Registration No. 33-________________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
(Formerly known as Chemical Commercial Mortgage Securities Corp.)
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
13-3728743
(I.R.S. employer identification number)
380 Madison Avenue
New York, New York 10017-2951
(212) 622-3510
(Address, including zip code, and telephone number, including area code, of
registrant's principle executive offices)
CT Corporation System
1633 Broadway
New York, New York 10019
(212) 664-1666
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
Jacqueline R. Slater Michael S. Gambro, Esq.
Chase Commercial Mortgage Securities Corp. Cadwalader, Wickersham & Taft
380 Madison Avenue 100 Maiden Lane
New York, New York 10017-2951 New York, New York 10038
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Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
plans, please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Proposed Maximum Proposed Maximum
Title of Securities Being Amount to be Offering Price Aggregate Offering Amount of
Registered(1) Registered Per Unit Price(2) Registration Fee
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<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $700,000,000.00 100% $700,000,000 $241,380.00
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</TABLE>
(1) This registration statement and the registration fee pertain to the
initial offering of the Mortgage Pass-Through Certificates registered hereunder
by the Registrant and to offers and sales relating to market-making transactions
by Chase Securities Inc., an affiliate of the Registrant. The amount of Mortgage
Pass-Through Certificates that may be initially offered hereunder and the
registration fee shall not be affected by any offers and sales relating to any
such market-making transactions.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 429 of the Securities and Exchange Commission's Rules and
Regulations under the Securities Act of 1933, as amended, the Prospectus and
Prospectus Supplement contained in this Registration Statement also relate to
the Registrant's Registration Statement on Form S-3 (Registration Statement No.
33-67742) (filed under the Registrant's former name Chemical Commercial Mortgage
Securities Corp.).
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.
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<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________, 1996)
CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
Multifamily Mortgage Pass-Through Certificates
Series 199__-__
$_________________ Class A Certificates
$_________________ Class B Certificates
The Series 199___-__ Multifamily Mortgage Pass-Through Certificates (the
"Certificates") will consist of four classes (each, a "Class") of Certificates,
designated as the Class A Certificates, the Class B Certificates, the Class C
Certificates and the Class R Certificates. As and to the extent described
herein, the Class B, Class C and Class R Certificates will be subordinate to the
Class A Certificates; and the Class C and Class R Certificates will be
subordinate to the Class B Certificates. Only the Class A and Class B
Certificates (collectively, the "Offered Certificates") are offered hereby. It
is a condition of their issuance that the Class A and Class B Certificates be
rated not lower than "____" and "____", respectively, by
__________________________.
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund"), to be established by
Chase Commercial Mortgage Securities Corp. (the "Depositor"), that will consist
primarily of a segregated pool (the "Mortgage Pool") of ____ conventional,
multifamily, balloon mortgage loans (the "Mortgage Loans"). As of ____________,
199___ (the "Cut-off Date"), the Mortgage Loans had an aggregate principal
balance (the "Initial Pool Balance") of $___________________, after application
of all payments of principal due on or before such date, whether or not
received. The initial principal balance of the Class A Certificates will be
$__________________, which represents _____% of the Initial Pool Balance; and
the initial principal balance of the Class B Certificates will be
$_____________, which represents ___% of the Initial Pool Balance.
See "Risk Factors" beginning on page S-__ of this Prospectus Supplement and
"Risk Factors" beginning on page 17 of the Prospectus for certain factors to be
considered in purchasing the Offered Certificates.
(cover continued on next page)
----------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR OR ANY OF ITS AFFILIATES.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The Offered Certificates will be purchased by [Chase Securities Inc.] (the
"Underwriter") from the Depositor and will be offered by the Underwriter from
time to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Offered Certificates, before deducting expenses payable by the Depositor
estimated to be approximately $_____________, will be ______% of the initial
aggregate Certificate Balance of the Offered Certificates, plus accrued
interest.
<PAGE>
(cover continued)
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Offered Certificates in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
The Offered Certificates are offered by the Underwriter when, as and if
delivered to and accepted by the Underwriter and subject to prior sale and to
its right to reject any order in whole or in part. It is expected that the Class
A Certificates will be delivered in book-entry form through the Same-Day Funds
Settlement System of The Depository Trust Company and that the Class B
Certificates will be delivered at the offices of the Underwriter,
_________________________ _________________________________, on or about
_____________, 199__ (the "Delivery Date"), against payment therefor in
immediately available funds.
The Mortgage Loans provide for monthly payments of principal and/or
interest ("Monthly Payments"), in all cases based on amortization schedules that
are significantly longer than their remaining terms, thereby leaving substantial
principal amounts due and payable on their respective maturity dates. As more
fully described herein, (i) ___ of the Mortgage Loans (the "ARM Loans"), which
represent ______% of the Initial Pool Balance, provide for periodic adjustments
(which may occur monthly, semi-annually or annually) to the respective
annualized rates at which they accrue interest (their "Mortgage Rates") based on
fluctuations in a base index (an "Index") and subject to the limitations
described herein, and (ii) the remaining Mortgage Loans (the "Fixed Rate Loans")
bear interest at fixed Mortgage Rates. [Describe Index]
All of the Mortgage Loans are currently held by _____________ (the
"Mortgage Loan Seller"), which either originated the Mortgage Loans or acquired
them from their respective originators. On or before the date of initial
issuance of the Certificates, the Depositor will acquire the Mortgage Loans from
the Mortgage Loan Seller and will transfer them to the Trustee in exchange for
the Certificates.
Distributions of interest on and principal of the Certificates will be
made, to the extent of available funds, on the 25th day of each month or, if any
such 25th day is not a business day, then on the next succeeding business day,
beginning in _____________ 199____ (each, a "Distribution Date"). As more fully
described herein, distributions allocable to interest accrued on each Class of
Offered Certificates will be made on each Distribution Date based on the
variable pass-through rate (the "Pass-Through Rate") then applicable to such
Class and the stated principal amount (the "Certificate Balance") of such Class
outstanding immediately prior to such Distribution Date. The Pass-Through Rate
for the Class A and Class B Certificates applicable to the first Distribution
Date will be _________% per annum. Subsequent to the initial Distribution Date,
the Pass-Through Rate for the Class A and Class B Certificates will equal from
time to time the weighted average of, subject to certain adjustments described
herein, the Net Mortgage Rates on the Mortgage Loans. The Net Mortgage Rate for
any Mortgage Loan is its Mortgage Rate less _____ basis points. Distributions
allocable to principal of each Class of Offered Certificates will be made in the
amounts and in accordance with the priorities described herein. See "Description
of the Certificates--Distributions" herein.
