicable amount" ($100,000 (or $50,000 in
the case of a separate return by a married individual), adjusted for changes in
the cost of living subsequent to 1990) will be reduced by the lesser of (i) 3
percent of the excess of adjusted gross income over the applicable amount, or
(ii) 80 percent of the amount of itemized deductions otherwise allowable for
such taxable year. Such deductions will include servicing, guarantee, and
administrative fees paid to the servicer of the Mortgage Loans. These deductions
will be allocated entirely to the holders of the REMIC Residual Certificates in
the case of REMIC Trust Funds with multiple classes of REMIC Regular
Certificates that do not pay their principal amounts ratably. As a result, the
REMIC will report additional taxable income to holders of REMIC Residual
Certificates in an amount equal to their allocable share of such deductions, and
individuals, estates, or trusts holding an interest in such REMIC Residual
Certificates may have taxable income in excess of the cash received. In the case
of a "single-class REMIC," the expenses will be allocated, under Treasury
regulations, among the holders of the REMIC Regular Certificates and the REMIC
Residual Certificates on a daily basis in proportion to the relative amounts of
income accruing to each Certificateholder on that day. In the case of a holder
of a REMIC Regular Certificate who is an individual or a "pass-through interest
holder" (including certain pass-through entities, but not including real estate
investment trusts), the deductibility of such expenses will be subject to the
limitations described above. The reduction or disallowance of these deductions
may have a significant impact on the yield of REMIC Regular Certificates to such
a holder. In general terms, a single class REMIC is one that either (i) would
qualify, under existing Treasury regulations, as a grantor trust if it were not
a REMIC (treating all interests as ownership interests, even if they would be
classified as debt for federal income tax purposes) or (ii) is similar to such a
trust and which is structured with the principal purpose of avoiding the
single-class REMIC rules.
FOREIGN INVESTORS
REMIC Regular Certificates. Except as discussed below, a holder of a
REMIC Regular Certificate who is not a "United States person" (as defined below)
generally will not be subject to United States income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that (i) the
holder complies to the extent necessary with certain identification
requirements, including timely delivery of a statement, signed by the holder of
the REMIC Regular Certificate under penalties of perjury, certifying that the
holder of the REMIC Regular Certificate is not a United States person and
providing the name and address of the holder, (ii) the holder is not a
"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B), which
could be interpreted to apply to a holder of a REMIC Regular Certificate who
holds a direct or indirect 10 percent interest in the REMIC Residual
Certificates, (iii) the holder is not a "controlled foreign corporation" (as
defined in the Code) related to the REMIC or related to a 10 percent holder of a
residual interest in the REMIC, and (iv) the holder is not engaged in a United
States trade or business, or otherwise subject to federal income tax as a result
of any direct or indirect connection to the United States other than through its
ownership of a REMIC Regular Certificate. For these purposes, the term "United
States person" means (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or (iii) an
estate or trust whose income is includable in gross income for United States
federal income taxation regardless of its source.
REMIC Residual Certificates. The Conference Report to the Tax Reform
Act of 1986 states that amounts paid to foreign persons with respect to residual
interests should be considered interest for purposes of the withholding rules.
Interest paid to a foreign person which is not effectively connected with a
trade or business of the foreign person in the United States is subject to a 30%
withholding tax. The withholding tax on interest does not apply, however, to
"portfolio interest" (if certain certifications as to beneficial ownership are
made, as discussed above under "Foreign Investors--Regular Certificates") or to
the extent a tax treaty reduces or eliminates the tax. Treasury regulations
provide that amounts paid with respect to residual interests qualify as
portfolio interest only if interest on the qualified mortgages held by the REMIC
qualifies as portfolio interest. Generally, interest on Mortgage Loans held by a
Trust Fund will not qualify as portfolio interest, although interest on the
Private Mortgage-Backed Securities, other pass-through certificates, or REMIC
regular interests held by a Trust Fund may qualify. In any case, a holder of a
REMIC Residual Certificate will not be entitled to the portfolio interest
exception from the 30% withholding tax (or to any treaty exemption or rate
reduction) for that portion of a payment that constitutes excess inclusions.
Generally, the withholding tax will be imposed when REMIC gross income is paid
or distributed to the holder of a residual interest or there is a disposition of
the residual interest.
The REMIC Regulations provide that a transfer of a REMIC Residual
Certificate to a foreign transferee will be disregarded for all federal income
tax purposes if the transfer has "tax avoidance potential." A transfer to a
foreign transferee will be considered to have tax avoidance potential unless at
the time of the transfer, the transferor reasonably expects that (1) the future
distributions on the REMIC Residual Certificate will equal at least 30 percent
of the anticipated excess inclusions and (2) such amounts will be distributed at
or after the time at which the excess inclusion accrues, but not later than the
close of the calendar year following the calendar year of accrual. A safe harbor
in the REMIC Regulations provides that the reasonable expectation requirement
will be satisfied if the above test would be met at all assumed prepayment rates
for the Mortgage Loans from 50 percent of the Prepayment Assumption to 200
percent of the Prepayment Assumption. A transfer by a foreign transferor to a
domestic transferee will likewise be disregarded under the REMIC Regulations if
the transfer would have the effect of allowing the foreign transferor to avoid
the tax on accrued excess inclusions.
BACKUP WITHHOLDING
Distributions made on the REMIC Certificates and proceeds from the sale
of REMIC Certificates to or through certain brokers may be subject to a "backup"
withholding tax of 31 percent of "reportable payments" (including interest
accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) unless, in general, the holder
of the REMIC Certificate complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Certificates
would be refundable by the Internal Revenue Service or allowable as a credit
against the holder's federal income tax.
REMIC ADMINISTRATIVE MATTERS
The federal information returns for a Trust Fund (Form 1066 and
Schedules Q thereto) must be filed as if the Trust Fund were a partnership for
federal income tax purposes. Information on Schedule Q must be provided to
holders of REMIC Residual Certificates with respect to every calendar quarter.
Each holder of a REMIC Residual Certificate will be required to treat items on
its federal income tax returns consistently with their treatment on the Trust
Fund's information returns unless the holder either files a statement
identifying the inconsistency or establishes that the inconsistency resulted
from an incorrect schedule received from the Trust Fund. The Trust Fund also
will be subject to the procedural and administrative rules of the Code
applicable to partnerships, including the determination of any adjustments to,
among other things, items of REMIC taxable income by the Internal Revenue
Service. Holders of REMIC Residual Certificates will have certain rights and
obligations with respect to any administrative or judicial proceedings involving
the Internal Revenue Service. Under the Code and Regulations, a REMIC generally
is required to designate a tax matters person. Generally, subject to various
limitations, the tax matters person has authority to act on behalf of the REMIC
and the holders of the REMIC Residual Certificates in connection with
administrative determinations and judicial review respecting returns of taxable
income of the REMIC. Treasury regulations exempt from certain of these
procedural rules REMICs having no more than one residual interest holder.
Unless otherwise indicated in the Prospectus Supplement, and to the
extent allowable, the Depositor or its designee will act as the tax matters
person for each REMIC. Each holder of a REMIC Residual Certificate, by the
acceptance of its interest in the REMIC Residual Certificate, agrees that the
Depositor or its designee will act as the holder's fiduciary in the performance
of any duties required of the holder in the event that the holder is the tax
matters person.
NON-REMIC CERTIFICATES
The discussion under this heading applies only to a Series of
Certificates with respect to which a REMIC election is not made.
Tax Status of the Trust Fund. Upon the issuance of each Series of
Non-REMIC Certificates, Stroock & Stroock & Lavan, counsel to the Depositor,
will deliver its opinion to the effect that, under then current law, assuming
compliance with the Agreement, the related Trust Fund will be classified for
federal income tax purposes as a grantor trust and not as an association taxable
as a corporation or a taxable mortgage pool. Accordingly, each holder of a
Non-REMIC Certificate will be treated for federal income tax purposes as the
owner of an undivided interest in the Mortgage Loans included in the Trust Fund.
As further described below, each holder of a Non-REMIC Certificate therefore
must report on its federal income tax return the gross income from the portion
of the Mortgage Loans that is allocable to such Non-REMIC Certificate and may
deduct the portion of the expenses incurred by the Trust Fund that is allocable
to such Non-REMIC Certificate, at the same time and to the same extent as such
items would be reported by such holder if it had purchased and held directly
such interest in the Mortgage Loans and received directly its share of the
payments on the Mortgage Loans and incurred directly its share of expenses
incurred by the Trust Fund when those amounts are received or incurred by the
Trust Fund.
A holder of a Non-REMIC Certificate that is an individual, estate, or
trust will be allowed deductions for such expenses only to the extent that the
sum of those expenses and the holder's other miscellaneous itemized deductions
exceeds two percent of such holder's adjusted gross income. Moreover, a holder
of a Non-REMIC Certificate that is not a corporation cannot deduct such expenses
for purposes of the alternative minimum tax (if applicable). In addition, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceed the "applicable amount" ($100,000
(or $50,000 in the case of a separate return by a married individual), adjusted
for changes in the cost of living subsequent to 1990) will be reduced by the
lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80 percent of the amount of itemized deductions
otherwise allowable for such taxable year. Such deductions will include
servicing, guarantee and administrative fees paid to the servicer of the
Mortgage Loans. As a result, individuals, estates, or trusts holding Non-REMIC
Certificates may have taxable income in excess of the cash received.
Status of the Non-REMIC Certificates as Real Property Loans. The
Non-REMIC Certificates representing interests in Mortgage Loans generally will
be "qualifying real property loans" within the meaning of Section 593(d) of the
Code and "real estate assets" for purposes of Section 856(c)(5)(A) of the Code
and the Non-REMIC Certificates representing interests in Mortgage Loans other
than Commercial Mortgage Loans generally will be "loans . . . secured by an
interest in real property" within the meaning of Section 7701(a)(19)(C)(v) of
the Code. Interest income on the Non-REMIC Certificates generally will be
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code. However, the Non-REMIC Certificates
may not be qualifying assets or income under any of the foregoing sections of
the Code to the extent that the Trust Fund's assets include buydown funds,
Reserve Accounts, or payments on mortgages held pending distribution to
Certificateholders.
Taxation of Non-REMIC Certificates Under Stripped Bond Rules. The
federal income tax treatment of the Non-REMIC Certificates will depend on
whether they are subject to the rules of section 1286 of the Code (the "stripped
bond rules"). The Non-REMIC Certificates will be subject to those rules if
stripped interest-only Certificates are issued. In addition, whether or not
stripped interest-only Certificates are issued, the stripped bond rules will
apply if a servicer's servicing fee, or other amounts, if any, paid to (or
retained by) a servicer or its affiliates, as specified in the applicable
Prospectus Supplement, represent greater than an arm's length consideration for
servicing the Mortgage Loans. In Revenue Ruling 91-46, the Internal Revenue
Service concluded that retained interest in excess of reasonable compensation
for servicing is treated as a "stripped coupon" under the rules of Code Section
1286.
If interest retained for a servicer's servicing fee or other interest
is treated as a "stripped coupon," the Non-REMIC Certificates will either be
subject to the original discount rules or the market discount rules. A holder of
a Non-REMIC Certificate will account for any discount on the Non-REMIC
Certificate (other than an interest treated as a "stripped coupon") as market
discount rather than original issue discount if either (i) the amount of
original issue discount with respect to the Non-REMIC Certificate was treated as
zero under the original issue discount de minimis rule when the Non-REMIC
Certificate was stripped or (ii) no more than 100 basis points (including any
amount of servicing in excess of reasonable servicing) is stripped off from the
Mortgage Loans. If neither of the above exceptions applies, the original issue
discount rules will apply to the Non-REMIC Certificates. See "REMIC Regular
Interests -- Current Income on REMIC Regular Interests
-- Original Issue Discount and -- Market Discount" above.