The yield to maturity on each Class of Offered Certificates will depend on,
among other things, fluctuations in its respective Pass-Through Rate and the
rate and timing of principal payments (including by reason of prepayments,
defaults and liquidations) on the Mortgage Loans. See "Yield and Maturity
Considerations" herein and "Yield and Maturity Considerations" and "Risk
Factors--Prepayments; Average Life of Certificates; Yields" in the Prospectus.
[The following disclosure is applicable to Stripped Interest Certificates
("Class S Certificates")... The yield to maturity on the Class S Certificates
will be extremely sensitive to the rate and timing of principal payments
(including by reasons of prepayments, defaults and liquidations) on the Mortgage
Loans, which may fluctuate significantly from time to time. A rate of principal
prepayments on the Mortgage Loans that is more rapid than expected by investors
will have a material negative effect on the yield to maturity of the Class S
Certificates. Investors in the Class S Certificates should carefully consider
the associated risks, including the risk that a rapid rate of principal
prepayments on the Mortgage Loans could result in the failure of investors in
such Certificates to recover fully their initial investments. See "Risk
Factors--Yield Sensitivity of the Class S Certificates" and "Yield and Maturity
Considerations" herein and "Yield Considerations" and "Risk Factors--Average
Life of Certificates; Prepayments; Yields" in the Prospectus.]
S-2
<PAGE>
An election will be made to treat the Trust Fund as a "real estate mortgage
investment conduit" (a "REMIC") for federal income tax purposes. The Offered
Certificates and the Class C Certificates (collectively, the "Regular
Certificates") will constitute "regular interests", and the Class R Certificates
will constitute the sole class of "residual interests", in the Trust Fund. See
"Certain Federal Income Tax Consequences" herein and in the Prospectus.
There is currently no secondary market for the Offered Certificates and
there can be no assurance a secondary market for the Offered Certificates will
develop. The Underwriter expects 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. See "Risk Factors--Limited Liquidity"
herein.
[Chase Securities Inc.]
The date of this Prospectus Supplement is __________, 199__.
S-3
<PAGE>
[inside front cover]
THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL TO OBTAIN MATERIAL INFORMATION CONCERNING THE OFFERED
CERTIFICATES. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS
THE PURCHASER HAS RECEIVED BOTH THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT.
-----------
UNTIL [NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT], ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
S-4
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
SUMMARY OF PROSPECTUS SUPPLEMENT............................................................................................7
RISK FACTORS................................................................................................................20
The Certificates.....................................................................................................20
Limited Liquidity..................................................................................20
Variability in Yield; Priority of Payments.........................................................20
Yield Sensitivity of the Class S Certificates......................................................21
The Mortgage Loans...................................................................................................21
Nature of the Mortgaged Properties.................................................................21
Limited Recourse...................................................................................21
Environmental Law Considerations...................................................................21
Geographic Concentration...........................................................................22
Concentration of Mortgage Loans and Borrowers......................................................22
Adjustable Rate Mortgage Loans.....................................................................22
Balloon Payments...................................................................................22
DESCRIPTION OF THE MORTGAGE POOL............................................................................................22
General ............................................................................................................22
Certain Payment Characteristics.....................................................................................23
The Index...........................................................................................................23
Additional Mortgage Loan Information................................................................................24
The Mortgage Loan Seller............................................................................................31
General ....................................................................................................31
Delinquency and Foreclosure Experience......................................................................31
Underwriting Standards..............................................................................................32
Assignment of the Mortgage Loans; Repurchase........................................................................33
Representations and Warranties; Repurchases.........................................................................34
Changes in Mortgage Pool Characteristics............................................................................34
SERVICING OF THE MORTGAGE LOANS.............................................................................................35
General ............................................................................................................35
The Master Servicer.................................................................................................35
Servicing and Other Compensation and Payment of Expenses............................................................35
Modifications, Waivers and Amendments...............................................................................36
Inspections; Collection of Operating Information....................................................................37
Additional Obligations of the Master Servicer with Respect to ARM Loans.............................................37
DESCRIPTION OF THE CERTIFICATES.............................................................................................37
General ............................................................................................................37
Distributions.......................................................................................................38
Method, Timing and Amount.................................................................................38
Priority..................................................................................................39
Pass-Through Rates........................................................................................40
Distributable Certificate Interest........................................................................41
Scheduled Principal Distribution Amount and Unscheduled Principal Distribution Amount.....................41
Certain Calculations with Respect to Individual Mortgage Loans............................................41
Subordination.......................................................................................................42
P&I Advances........................................................................................................43
</TABLE>
S-5
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<CAPTION>
<S> <C>
Reports to Certificateholders; Certain Available Information........................................................43
Voting Rights.......................................................................................................44
Termination.........................................................................................................44
The Trustee.........................................................................................................45
YIELD AND MATURITY CONSIDERATIONS...........................................................................................45
Yield Considerations................................................................................................45
General .................................................................................................45
Pass-Through Rate........................................................................................45
Rate and Timing of Principal Payments....................................................................45
Losses and Shortfalls....................................................................................46
Certain Relevant Factors.................................................................................46
Delay in Payment of Distributions........................................................................47
Unpaid Distributable Certificate Interest................................................................47
Weighted Average Life...............................................................................................47
Yield Sensitivity of the Class S Certificates.......................................................................50
USE OF PROCEEDS.............................................................................................................51
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................................................................51
ERISA CONSIDERATIONS........................................................................................................52
LEGAL INVESTMENT............................................................................................................54
METHOD OF DISTRIBUTION......................................................................................................54
LEGAL MATTERS...............................................................................................................55
RATING .....................................................................................................................55
INDEX OF PRINCIPAL DEFINITIONS..............................................................................................56
</TABLE>
S-6
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary may
be defined elsewhere in this Prospectus Supplement or in the Prospectus. An
"Index of Principal Definitions" is included at the end of both this Prospectus
Supplement and the Prospectus. Terms that are used but not defined in this
Prospectus Supplement will have the meanings specified in the Prospectus.