If the original issue discount rules apply, the holder of a Non-REMIC
Certificate (whether a cash or accrual method taxpayer) will be required to
report interest income from the Non-REMIC Certificate in each taxable year equal
to the income that accrues on the Non-REMIC Certificate in that year calculated
under a constant yield method based on the yield of the Non-REMIC Certificate
(or, possibly, the yield of each Mortgage Loan underlying such Non-REMIC
Certificate) to such holder. Such yield would be computed at the rate that, if
used in discounting the holder's share of the payments on the Mortgage Loans,
would cause the present value of those payments to equal the price at which the
holder purchased the Non-REMIC Certificate. With respect to certain categories
of debt instruments, Section 1272(a)(6) of the Code requires that original issue
discount be accrued based on a prepayment assumption determined in a manner
prescribed by forthcoming regulations. It is unclear whether such regulations
would apply this rule to the Non-REMIC Certificates, whether Section 1272(a)(6)
might apply to the Non-REMIC Certificates in the absence of such regulations, or
whether the Internal Revenue Service could require use of a reasonable
prepayment assumption based on other tax law principles. If required to report
interest income on the Non-REMIC Certificates to the Internal Revenue Service
under the stripped bond rules, it is anticipated that the Trustee will calculate
the yield of the Non-REMIC Certificates based on a representative initial
offering price of the Non-REMIC Certificates and a reasonable assumed rate of
prepayment of the Mortgage Loans (although such yield may differ from the yield
to any particular holder that would be used in calculating the interest income
of such holder). The Prospectus Supplement for each series of Non-REMIC
Certificates will describe the prepayment assumption that will be used for this
purpose, but no representation is made that the Mortgage Loans will prepay at
that rate or at any other rate.
In the case of a Non-REMIC Certificate acquired at a price equal to the
principal amount of the Mortgage Loans allocable to the Non-REMIC Certificate,
the use of a reasonable prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Non-REMIC Certificate acquired at a discount or
premium (that is, at a price less than or greater than such principal amount,
respectively), the use of a reasonable prepayment assumption would increase or
decrease such yield, and thus accelerate or decelerate the reporting of interest
income, respectively.
If a Mortgage Loan is prepaid in full, the holder of a Non-REMIC
Certificate acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Mortgage Loan that is allocable to the Non-REMIC
Certificate and the portion of the adjusted basis of the Non-REMIC Certificate
(see "Sales of Non-REMIC Certificates" below) that is allocable to the Mortgage
Loan.
Non-REMIC Certificates of certain Series ("Variable Rate Non-REMIC
Certificates") may provide for a Pass-Through Rate based on the weighted average
of the interest rates of the Mortgage Loans held by the Trust Fund, which
interest rates may be fixed or may vary based on an index. In the case of a
Variable Rate Non-REMIC Certificate that is subject to the original issue
discount rules, the daily portions of original issue discount will be calculated
in the same manner as discussed above except the principles discussed in "REMIC
Regular Certificates -- Current Income on REMIC Regular Certificates --Original
Issue Discount -- Variable Rate REMIC Regular Certificates" will be applied.
Taxation of Non-REMIC Certificates If Stripped Bond Rules Do Not Apply.
If the stripped bond rules do not apply to a Non-REMIC Certificate, then the
holder will be required to include in income its share of the interest payments
on the Mortgage Loans in accordance with its tax accounting method. In addition,
if the holder purchased the Non-REMIC Certificate at a discount or premium, the
holder will be required to account for such discount or premium in the manner
described below, as if it had purchased the Mortgage Loans directly. The
treatment of any discount will depend on whether the discount with respect to
the Mortgage Loans is original issue discount as defined in the Code and, in the
case of discount other than original issue discount, whether such other discount
exceeds a de minimis amount. In the case of original issue discount, the holder
(whether a cash or accrual method taxpayer) will be required to report as
additional interest income in each month the portion of such discount that
accrues in that month, calculated based on a constant yield method. In general
it is not anticipated that the amount of original issue discount to be accrued
in each month, if any, will be significant relative to the interest paid
currently on the Mortgage Loans. However, original issue discount could arise
with respect to a Mortgage Loan ("ARM") that provides for interest at a rate
equal to the sum of an index of market interest rates and a fixed number. The
original issue discount for ARMs will be determined under the principles
discussed in "REMIC Regular Certificates -- Current Income on REMIC Regular
Certificates -- Original Issue Discount -- Variable Rate REMIC Regular
Certificates."
If discount on the Mortgage Loans other than original issue discount
exceeds a de minimis amount (described below), the holder will also generally be
required to include in income in each month the amount of such discount accrued
through such month and not previously included in income, but limited, with
respect to the portion of such discount allocable to any Mortgage Loan, to the
amount of principal on such Mortgage Loan received by the Trust Fund in that
month. Because the Mortgage Loans will provide for monthly principal payments,
such discount may be required to be included in income at a rate that is not
significantly slower (and, under certain circumstances, faster) than the rate at
which such discount accrues (and therefore at a rate not significantly slower
than the rate at which such discount would be included in income if it were
original issue discount). The holder may elect to accrue such discount under a
constant yield method based on the yield of the Non-REMIC Certificate to such
holder. In the absence of such an election, it may be necessary to accrue such
discount under a more rapid straight-line method. Under the de minimis rule,
market discount with respect to a Non-REMIC Certificate will be considered to be
zero if it is less than the product of (i) 0.25% of the principal amount of the
Mortgage Loans allocable to the Non-REMIC Certificate and (ii) the weighted
average life (determined using complete years) of the Mortgage Loans remaining
at the time of purchase of the Non-REMIC Certificate. See "REMIC Regular
Certificates -- Current Income on REMIC Regular Certificates --Market Discount."
If a holder purchases a Non-REMIC Certificate at a premium, such holder
may elect under Section 171 of the Code to amortize, as an offset to interest
income, the portion of such premium that is allocable to a Mortgage Loan under a
constant yield method based on the yield of the Mortgage Loan to such holder,
provided that such Mortgage Loan was originated after September 27, 1985.
Premium allocable to a Mortgage Loan originated on or before that date should
be allocated among the principal payments on the Mortgage Loan and allowed as an
ordinary deduction as principal payments are made or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for discount or
premium would be made based on the scheduled payments on the Mortgage Loans or
taking account of a reasonable prepayment assumption.
If a Mortgage Loan is prepaid in full, the holder of a Non-REMIC
Certificate acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to the Non-REMIC Certificate and the
portion of the adjusted basis of the Non-REMIC Certificate (see "Sales of
Non-REMIC Certificates" below) that is allocable to the Mortgage Loan.
Sales of Non-REMIC Certificates. A holder that sells a Non-REMIC
Certificate will recognize gain or loss equal to the difference between the
amount realized in the sale and its adjusted basis in the Non-REMIC Certificate.
In general, such adjusted basis will equal the holder's cost for the Non-REMIC
Certificate, increased by the amount of any income previously reported with
respect to the Non-REMIC Certificate and decreased by the amount of any losses
previously reported with respect to the Non-REMIC Certificate and the amount of
any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Non-REMIC Certificate were
held as capital assets, except that, for a Non-REMIC Certificate to which the
stripped bond rules do not apply and that was acquired with more than a de
minimis amount of discount other than original issue discount (see "Taxation of
Non-REMIC Certificates if Stripped Bond Rules Do Not Apply" above), such gain
will be treated as ordinary interest income to the extent of the portion of such
discount that accrued during the period in which the seller held the Non-REMIC
Certificate and that was not previously included in income.
Foreign Investors. A holder of a Non-REMIC Certificate who is not a
"United States person" (as defined below) and is not subject to federal income
tax as a result of any direct or indirect connection to the United States other
than its ownership of a Non-REMIC Certificate will not be subject to United
States income or withholding tax in respect of payments of interest or original
issue discount on a Non-REMIC Certificate to the extent attributable to Mortgage
Loans that were originated after July 18, 1984, provided that the holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the holder of the Non-REMIC
Certificate under penalties of perjury, certifying that such holder is not a
United States person and providing the name and address of such holder).
Interest or original issue discount on a Non-REMIC Certificate attributable to
Mortgage Loans that were originated prior to July 19, 1984 will be subject to a
30% withholding tax (unless such tax is reduced or eliminated by an applicable
tax treaty). For these purposes, the term "United States person" means a citizen
or a 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 the income of which is
subject to United States federal income taxation regardless of its source.
TAXABLE MORTGAGE POOLS
Effective January 1, 1992, certain entities classified as "taxable
mortgage pools" are subject to corporate level tax on their net income. A
"taxable mortgage pool" is generally defined as an entity that meets the
following requirements: (i) the entity is not a REMIC, (ii) substantially all of
the assets of the entity are debt obligations, and more than 50 percent of such
debt obligations consists of real estate mortgages (or interests therein), (iii)
the entity is the obligor under debt obligations with two or more maturities,
and (iv) payments on the debt obligations on which the entity is the obligor
bear a relationship to the payments on the debt obligations which the entity
holds as assets. With respect to requirement (iii), the Code authorizes the
Internal Revenue Service to provide by regulations that equity interests may be
treated as debt for purposes of determining whether there are two or more
maturities. If a Series of Non-REMIC Certificates were treated as obligations of
a taxable mortgage pool, the Trust Fund would be ineligible to file consolidated
returns with any other corporation and could be liable for corporate tax.
Treasury regulations do not provide for the recharacterization of equity as debt
for purposes of determining whether an entity has issued debt with two
maturities, except in the case of transactions structured to avoid the taxable
mortgage pool rules.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to Title I of ERISA, should consider the fiduciary
standards under ERISA in the context of the plan's particular circumstances
before authorizing an investment of a portion of such plan's assets in the
Certificates. Accordingly, pursuant to Section 404 of ERISA, such fiduciary
should consider among other factors (i) whether the investment is for the
exclusive benefit of plan participants and their beneficiaries; (ii) whether the
investment satisfies the applicable diversification requirements; (iii) whether
the investment is in accordance with the documents and instruments governing the
plan; and (iv) whether the investment is prudent, considering the nature of the
investment. Fiduciaries of plans also should consider ERISA's prohibition on
improper delegation of control over, or responsibility for, plan assets.
In addition, benefit plans subject to ERISA, as well as individual
retirement accounts or certain types of Keogh plans not subject to ERISA but
subject to Section 4975 of the Code (each, a "Plan"), are prohibited from
engaging in a broad range of transactions involving Plan assets and persons
having certain specified relationships to a Plan ("parties in interest" and
"disqualified persons"). Such transactions are treated as "prohibited
transactions" under Sections 406 and 407 of ERISA and excise taxes are imposed
upon such persons by Section 4975 of the Code. The Depositor, Bear Stearns, each
Master Servicer, any Special Servicer, any Sub-Servicer, any Standby Servicer,
any insurer of Mortgage Assets, and the Trustee and certain of their affiliates
might be considered "parties in interest" or "disqualified persons" with respect
to a Plan. If so, the acquisition, holding or disposition of Certificates by or
on behalf of such Plan could be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and the Code unless an exemption is
available. Furthermore, if an investing Plan's assets were deemed to include an
interest in the Mortgage Assets which constitute the Trust Fund and not merely
an interest in the Certificates, the fiduciary investment standards of ERISA
would apply to the Mortgage Assets and transactions occurring in the servicing
of the Mortgage Assets might constitute prohibited transactions, unless an
administrative exemption applies. Certain such exemptions which may be
applicable to the acquisition and holding of the Certificates or to the
servicing of the Mortgage Assets are noted below.
In Department of Labor ("DOL") Regulation 29 C.F.R. Section 2510.3-101,
the U.S. Department of Labor has defined what constitutes Plan assets for
purposes of ERISA and Section 4975 of the Code. The Regulation provides that if
a Plan makes an investment in an "equity interest" in an entity, the assets of
the entity will be considered the assets of such Plan unless certain exceptions
apply. The Seller can give no assurance that the Certificates will qualify for
any of the exceptions under the Regulation. As a result, the Mortgage Assets may
be considered the assets of any Plan which acquires a Certificate, in which case
transactions occurring in the servicing of the Mortgage Assets might constitute
prohibited transactions, unless some administrative exemption is available.