Title of Certificates................ Chase Commercial Mortgage Securities
Corp., Multifamily Mortgage Pass-Through
Certificates, Series 199__-__ (the
"Certificates"), to be issued in four
Classes, designated as the Class A,
Class B, Class C and Class R
Certificates. The Class A, Class B and
Class C Certificates are herein
collectively referred to from time to
time as the "Regular Certificates". Only
the Class A and Class B Certificates
(collectively, the "Offered
Certificates") are offered hereby. The
Class C and Class R Certificates are
herein collectively referred to from
time to time as the "Private
Certificates".
Depositor............................ Chase Commercial Mortgage Securities
Corp., a New York corporation. The
Depositor is a wholly-owned subsidiary
of Chemical Bank, a New York bank [and
an affiliate of Chase Securities Inc.
(the "Underwriter")]. Later this year,
The Chase Manhattan Bank (National
Association) will be merged with and
into Chemical Bank and Chemical Bank
will then change its name to The Chase
Manhattan Bank. See "The Depositor" in
the Prospectus. Neither the Depositor
nor any of its affiliates has insured or
guaranteed the Offered Certificates.
Master Servicer...................... ______________________________, a
_____________________. See "Servicing of
the Mortgage Loans-The Master Servicer"
herein.
Trustee ............................. _____________________, a
_______________________. See
"Description of the Certificates-The
Trustee" herein.
Mortgage Loan Seller ________________________, a
__________________________. See
"Description of the Mortgage Pool-The
Mortgage Loan Seller" herein.
Cut-off Date......................... ___________________, 199__.
Delivery Date ....................... ___________________, 199__.
Registration of the
Class A Certificates.............. The Class A Certificates will be
represented by one or more global
Certificates registered in the name of
Cede & Co., as nominee of The Depository
Trust Company ("DTC"). No person
acquiring an interest in the Class A
Certificates (any such person, a "Class
A Certificate Owner") will be entitled
to receive a Class A Certificate in
fully registered, certificated form (a
"Definitive Class A Certificate"),
except under the limited circumstances
described in the Prospectus under
"Description of the Certificates--Book
Entry Registration and Definitive
Certificates". Instead, DTC will effect
payments and transfers in respect of the
Class A Certificates by means of its
electronic recordkeeping services,
acting through certain participating
organizations ("Participants"). This may
result in certain delays in receipt of
payments by an investor and may restrict
an investor's ability to pledge its
securities. Unless and until Definitive
Class A Certificates are issued, all
references herein to the rights of
S-7
<PAGE>
holders of the Class A Certificates are
to the rights of Class A Certificate
Owners as they may be exercised through
DTC and its Participants, except as
otherwise specified herein. See
"Description of the
Certificates--General" herein and
"Description of the
Certificates--Book-Entry Registration
and Definitive Certificates" in the
Prospectus.
Denominations........................ The Class A Certificates will be issued,
maintained and transferred on the
book-entry records of DTC and its
Participants in denominations of $1,000
and in integral multiples thereof. The
Class B Certificates will be issuable in
fully registered, certificated form in
denominations of $____________ and in
integral multiples of $1,000 in excess
thereof, with one Class B Certificate
evidencing an additional amount equal to
the remainder of the initial Certificate
Balance of such Class.
The Mortgage Pool................... The Mortgage Pool will consist of _____
conventional, balloon Mortgage Loans
with an Initial Pool Balance of
$_________________. On or prior to the
Delivery Date, the Depositor will
acquire the Mortgage Loans from the
Mortgage Loan Seller pursuant to a
Mortgage Loan Purchase Agreement, dated
[the date hereof], between the Depositor
and the Mortgage Loan Seller (the
"Mortgage Loan Purchase Agreement"). In
the Mortgage Loan Purchase Agreement,
the Mortgage Loan Seller has made
certain representations and warranties
to the Depositor regarding the
characteristics and quality of the
Mortgage Loans and, as more particularly
described herein, has agreed to cure any
material breach thereof or repurchase
the affected Mortgage Loan. In
connection with the assignment of its
interests in the Mortgage Loans to the
Trustee, the Depositor will also assign
its rights under the Mortgage Loan
Purchase Agreement insofar as they
relate to or arise out of the Mortgage
Loan Seller's representations and
warranties regarding the Mortgage Loans.
See "Description of the Mortgage
Pool--Representations and Warranties;
Repurchases" herein.
Each Mortgage Loan is secured by a first
mortgage lien on a fee simple estate in
a multifamily rental property (each, a
"Mortgaged Property"). ________ of the
Mortgage Loans, which represent _____%
of the Initial Pool Balance, are secured
by liens on Mortgaged Properties located
in _______________. The remaining
Mortgaged Properties are located
throughout ___________ other states. See
"Description of the Mortgage
Pool--Additional Mortgage Loan
Information" herein.
___________ of the Mortgage Loans, which
represent ______% of the Initial Pool
Balance, provide for scheduled payments
of principal and/or interest ("Monthly
Payments") to be due on the first day of
each month; the remainder of the
Mortgage Loans provide for Monthly
Payments to be due on the ____, _____,
_____ or _____ day of each month (the
date in any month on which a Monthly
Payment on a Mortgage Loan is first due,
the "Due Date"). The annualized rate at
which interest accrues (the "Mortgage
Rate") on ____ of the Mortgage Loans
(the "ARM Loans"), which represent
_____% of the Initial Pool Balance, is
subject to adjustment on specified Due
Dates (each such date of adjustment, an
"Interest Rate Adjustment Date") by
adding a fixed number of basis points (a
"Gross Margin") to the value of a base
index (an "Index"), subject, in ______
cases, to lifetime maximum and/or
minimum Mortgage Rates, and in _____
cases, to periodic maximum and/or
minimum Mortgage Rates, in each case as
described herein; and the remaining
Mortgage Loans (the "Fixed Rate Loans")
bear interest at fixed Mortgage Rates.
S-8
<PAGE>
____ of the ARM Loans, which represent
___% of the Initial Pool Balance,
provide for Interest Rate Adjustment
Dates that occur monthly, while the
remainder of the ARM Loans provide for
adjustments of the Mortgage Rate to
occur semi-annually or annually.