The U.S. Department of Labor has issued an administrative exemption,
Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1"), which, under certain
conditions, exempts from the application of the prohibited transaction rules of
ERISA and the excise tax provisions of Section 4975 of the Code transactions
involving a Plan in connection with the operation of a "mortgage pool" and the
purchase, sale and holding of "mortgage pool pass-through certificates." A
"mortgage pool" is defined as an investment pool, consisting solely of interest
bearing obligations secured by first or second mortgages or deeds of trust on
single-family residential property, property acquired in foreclosure and
undistributed cash. A "mortgage pool pass-through certificate" is defined as a
certificate which represents a beneficial undivided interest in a mortgage pool
which entitles the holder to pass-through payments of principal and interest
from the Mortgage Loans.
For the exemption to apply, PTCE 83-1 requires that (i) the Seller and
the Trustee maintain a system of insurance or other protection for the Mortgage
Loans and the property securing such Mortgage Loans, and for indemnifying
holders of Certificates against reductions in pass-through payments due to
defaults in loan payments or property damage in an amount at least equal to the
greater of 1% of the aggregate principal balance of the Mortgage Loans, or 1% of
the principal balance of the largest covered pooled Mortgage Loan; (ii) the
Trustee may not be an affiliate of the Seller; and (iii) the payments made to
and retained by the Seller in connection with the Trust Fund, together with all
funds inuring to its benefit for administering the Trust Fund, represent no more
than "adequate consideration" for selling the Mortgage Loans, plus reasonable
compensation for services provided to the Trust Fund.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a
Plan with respect to which the Seller, the Special Hazard Insurer, the Pool
Insurer, the Master Servicer, or other servicer, or the Trustee is a party in
interest if the Plan does not pay more than fair market value for such
Certificate and the rights and interests evidenced by such Certificate are not
subordinated to the rights and interests evidenced by other Certificates of the
same pool. PTCE 83-1 also exempts from the prohibited transaction rules any
transactions in connection with the servicing and operation of the Mortgage
Pool, provided that any payments made to the Master Servicer in connection with
the servicing of the Trust Fund are made in accordance with a binding agreement,
copies of which must be made available to prospective investors.
In the case of any Plan with respect to which the Seller, the Master
Servicer, the Special Hazard Insurer, the Pool Insurer, or the Trustee is a
fiduciary, PTCE 83-1 will only apply if, in addition to the other requirements:
(i) the initial sale, exchange or transfer of Certificates is expressly approved
by an independent fiduciary who has authority to manage and control those plan
assets being invested in Certificates; (ii) the Plan pays no more for the
Certificates than would be paid in an arm's length transaction; (iii) no
investment management, advisory or underwriting fee, sale commission, or similar
compensation is paid to the Seller with regard to the sale, exchange or transfer
of Certificates to the Plan; (iv) the total value of the Certificates purchased
by such Plan does not exceed 25% of the amount issued; and (v) at least 50% of
the aggregate amount of Certificates is acquired by persons independent of the
Seller, the Trustee, the Master Servicer, and the Special Hazard Insurer or Pool
Insurer.
Before purchasing Certificates, a fiduciary of a Plan should confirm
that the Trust Fund is a "mortgage pool", that the Certificates constitute
"mortgage pool pass-through certificates," and that the conditions set forth in
PTCE 83-1 would be satisfied. In addition to making its own determination as to
the availability of the exemptive relief provided in PTCE 83-1, the Plan
fiduciary should consider the availability of any other prohibited transaction
exemptions. The Plan fiduciary also should consider its general fiduciary
obligations under ERISA in determining whether to purchase any Certificates on
behalf of a Plan.
In addition to PTCE 83-1, the U.S. Department of Labor has issued an
individual exemption, Prohibited Transaction Exemption 90-30 (the "Exemption"),
to Bear, Stearns & Co. Inc., which is applicable to Certificates which meet its
requirements whenever Bear, Stearns & Co. Inc. or its affiliate is the sole
underwriter, manager or co-manager of an underwriting syndicate, or is the
selling or placement agent. PTE 90-30 generally exempts certain transactions
from the application of certain of the prohibited transaction provisions of
ERISA and the Code provided that certain conditions set forth in PTE 90-30 are
satisfied. The exempted transactions include certain transactions relating to
the servicing and operation of investment trusts holding assets of the following
general categories: single and multifamily residential or commercial mortgages,
motor vehicle receivables, consumer or commercial receivables and guaranteed
government mortgage pool certificates and the purchase, sale and holding of
mortgage-backed or asset-backed pass-through certificates representing
beneficial ownership interests in the assets of such investment trusts.
PTE 90-30 sets forth seven general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Certificates
to be eligible for exemptive relief thereunder. First, the acquisition of
Certificates by certain Plans must be on terms that are at least as favorable to
the Plan as they would be in an arm's length transaction with an unrelated
party. Second, the rights and interests evidenced by the Certificates must not
be subordinated to the rights and interests evidenced by other certificates of
the same trust. Third, the Certificates at the time of acquisition by the Plan
must be rated in one of the three highest generic rating categories by Standard
& Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Services Inc. ("National Credit Rating Agencies"). Fourth, the
Trustee cannot be an affiliate of any member of the "Restricted Group" which
consists of any underwriter as defined in PTE 90-30, the Depositor, the Master
Servicer, any Special Servicer, any Sub-Servicer, any Standby Servicer and any
other Servicer, any insurer of Mortgage Assets and any obligor with respect to
obligations or receivables constituting more than 5% of the obligations or
receivables as of the date of initial issuance of the Certificates. Fifth, the
sum of all payments made to and retained by such underwriters must represent not
more than reasonable compensation for underwriting the Certificates; the sum of
all payments made to and retained by the Depositor pursuant to the assignment of
the obligations or receivables to the related Trust Fund must represent not more
than the fair market value of such obligations; and the sum of all payments made
to and retained by the Master Servicer, any Special Servicer, any Sub-Servicer,
any Standby Servicer and any other servicer, must represent not more than
reasonable compensation for such person's services under the Agreement and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, (i) the investment pool consists only of assets of the type enumerated in
the exemption and which have been included in other investment pools; (ii)
certificates evidencing interests in such other investment pools have been rated
in one of the three highest generic rating categories by one of the National
Credit Rating Agencies for at least one year prior to a Plan's acquisition of
certificates; and (iii) certificates evidencing interests in such other
investment pools have been purchased by investors other than Plans for at least
one year prior to a Plan's acquisition of certificates. Finally, the investing
Plan must be an accredited investor as defined in Rule 501(a)(1) of Regulation D
of the Commission under the Securities Act of 1933, as amended. The Depositor
assumes that only Plans which are accredited investors under the federal
securities laws will be permitted to purchase the Certificates.