[Identify Mortgage Loan Index] See
"Description of the Mortgage
Pool--Certain Payment Characteristics"
herein.
The amount of the Monthly Payment on all
of the ARM Loans is subject to
adjustment on specified Due Dates (each
such date, a "Payment Adjustment Date")
to an amount that would amortize the
outstanding principal balance of the
Mortgage Loan over its then remaining
amortization schedule and pay interest
at the then applicable Mortgage Rate.
The ARM Loans provide for Payment
Adjustment Dates that occur on the Due
Date following each related Interest
Rate Adjustment Date.
All of the Mortgage Loans provide for
monthly payments of principal based on
amortization schedules significantly
longer than the remaining terms of such
Mortgage Loans, thereby leaving
substantial principal amounts due and
payable (each such payment, a "Balloon
Payment") on their respective maturity
dates, unless prepaid prior thereto.
As of the Cut-off Date, the Mortgage
Loans had the following additional
characteristics:
(i) Mortgage Rates ranging from ____%
per annum to ____% per annum, and a
weighted average Mortgage Rate of
_____% per annum;
(ii) in the case of the ARM Loans, Gross
Margins ranging from _____ basis
points to _____ basis points, and a
weighted average Gross Margin of
_____ basis points;
(iii)_____________ for those ___ ARM
Loans as to which such
characteristic applies, minimum
lifetime Mortgage Rates ranging
from ___% per annum to ___% per
annum, and a weighted average
minimum lifetime Mortgage Rate of
____% per annum;
(iv) ______________ for those ___ ARM
Loans as to which such
characteristic applies, maximum
lifetime Mortgage Rates ranging
from ___% per annum to ___% per
annum, and a weighted average
maximum lifetime Mortgage Rate of
___% per annum;
(v) Cut-off Date Balances ranging from
$____________ to $____________, and
an average Cut-off Date Balance of
$____________;
(vi) original terms to scheduled
maturity ranging from ___ months to
____ months, and a weighted average
original term to scheduled maturity
of ___ months;
(vii)remaining terms to scheduled
maturity ranging from ___ months to
____ months, and a weighted average
remaining term to scheduled
maturity of ____ months;
(viii) Cut-off Date LTV Ratios (that is,
in each case, a loan-to-value ratio
based upon (a) the Cut-off Date
Balance of the Mortgage Loan, and
S-9
<PAGE>
(b) the appraised value of the
related Mortgaged Property
determined at the time of
origination of such loan), ranging
from _____% to ____%, and a
weighted average Cut-off Date LTV
Ratio of _____%; and
(ix) ______________ for those ___
Mortgage Loans as to which such
characteristic was determinable,
Debt Service Coverage Ratios
(calculated as more particularly
described under "Description of the
Mortgage Pool--Additional Mortgage
Loan Information") ranging from
_______x to ______x, and a weighted
average Debt Service Coverage Ratio
of _______x.
The Mortgage Loans were originated
between 19__ and 19__.
Description of the
Certificates....................... The Certificates will be issued pursuant
to a Pooling and Servicing Agreement, to
be dated as of the Cut-off Date, among
the Depositor, the Master Servicer and
the Trustee (the "Pooling and Servicing
Agreement"), and will represent in the
aggregate the entire beneficial
ownership interest in a trust fund (the
"Trust Fund") consisting of the Mortgage
Pool and certain related assets.
A. Certificate Balance..... The aggregate Certificate Balance of the
Certificates as of the Delivery Date
will equal the Initial Pool Balance. The
Class A Certificates will have an
initial Certificate Balance of
$_______________, which represents
_____% of the Initial Pool Balance; the
Class B Certificates will have an
initial Certificate Balance of
$___________, which represents ___% of
the Initial Pool Balance; the Class C
Certificates will have an initial
Certificate Balance of $____________,
which represents ___% of the Initial
Pool Balance; and the Class R
Certificates will have a Certificate
Balance of zero. The Certificate Balance
of each Class of Certificates
outstanding at any time represents the
maximum amount that the holders thereof
are entitled to receive as distributions
allocable to principal from the cash
flow on the Mortgage Loans and other
assets in the Trust Fund. As more
specifically described herein, the
Certificate Balance of each Class of
Regular Certificates will be adjusted
from time to time on each Distribution
Date to reflect any reductions therein
resulting from the distribution of
principal of such Class. See
"Description of the
Certificates--General" herein.
Losses experienced with respect to the
Mortgage Loans or otherwise with respect
to the Trust Fund will not be applied to
reduce either the Certificate Balance or
the absolute entitlement to interest of
any Class of Regular Certificates, even
though such losses may cause one or more
of such Classes to receive less than the
full amount of principal and interest to
which it is entitled. As a result, the
aggregate Stated Principal Balance of
the Mortgage Pool at any time subsequent
to the initial Distribution Date may be
less than the aggregate Certificate
Balance of the Regular Certificates.
Such deficit will be allocated to the
respective Classes of Regular
Certificates (in each case to the extent
of its Certificate Balance) in reverse
alphabetical order of their Class
designations (i.e., C, B, A). Such
allocation will not reduce the
Certificate Balance of any such Class
and is intended solely to identify the
portion (the "Uncovered Portion") of the
Certificate Balance of each such Class
for which there is at such time no
corresponding principal amount of
Mortgage Loans. See "Description of the
Certificates--Subordination" herein.
S-10
<PAGE>
The "Stated Principal Balance" of each
Mortgage Loan outstanding at any time
represents the principal balance of such
Mortgage Loan ultimately due and payable
to the Certificateholders. As more
particularly described herein, the
Stated Principal Balance of each
Mortgage Loan initially will equal the
Cut-off Date Balance thereof and, on
each Distribution Date, will be reduced
by any payments or other collections (or
advances in lieu thereof) of principal
of such Mortgage Loan that are
distributed on the Certificates on such
date. See "Description of the
Certificates--Distributions--Certain
Calculations with Respect to Individual
Mortgage Loans" herein.
B. Pass-Through Rates...... The Pass-Through Rate applicable to the
Class A and Class B Certificates for the
initial Distribution Date will equal
_____% per annum. With respect to any
Distribution Date subsequent to the
initial Distribution Date, the
Pass-Through Rate for the Class A
Certificates and the Class B
Certificates will equal the Weighted
Average Effective Net Mortgage Rate for
such Distribution Date.