If the general conditions of the PTE 90-30 are satisfied, such
exemption may provide an exemption from the restrictions imposed by ERISA and
the Code in connection with the direct or indirect sale, exchange, transfer,
holding or the direct or indirect acquisition or disposition in the secondary
market of the Certificates by Plans. However, no exemption is provided from the
restrictions of ERISA for the acquisition or holding of a Certificate on behalf
of an "Excluded Plan" by any person who is a fiduciary with respect to the
assets of such Excluded Plan. For purposes of the Certificates, an Excluded Plan
is a Plan sponsored by any member of the Restricted Group. In addition, PTE
90-30 can provide relief from certain self-dealing/conflict of interest
prohibited transactions that may occur if a Plan fiduciary causes a Plan to
acquire Certificates of a Trust in which the fiduciary (or its affiliate) is an
obligor with respect to obligations or receivables held in the trust provided
that, among other requirements, (i) such fiduciary (or its affiliate) is an
obligor with respect to 5% or less of the fair market value of the obligations
or receivables contained in the trust, (ii) a Plan's investment in each class of
Certificates does not exceed 25% of the outstanding Certificates in the class,
(iii) after the Plan's acquisition of the Certificates, no more than 25% of the
assets over which the fiduciary has investment authority are invested in
Certificates of a trust containing assets which are sold or serviced by the same
entity, and (iv) in the case of initial issuance (but not secondary market
transactions), at least 50% of each class of Certificates, and at least 50% of
the aggregate interests in the trust, is acquired by persons independent of the
Restricted Group.
Before purchasing a Certificate in reliance on any of these exemptions
or any other exemption, a fiduciary of a Plan should itself confirm that
requirements set forth in such exemption would be satisfied.
One or more exemptions may be available, with respect to certain
prohibited transactions to which neither PTCE 83-1 nor PTE 90-30 is applicable,
depending in part upon the type of Plan fiduciary making the decision to acquire
Certificates and the circumstances under which such decision is made, including,
but not limited to PTCE 84-14 (regarding investments by a qualified professional
asset manager (QPAM), PTCE 90-1 (regarding investments by insurance company
pooled separate accounts) PTCE 91-38 (regarding investments by bank collective
investments funds) and PTCE 84-14 (regarding investments by Plans whose assets
are managed by "qualified professional asset managers"). However, even if the
conditions specified in either of these exemptions are met, the scope of the
relief provided by these exemptions might or might not cover all acts which
might be construed as prohibited transactions.
Any Plan fiduciary considering whether to purchase a Certificate on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment.
Each Prospectus Supplement will contain information concerning
considerations relating to ERISA and the Code that are applicable to the related
Certificates.
LEGAL INVESTMENT
The Prospectus Supplement for each Series will identify those classes
of Certificates, if any, which constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Such classes will constitute "mortgage related securities" for so long as they
are rated in one of the two highest rating categories by at least one nationally
recognized statistical rating organization (the "SMMEA Certificates"). As
"mortgage related securities," the SMMEA Certificates will constitute legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including, but not limited to, state-
chartered savings banks, commercial banks, savings and loan associations and
insurance companies, as well as trustees and state government employee
retirement systems) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities. Pursuant to SMMEA, a number of
states enacted legislation, on or before the October 4, 1991 cutoff for such
enactments, limiting to varying extents the ability of certain entities (in
particular, insurance companies) to invest in mortgage related securities, in
most cases by requiring the affected investors to rely solely upon existing
state law, and not SMMEA. Accordingly, the investors affected by such
legislation will be authorized to invest in SMMEA Certificates only to the
extent provided in 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 Certificates without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in Certificates, and
national banks may purchase Certificates for their own account without regard to
the limitations generally applicable to investment securities set forth in 12
U.S.C. ss. 24 (Seventh), subject in each case to such regulations as the
applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review the NCUA Letter to Credit Unions No. 96, as
modified by Letter No. 108, which includes guidelines to assist federal credit
unions in making investment decisions for mortgage related securities. The NCUA
has adopted rules which prohibit federal credit unions from investing in certain
mortgage related securities, except under limited circumstances.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income-paying," and provisions which may restrict or prohibit
investments in securities which are issued in book-entry form.
Investors should consult with their own legal advisors in determining
whether, and to what extent, SMMEA Certificates constitute legal investments for
such investors.
Other classes of Certificates will not constitute "mortgage related
securities" under the SMMEA (the "Non-SMMEA Certificates"). The appropriate
characterization of the Non-SMMEA Certificates under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase Non-SMMEA Certificates, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Non-SMMEA Certificates will constitute legal investments for
them.
Except as to the status of SMMEA Certificates identified in the
Prospectus Supplement for a Series as "mortgage related securities" under SMMEA,
the Depositor will make no representation as to the proper characterization of
the Certificates for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase Certificates
under applicable legal investment restrictions. The uncertainties described
above (and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Certificates) may
adversely affect the liquidity of the Certificates.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplements will
be offered in Series. The distribution of the Certificates may be effected from
time to time in one or more transactions, including negotiated transactions, at
a fixed public offering price or at varying prices to be determined at the time
of sale or at the time of commitment therefor. If so specified in the related
Prospectus Supplement, the Certificates will be distributed in a firm commitment
underwriting, subject to the terms and conditions of the underwriting agreement,
by Bear, Stearns & Co. Inc. ("Bear, Stearns"), an affiliate of the Depositor,
acting as underwriter with other underwriters, if any, named therein. In such
event, the Prospectus Supplement may also specify that the underwriters will not
be obligated to pay for any Certificates agreed to be purchased by purchasers
pursuant to purchase agreements acceptable to the Depositor. In connection with
the sale of the Certificates, underwriters may receive compensation from the
Depositor or from purchasers of the Certificates in the form of discounts,
concessions or commissions. The Prospectus Supplement will describe any such
compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that the
Certificates will be distributed by Bear, Stearns acting as agent or in some
cases as principal with respect to Certificates that it has previously purchased
or agreed to purchase. If Bear, Stearns acts as agent in the sale of
Certificates, Bear, Stearns will receive a selling commission with respect to
each Series of Certificates, depending on market conditions, expressed as a
percentage of the aggregate principal balance of the Certificates sold hereunder
as of the Cut-off Date. The exact percentage for each Series of Certificates
will be disclosed in the related Prospectus Supplement. To the extent that Bear,
Stearns elects to purchase Certificates as principal, Bear, Stearns may realize
losses or profits based upon the difference between its purchase price and the
sales price. The Prospectus Supplement with respect to any Series offered other
than through underwriters will contain information regarding the nature of such
offering and any agreements to be entered into between the Depositor and
purchasers of Certificates of such Series.
The Depositor will indemnify Bear, Stearns and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Bear, Stearns and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Bear, Stearns and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's Mortgage Loans
pending the sale of such Mortgage Loans or interests therein, including the
Certificates.
The Depositor anticipates that the Certificates will be sold primarily
to institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Certificates. Holders of Certificates should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
LEGAL MATTERS
The legality of the Certificates of each Series, including certain
federal income tax consequences with respect thereto, will be passed upon for
the Depositor by Stroock & Stroock & Lavan, Seven Hanover Square, New York, New
York 10004.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the Prospectus Supplement that they shall have been rated
in one of the four highest rating categories by the nationally recognized
statistical rating agency or agencies specified in the related Prospectus
Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped pass-through certificates under certain scenarios 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.
<PAGE>
GLOSSARY
Unless the context indicates otherwise, the following terms shall have
the meanings set forth on the page indicated below:
TERM PAGE
Accounts............................................... 38
ADA.................................................... 111
Agency Securities...................................... 1
Agreement.............................................. 8
Applicant.............................................. 44
ARM.................................................... 141
Balloon Payments....................................... 14
Bankruptcy Code........................................ 85
Basis Risk Shortfall................................... 112
Bear, Stearns.......................................... 150
Buydown Funds.......................................... 13
Cash Flow Investments.................................. 42
Cede................................................... 45
CERCLA................................................. 107
Certificate Account.................................... 37
Certificateholders..................................... 32
Certificate Register................................... 37
Certificates........................................... 1
Charter Act............................................ 64
CMOs................................................... 20
Code................................................... 30
Collateral Value....................................... 54
Collection Account..................................... 37
Commercial Mortgage Loans.............................. 1
Commercial Property.................................... 12
Commission............................................. 4
Credit Enhancement..................................... 48
Cut-off Date........................................... 37
Definitive Certificates................................ 46
Deleted Mortgage Loans................................. 56
Depositor.............................................. 1
Disqualifying Condition................................ 110
Distribution Date...................................... 4
DOL.................................................... 144
DTC.................................................... 45
Environmental Condition................................ 107
ERISA.................................................. 33
Escrow Account......................................... 74
Events of Default...................................... 81
Exchange Act........................................... 6
Excluded Plan.......................................... 147
Exemption.............................................. 146
FHA.................................................... 12
FHA Insurance.......................................... 27
FHA Loans.............................................. 56
FHLMC.................................................. 1
FHLMC Act.............................................. 66
FHLMC Certificate Group............................... 66
FHLMC Certificates.................................... 19
FHLMC Project Certificates............................ 69
FNMA.................................................. 1
FNMA Certificates..................................... 19
FNMA MBS.............................................. 64
FNMA Project Issuers.................................. 64
FNMA SMBS............................................. 64
Garn-St Germain Act................................... 95
GNMA.................................................. 1
GNMA Certificates..................................... 19
GNMA Issuer........................................... 62
GNMA Project Certificates............................. 64
Guaranty Agreement.................................... 62
Hazardous Materials................................... 109
Holders............................................... 37
Housing Act........................................... 56
HUD................................................... 56
Indirect Participants................................. 45
Insurance Proceeds.................................... 38
L/C Bank.............................................. 24
Lease................................................. 5
Lessee................................................ 5
Liquidation Proceeds.................................. 38
Loan-to-Value Ratio................................... 53
Lockout Periods....................................... 15
Lower Tier REMIC...................................... 127
Master Servicer....................................... 2
Master Servicer Remittance Date....................... 39
Mortgage.............................................. 54
Mortgage Assets....................................... 1
Mortgage Loan File.................................... 55
Mortgage Loan Groups.................................. 53
Mortgage Loans........................................ 1
Mortgage Pool......................................... 11
Mortgage Rate......................................... 13
Mortgaged Properties.................................. 4
Mortgagor............................................. 16
Multifamily Loans..................................... 1
National Credit Rating Agencies....................... 146
Non-REMIC Certificates................................ 32
Non-SMMEA Certificates................................ 150
Note.................................................. 38
Objective Rate........................................ 120
OID Regulations....................................... 114
Participants.......................................... 45
Pass-Through Rate..................................... 4
Permitted Investments................................. 40
Plan(s)............................................... 33
Plan Asset Regulations................................ 33
PMBS Agreement........................................ 70
PMBS Issuer........................................... 21
PMBS Servicer......................................... 21
PMBS Trustee.......................................... 22
Prepayment Assumption................................. 116
Prepayment Premium.................................... 39
Presumed Single Qualified Floating Rate............... 120
Principal Prepayment.................................. 39
Private Mortgage-Backed Securities.................... 1
Property Protection Expenses.......................... 39
PTCE 83-1............................................. 144
Rating Agency......................................... 26
Record Date........................................... 37
Refinance Loan........................................ 54
REIT.................................................. 129
Relief Act............................................ 97
REMIC................................................. 3
REMIC Certificates.................................... 112
REMIC Regular Certificates............................ 30
REMIC Regulations..................................... 113
REMIC Residual Certificates........................... 30
REO Account........................................... 39
REO Property.......................................... 38
Repurchase Price...................................... 55
Reserve Account....................................... 25
Restricted Group...................................... 146
Retained Interest..................................... 38
RICs.................................................. 129