[The Pass-Through Rate applicable to the
Class C Certificates for any
Distribution Date will equal the
Weighted Average Effective Net Mortgage
Rate for such Distribution Date. The
Class R Certificates will have no
specified Pass-Through Rate.]
The "Weighted Average Effective Net
Mortgage Rate" for each Distribution
Date is the weighted average of the
applicable Effective Net Mortgage Rates
for the Mortgage Loans, weighted on the
basis of their respective Stated
Principal Balances immediately prior to
such Distribution Date. For purposes of
calculating the Weighted Average
Effective Net Mortgage Rate for any
Distribution Date, the "applicable
Effective Net Mortgage Rate" for each
Mortgage Loan is an annualized rate
equal to the Mortgage Rate in effect for
such Mortgage Loan as of the
commencement of the related Due Period,
(a) reduced by ___ basis points (the
Mortgage Rate, as so reduced, the "Net
Mortgage Rate"), and (b) if the accrual
of interest on such Mortgage Loan is
computed other than on the basis of a
360-day year consisting of twelve 30-day
months (which is the basis of accrual
for interest on the Regular
Certificates), then adjusted to reflect
that difference in computation.
The "Due Period" for each Distribution
Date will be the period that begins on
the ____ day of the month preceding the
month in which such Distribution Date
occurs and ends on the ____ day of the
month in which such Distribution Date
occurs. See "Description of the
Certificates--Distributions-Pass-Through
Rates" herein.
C. Distributions........... Distributions on the Certificates will
be made by the Master Servicer, to the
extent of available funds, on the 25th
day of each month or, if any such 25th
day is not a business day, then on the
next succeeding business day, beginning
in __________ 199__ (each, a
"Distribution Date"), to the holders of
record as of the close of business on
the last business day of the month
preceding the month of each such
distribution (each, a "Record Date").
Notwithstanding the above, the final
distribution on any Certificate will be
made after due notice by the Master
Servicer of the pendency of such
distribution and only upon presentation
and surrender of such Certificates at
the location to be specified in such
notice. The total of all payments or
other collections (or advances in lieu
thereof) on or in respect of the
Mortgage Loans that are available for
distribution to Certificateholders on
S-11
<PAGE>
any Distribution Date is herein referred
to as the "Available Distribution
Amount" for such date. See "Description
of the Certificates--Distributions
--Method, Timing and Amount" herein.
On each Distribution Date, for so long
as the Class A and/or Class B
Certificates remain outstanding, the
Master Servicer will (except as
otherwise described under "Description
of the Certificates--Termination"
herein) apply the Available Distribution
Amount for such date for the following
purposes and in the following order of
priority, in each case to the extent of
remaining available funds:
(1) to distributions of interest to the
holders of the Class A Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of the Class A
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(2) to distributions of principal to
the holders of the Class A
Certificates in an amount equal to
the sum of (a) the product of (i)
the Class A Certificates' Ownership
Percentage (as calculated
immediately prior to such
Distribution Date), multiplied by
(ii) the Scheduled Principal
Distribution Amount for such
Distribution Date, plus (b) the
entire Unscheduled Principal
Distribution Amount for such
Distribution Date (but not more
than would be necessary to reduce
the Certificate Balance of the
Class A Certificates to zero);
(3) to distributions of principal to
the holders of the Class A
Certificates in an amount equal to
any Uncovered Portion of the
Certificate Balance of the Class A
Certificates immediately prior to
such Distribution Date;
(4) to distributions of interest to the
holders of the Class B Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of the Class B
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(5) to distributions of principal to
the holders of the Class B
Certificates in an amount equal to
the sum of (a) the product of (i)
the Class B Certificates' Ownership
Percentage (as calculated
immediately prior to such
Distribution Date), multiplied by
(ii) the Scheduled Principal
Distribution Amount for such
Distribution Date, plus (b) if the
Class A Certificates have been
retired, then to the extent not
distributed in retirement thereof
on such Distribution Date, the
entire Unscheduled Principal
Distribution Amount for such
Distribution Date (but not more
than would be necessary to reduce
the Certificate Balance of the
Class B Certificates to zero);
(6) to distributions of principal to
the holders of the Class A
Certificates in an amount equal to
any Uncovered Portion of the
Certificate Balance of the Class B
Certificates immediately prior to
such Distribution Date (but not
more than would be necessary to
reduce the Certificate Balance of
the Class A Certificates to zero);
S-12
<PAGE>
(7) to distributions of principal to
the holders of the Class B
Certificates in an amount equal to
any Uncovered Portion of the
Certificate Balance of the Class B
Certificates immediately prior to
such Distribution Date, net of any
distributions of principal made on
such Distribution Date in respect
of the Class A Certificates as
described in the immediately
preceding clause (6);
(8) to distributions of interest to the
holders of the Class C Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of the Class C
Certificates for such Distribution
Date and, to the extent not
previously distributed, for all
prior Distribution Dates;
(9) to distributions of principal to
the holders of the Class C
Certificates in an amount equal to
the product of (a) the Class C
Certificates' Ownership Percentage
(as calculated immediately prior to
such Distribution Date), multiplied
by (b) the Scheduled Principal
Distribution Amount for such
Distribution Date;
(10) to distributions of principal to
the holders of the respective
Classes of Regular Certificates, in
alphabetical order of their Class
designations (i.e., A, B, C), in an
aggregate amount equal to any
Uncovered Portion of the
Certificate Balance of the Class C
Certificates immediately prior to
such Distribution Date (but, in
each case, not more than would be
necessary to reduce the related
Certificate Balance to zero); and
(11) to distributions to the holders of
the Class R Certificates in an
amount equal to the remaining
balance, if any, of the Available
Distribution Amount. See
"Description of the Certificates--
Distributions--Priority" herein.