Seller ............................................... 1
Senior Certificates................................... 8
Series................................................ 1
Simple Interest Loans................................. 13
SMMEA................................................. 29
SMMEA Certificates.................................... 148
Specially Serviced Mortgage Loans..................... 73
Special Servicer...................................... 2
Standby Servicer...................................... 2
Subordinated Certificates............................. 8
Sub-Servicer.......................................... 73
Substitute Mortgage Loans............................. 56
Tiered REMICs......................................... 114
Trustee............................................... 2
Trust Fund............................................ 1
UCC................................................... 45
United States person.................................. 135
VA Loans.............................................. 61
Variable Rate Non-REMIC Certificates.................. 140
Variable Rate REMIC Regular Certificate............... 119
Voting Rights......................................... 82
Yield Supplement Agreement............................ 112
<PAGE>
PROSPECTUS
Prospectus Supplement .................................................... 4
Available Information .................................................... 4
Reports to Certificateholders............................................. 5
Incorporation of Certain Documents by Reference........................... 6
Summary of Terms ......................................................... 7
Description of the Certificates........................................... 35
The Trust Fund ........................................................... 47
Use of Proceeds .......................................................... 72
The Depositor............................................................. 73
Servicing of the Mortgage Loans........................................... 73
Credit Enhancement ....................................................... 82
Certain Legal Aspects of the
Mortgage Loans and Leases............................................... 88
Certain Federal Income Tax Consequences .................................. 111
ERISA Considerations ..................................................... 143
Legal Investment ......................................................... 148
Method of Distribution ................................................... 150
Legal Matters ............................................................ 151
Financial Information..................................................... 151
Rating.................................................................... 152
Glossary.................................................................. 153
(Back cover continued
on next page)
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY BSCMSI OR THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CERTIFICATES
OFFERED HEREBY NOR AN OFFER OF SUCH CERTIFICATES TO ANY PERSON IN ANY STATE OR
OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Summary of Terms.........................................................S-6
Risk Factors.............................................................S-49
Description of the Certificates..........................................S-61
The Trust Fund...........................................................S-95
Servicing of the Mortgage Loans..........................................S-109
Yield, Prepayment and Maturity Considerations............................S-114
Use of Proceeds..........................................................S-121
Certain Federal Income Tax Consequences..................................S-121
ERISA Considerations.....................................................S-123
Restrictions on Purchase and Transfer of the
Class A-R1 Certificates................................................S-126
Legal Investment Considerations..........................................S-126
Plan of Distribution.....................................................S-127
Certificate Ratings......................................................S-127
Legal Matters............................................................S-128
Index of Principal Definitions...........................................S-129
Mortgage Loan Exhibits...................................................S-133
(Back cover continued
on next page)
<PAGE>
$--------------
(APPROXIMATE)
BEAR STEARNS
COMMERCIAL MORTGAGE SECURITIES INC.
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 199_-_
PROSPECTUS SUPPLEMENT
BEAR, STEARNS & CO. INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Certificates, other than underwriting
discounts and commissions:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.................................. 43,099.44
Engraving Fees........................................ 50,000.00
Legal Fees and Expenses............................... 125,000.00
Accounting Fees and Expenses.......................... 17,000.00
Trustee Fees and Expenses............................. 25,000.00
Blue Sky Qualification Fees
and Expenses......................................... 15,000.00
Rating Agency Fees ................................... 25,000.00
Miscellaneous ........................................ 10,000.00
----------
Total ................................................ $310,099.44
</TABLE>
- ---------------
(1) All amounts are estimates of expenses incurred or to be
incurred in connection with the issuance and distribution
of a Series of Certificates in an aggregate principal amount
assumed for these purposes to be one-eighth of the
Certificates registered hereby. Accordingly, only one-
eighth of the SEC Registration Fee paid upon the filing of
this Registration Statement is included in the table above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 7 of the proposed form of Underwriting Agreement, the
Underwriters are obligated under certain circumstances to indemnify certain
controlling persons of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933.
The Registrant's By-laws provide for indemnification of directors and
officers of the Registrant to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are or
were such directors, officers, employees or agents, against expenses incurred in
any such action, suit or proceeding.
The Pooling and Servicing Agreements may provide that no director,
officer, employee or agent of the Registrant is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad faith,
gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreements may provide further
that, with the exemptions stated above, a director, officer, employee or agent
of the Registrant is entitled to be indemnified against any loss, liability or
expenses incurred in connection with legal actions relating to such Pooling and
Servicing Agreements and the related Certificates, other than such expenses
relating to particular Mortgage Loans.
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
All financial statements, schedules and historical financial
information of the Registrant have been omitted as they are not
applicable.
(b) Exhibits:
1.1 Form of Underwriting Agreement*
4.1 Form of Pooling and Servicing Agreement*
5.1 Opinion of Stroock & Stroock & Lavan as to
legality of the Certificates*
8.1 Opinion of Stroock & Stroock & Lavan as to
certain tax matters (included
in Exhibit 5.1)*
24.1 Consent of Stroock & Stroock & Lavan
(included in Exhibit 5.1 and 8.1 hereto)*
25.1 Powers of Attorney*
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change of such
information in the Registration Statement.
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in the post-effective amendment is
contained in periodic reports filed by the Issuer 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.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 7 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 23rd day of May, 1996.
BEAR STEARNS COMMERCIAL
MORTGAGE SECURITIES INC.
BY: /S/ RICHARD S. LANDAU
Richard S. Landau
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 7
to the Registration Statement has been signed below by the following persons in
the capacities indicated on May 23, 1996:
SIGNATURE TITLE
/S/ RICHARD S. LANDAU Director and President
Richard S. Landau (Principal Executive Officer)
/S/ MICHAEL H. HELLENBRAND Director and Vice President
Michael H. Hellenbrand
/S/ WILLIAM J. MONTGORIS Secretary and Treasurer
William J. Montgoris (Principal Accounting Officer
and Principal Financial Officer)