The "Distributable Certificate Interest"
in respect of any Class of Regular
Certificates for any Distribution Date
will equal 30 days' interest at the
applicable Pass-Through Rate accrued on
the Certificate Balance of such Class of
Regular Certificates immediately prior
to such Distribution Date, reduced (to
not less than zero) by such Class of
Regular Certificates' allocable share
(in each case, calculated as described
herein) any Net Aggregate Prepayment
Interest Shortfall (as described below)
for such Distribution Date. The "Net
Aggregate Prepayment Interest Shortfall"
for any Distribution Date will be the
amount, if any, by which (a) the
aggregate of any Prepayment Interest
Shortfalls incurred during the related
Due Period exceeds (b) the aggregate of
any Prepayment Interest Excesses and
prepayment premiums collected during the
related Due Period. A "Prepayment
Interest Shortfall" is a shortfall in
the collection of a full month's
interest (net of related servicing fees)
on any Mortgage Loan by reason of a full
or partial principal prepayment made
prior to its Due Date in any Due Period.
A "Prepayment Interest Excess" is a
payment of interest (net of related
servicing fees) made in connection with
any full or partial prepayment of a
Mortgage Loan subsequent to its Due Date
in any Due Period, which payment of
interest is intended to cover the period
on and after such Due Date. See
"Description of the
Certificates-Distributions-Distributable
Certificate Interest" herein.
The "Scheduled Principal Distribution
Amount" for any Distribution Date will
equal the aggregate of all scheduled
payments of principal (including the
S-13
<PAGE>
principal portion of any Balloon
Payments) due on the Mortgage Loans
during or, if and to the extent not
previously received or advanced and
distributed on prior Distribution Dates,
prior to the related Due Period that
were either received from the borrowers
as of the ___ day of the month in which
such Distribution Date occurs or
advanced by the Master Servicer in
respect of such Distribution Date. The
"Unscheduled Principal Distribution
Amount" for any Distribution Date will,
in general, equal the aggregate of (i)
all prepayments of principal of the
Mortgage Loans received from the
borrowers during the related Due Period,
and (ii) any other unscheduled
collections on or in respect of the
Mortgage Loans and any Mortgaged
Properties acquired in respect of
defaulted Mortgage Loans through
foreclosure, deed in lieu of foreclosure
or otherwise (each, an "REO Property"),
which other unscheduled collections were
received during the related Due Period
and were identified and applied by the
Master Servicer as recoveries of
previously unadvanced principal of the
related Mortgage Loans. The respective
amounts which constitute the Scheduled
Principal Distribution Amount and
Unscheduled Principal Distribution
Amount for any Distribution Date are
herein collectively referred to from
time to time as the "Distributable
Principal". The "Ownership Percentage"
evidenced by any Class of Certificates
as of any date of determination will
equal a fraction, expressed as a
percentage, the numerator of which is
the then Certificate Balance of such
Class of Certificates, net (in the case
of a Class of Regular Certificates) of
any Uncovered Portion of such
Certificate Balance, and the denominator
of which is the then aggregate Stated
Principal Balance of the Mortgage Pool.
See "Description of the
Certificates--Distributions--Scheduled
Principal Distribution Amount and
Unscheduled Principal Distribution
Amount" herein.
Certain Investment Considerations;
Mortgage Loan Prepayments......... The yield on the Offered Certificates of
either class will depend on, among other
things, the Pass-Through Rate for such
Certificates. The yield on any Offered
Certificate that is purchased at a
discount or premium will also be
affected by the rate and timing of
distributions in respect of principal on
such Certificate, which in turn will be
affected by (i) the rate and timing of
principal payments (including principal
prepayments) on the Mortgage Loans, (ii)
the availability from time to time of an
amount other than Distributable
Principal to amortize the Class Balances
of such Certificates and (iii) the
extent to which the items described in
subclauses (i) and (ii) are applied on
any Distribution Date in reduction of
the Certificate Balance of the Class to
which such Certificate belongs, which
will be dependent, in part, on the
nature of such amounts. See "Description
of the Certificates--Distributions--
Priority" and "--Distributions--
Calculation of Principal Distributions"
herein.
Mortgage Loan Prepayments. The actual
rate of prepayment of principal on the
Mortgage Loans cannot be predicted. The
Mortgage Loans may be prepaid at any
time, subject, in the case of ____
Mortgage Loans, to payment of a
Prepayment Premium. The investment
performance of the Offered Certificates
may vary materially and adversely from
the investment expectations of investors
due to prepayments on the Mortgage Loans
being higher or lower than anticipated
by investors. The actual yield to the
holder of an Offered Certificate may not
be equal to the yield anticipated at the
time of purchase of the Certificate or,
notwithstanding that the actual yield is
equal to the yield anticipated at that
time, the total return on investment
expected by the investor or the expected
S-14
<PAGE>
weighted average life of the Certificate
may not be realized. These effects are
summarized below. For a discussion of
certain factors affecting prepayment of
the Mortgage Loans, including the effect
of Prepayment Premiums, see "Risk
Factors" and "Yield and Maturity
Considerations" herein and "Yield
Considerations" in the Prospectus. In
deciding whether to purchase any Offered
Certificates, an investor should make an
independent decision as to the
appropriate prepayment assumptions to be
used.
Yield. If an investor purchases an
Offered Certificate at an amount equal
to its unpaid principal balance (that
is, at "par"), the effective yield to
that investor (assuming that there are
no interest shortfalls and assuming the
full return of the purchaser's
investment principal) will approximate
the pass-through rate on that
Certificate. If an investor pays less or
more than the unpaid principal balance
of the Certificate (that is, buys the
Certificate at a "discount" or
"premium", respectively), then, based on
the assumptions set forth in the
preceding sentence, the effective yield
to the investor will be higher or lower,
respectively, than the pass-through rate
on that Certificate, because such
discount or premium will be amortized
over the life of the Certificate. Any
deviation in the actual rate of
prepayments on the Mortgage Loans from
the rate assumed by the investor will
affect the period of time over which, or
the rate at which, the discount or
premium will be amortized and,
consequently, will change the investor's
actual yield from that anticipated. An
investor that purchases an Offered
Certificate at a discount should
carefully consider the risk that a
slower than anticipated rate of
principal payments on the Mortgage Loans
will result in an actual yield that is
lower than such investor's expected
yield. An investor that purchases any
Offered Certificate at a premium should
consider the risk that a faster than
anticipated rate of principal payments
on the Mortgage Loans will result in an
actual yield that is lower than such
investor's expected yield. Insofar as an
investor's initial investment in any
Offered Certificate is returned in the
form of payments of principal thereon,
there can be no assurance that such
amounts can be reinvested in a
comparable alternative investment with a
comparable yield.
Reinvestment Risk. As stated above, if
an Offered Certificate is purchased at
par, fluctuations in the rate of
distributions of principal will
generally not affect the yield to
maturity of that Certificate. However,
the total return on any purchaser's
investment, including an investor who
purchases at par, will be reduced to the
extent that principal distributions
received on its Certificate cannot be
reinvested at a rate as high as the
pass-through rate of the Certificate.
Investors in the Offered Certificates
should consider the risk that rapid
rates of prepayments on the Mortgage
Loans may coincide with periods of low
prevailing market interest rates. During
periods of low prevailing market
interest rates, mortgagors may be
expected to prepay or refinance Mortgage
Loans that carry interest rates
significantly higher than then-current
interest rates for mortgage loans.
Consequently, the amount of principal
distributions available to an investor
for reinvestment at such low prevailing
interest rates may be relatively large.
Conversely, slow rates of prepayments on
the Mortgage Loans may coincide with
periods of high prevailing market
interest rates. During such periods, it
is less likely that mortgagors will
elect to prepay or refinance Mortgage
Loans and, therefore, the amount of
principal distributions available to an
investor for reinvestment at such high
prevailing interest rates may be
relatively small.
S-15
<PAGE>
Weighted Average Life Volatility. One
indication of the effect of varying
prepayment rates on a security is the
change in its weighted average life. The
"weighted average life" of an Offered
Certificate is the average amount of
time that will elapse between the date
of issuance of the Certificate and the
date on which each dollar in reduction
of the principal balance of the
Certificate is distributed to the
investor. Low rates of prepayment may
result in the extension of the weighted
average life of a Certificate; high
rates, in the shortening of such
weighted average life. In general, if
the weighted average life of a
Certificate purchased at par is extended
beyond that initially anticipated, such
Certificate's market value may be
adversely affected, even though the
yield to maturity on the Certificate is
unaffected. The weighted average lives
of the Offered Certificates, under
various prepayment scenarios, are
displayed in the table appearing under
the heading "Yield and Maturity
Considerations--Weighted Average Life"
herein.
[The following disclosure is applicable
to Stripped Interest Certificates... The
Stripped Interest Certificates. The
Class S Certificates are interest-only
Certificates and are not entitled to any
distributions in respect of principal.
The yield to maturity of the Class S
Certificates will be especially
sensitive to the prepayment, repurchase
and default experience on the Mortgage
Loans, which may fluctuate significantly
from time to time. A rate of principal
payments that is more rapid than
expected by investors will have a
material negative effect on the yield to
maturity of the Class S Certificates.
See "Risk Factors--Yield Sensitivity of
the Class S Certificates" and "Yield and
Maturity Considerations--Yield
Sensitivity of the Class S Certificates"
herein.]
P&I Advances......................... [Subject to a recoverability
determination as described herein, the
Master Servicer is required to make
advances (each, a "P&I Advance") with
respect to each Distribution Date in an
amount that is generally equal to the
aggregate of: (i) all delinquent
payments of principal and interest (net
of related servicing fees) on the
Mortgage Loans, other than delinquent
Balloon Payments, scheduled to be due
during the related Due Period; (ii) in
the case of each Mortgage Loan
delinquent in respect of its Balloon
Payment, an amount equal to 30 days'
interest thereon (net of related
servicing fees), but only to the extent
that the related borrower has not made a
payment sufficient to cover such amount
under any forbearance arrangement or
otherwise, which payment has been
included in the Available Distribution
Amount for such Distribution Date; and
(iii) in the case of each REO Property,
an amount equal to 30 days' imputed
interest with respect thereto (net of
related servicing fees), but only to the
extent that such amount is not covered
by any net income from such REO Property
included in the Available Distribution
Amount for such Distribution Date.
As more fully described herein, the
Master Servicer will be entitled to
interest on any P&I Advances made, and
certain servicing expenses incurred, by
it or on its behalf. Such interest will
accrue from the date any such P&I
Advance is made or such servicing
expense is incurred at an annualized
rate equal to ____% (the "Master
Servicer Reimbursement Rate") and will
be paid, contemporaneously with the
reimbursement of such P&I Advance or
such servicing expense, out of general
collections on the Mortgage Pool then on
deposit in the Certificate Account. See
"Description of the Certificates--P&I
Advances" herein and "Description of the
Certificates--Advances in Respect of
Delinquencies" and "Description of the
S-16
<PAGE>
Pooling Agreements--Certificate Account"
in the Prospectus.]
Subordination........................ The rights of holders of the Class B
Certificates and each Class of the
Private Certificates (collectively, the
"Subordinate Certificates") to receive
distributions of amounts collected or
advanced on the Mortgage Loans will, in
each case, be subordinated, to the
extent described herein, to the rights
of holders of the Class A Certificates
and each other Class of Subordinate
Certificates, if any, with an earlier
alphabetical Class designation. This
subordination is intended to enhance the
likelihood of timely receipt by the
holders of the Class A Certificates of
the full amount of Distributable
Certificate Interest payable in respect
of such Certificates on each
Distribution Date, and the ultimate
receipt by such holders of principal
equal to the entire Certificate Balance
of the Class A Certificates. Similarly,
but to a lesser degree, this
subordination is also intended to
enhance the likelihood of timely receipt
by the holders of the Class B
Certificates of the full amount of
Distributable Certificate Interest
payable in respect of such Certificates
on each Distribution Date, and the
ultimate receipt by such holders of
principal equal to the entire
Certificate Balance of the related Class
of Certificates. The protection afforded
to the holders of each Class of Offered
Certificates by means of the
subordination of each other Class of
Certificates with a later alphabetical
Class designation will be accomplished
by the application of the Available
Distribution Amount on each Distribution
Date in the order described above in
this Summary under "Description of the
Certificates--Distributions". No other
form of Credit Support will be available
for the benefit of the holders of the
Offered Certificates.
Optional Termination................. At its option, the Master Servicer may
purchase all of the Mortgage Loans and
REO Properties, and thereby effect
termination of the Trust Fund and early
retirement of the then outstanding
Certificates, on any Distribution Date
on which the remaining aggregate Stated
Principal Balance of the Mortgage Pool
is less than ___% of the Initial Pool
Balance. See "Description of the
Certificates--Termination" herein and in
the Prospectus.
Certain Federal Income
Tax Consequences.................. Beneficial owners of the Offered
Certificates will be required to report
income thereon in accordance with the
accrual method of accounting. [It is
anticipated that the Class _____
Certificates will be issued with
original issue discount in an amount
equal to the excess of the initial Class
Certificate Balances thereof (plus _____
days of interest at the pass-through
rates thereon) over their respective
issue prices (including accrued
interest). It is further anticipated
that the Class _____ Certificates will
be issued at a premium and that the
Class _____ Certificates will be issued
with de minimis original issue discount
for federal income tax purposes.
Although not free from doubt, it is
anticipated that the Class _____
Certificates will be treated as issued
with original issue discount in an
amount equal to the excess of all
distributions of principal and interest
thereon over their issue price
(including accrued interest), and the
Company intends to report income in
respect of such Class of Certificates in
this manner.] See "Certain Federal
Income Tax Consequences" in the
Prospectus.
S-17
<PAGE>
ERISA Considerations................. A fiduciary of any employee benefit plan
or other retirement arrangement subject
to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code
(a "Plan") should review carefully with
its legal advisors whether the purchase
or holding of Offered Certificates could
give rise to a transaction that is
prohibited or is not otherwise permitted
either under ERISA or Section 4975 of
the Code or whether there exists any
statutory or administrative exemption
applicable to an investment therein.
[The U.S. Department of Labor has issued
to The Chase Manhattan Corporation
(formerly known as Chemical Banking
Corporation) an individual prohibited
transaction exemption, Prohibited
Transaction Exemption 90-33, that
generally exempts from the application
of certain of the prohibited transaction
provisions of Section 406 of ERISA and
the excise taxes imposed on such
prohibited transactions by Section
4975(a) and (b) of the Internal Revenue
Code of 1986, as amended (the "Code"),
transactions relating to the purchase,
sale and holding of pass-through
certificates underwritten by the
Underwriter, as an affiliate of The
Chase Manhattan Corporation, and the
servicing and operation of related asset
pools, provided that certain conditions
are satisfied.]
[The Depositor expects that Prohibited
Transaction Exemption 90-33 will
generally apply to the Class A
Certificates, but it will not apply to
the Class B Certificates. As a result,]
no transfer of a [Class B] Certificate
or any interest therein may be made to a
Plan or to any person who is directly or
indirectly purchasing such [Class B]
Certificate or interest therein on
behalf of, as named fiduciary of, as
trustee of, or with assets of a Plan,
unless the prospective transferee (at
its own expense) provides the
Certificate Registrar (as identified
herein) with a certification and an
opinion of counsel which establish to
the Certificate Registrar's satisfaction
that such transfer will not result in a
violation of Section 406 of ERISA or
Section 4975 of the Code or cause the
Master Servicer or the Trustee to be
deemed a fiduciary of such Plan or
result in the imposition of an excise
tax under Section 4975 of the Code. See
"ERISA Considerations" herein and in the
Prospectus.
Rating............................... It is a condition of their issuance that
the Class A and Class B Certificates be
rated not lower than "___" and "___",
respectively, by _______________________
([collectively,] the "Rating
Agenc[ies]"). A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to
revision or withdrawal at any time by
the assigning rating organization. A
security rating does not address the
frequency of prepayments of Mortgage
Loans, or the corresponding effect on
yield to investors. [The following
disclosure is applicable to Stripped
Interest Certificates... A security
rating does not address the frequency or
likelihood of prepayments (whether
voluntary or involuntary) of Mortgage
Loans, or the possibility that, as a
result of prepayments, investors in the
Class S Certificates may realize a lower
than anticipated yield or may fail to
recover fully their initial investment.]
See "Rating" herein and "Risk
Factors--Limited Nature of Ratings" in
the Prospectus.
Legal Investment..................... [The Class A Certificates will
constitute "mortgage related securities"
for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA")
for so long as they are rated in one of
the two highest ratings categories by
one or more nationally recognized
statistical rating organizations and, as
such, are legal investments for certain
entities to the extent provided in
S-18
<PAGE>
SMMEA. Such investments, however, will
be subject to general regulatory
considerations governing investment
practices under state and federal law.
In addition, institutions whose
investment activities are subject to
review by federal or state regulatory
authorities may be or may become subject
to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of
mortgage related securities.
[The Class B Certificates will not be
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984. As a result,
the appropriate characterization of the
Class B Certificates under various legal
investment restrictions, and thus the
ability of investors subject to these
restrictions to purchase the Class B
Certificates, may be subject to
significant interpretative
uncertainties.]
Investors should consult their own legal
advisors to determine whether and to
what extent the Offered Certificates
constitute legal investments for them.
See "Legal Investment" herein and in the
Prospectus.
S-19
<PAGE>
RISK FACTORS
Prospective purchasers of Offered Certificates should consider, among other
things, the following risk factors (as well as the risk factors set forth under
"Risk Factors" in the Prospectus) in connection with an investment therein.
The Certificates"
Limited Liquidity. There is currently no secondary market for the Offered
Certificates. The Depositor has been advised by the Underwriter that it
currently intends to make a secondary market in the Offered Certificates;
however, it has no obligation to do so and any market making may be discontinued
at any time. There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will provide holders
of Offered Certificates with liquidity of investment or that it will continue
for the life of the Offered Certificates. The Offered Certificates will not be
listed on any securities exchange. See "Risk Factors--Secondary Market" in the
Prospectus.
Variability in Yield; Priority of Payments. The yield on any Offered
Certificate will depend on, among other things, the Pass-Through Rate in effect
from time to time for such Certificate, which, for any Distribution Date, will
equal the Weighted Average Effective Net Mortgage Rate for such date.
Accordingly, the yield on the Offered Certificates will be sensitive to
adjustments to the Mortgage Rates on the ARM Loans and to changes in the
relative composition of the Mortgage Pool as a result of scheduled amortization,
voluntary prepayments and involuntary liquidations of Mortgage Loans. See
"Description of the Certificates--Distributions--Pass-Through Rate" herein.
The yield on any Offered Certificate that is purchased at a discount or
premium will also be affected by the rate and timing of principal payments on
such Certificate, which in turn will be affected by (i) the rate and timing of
principal payments (including principal prepayments) and other principal
collections on the Mortgage Loans, (ii) the availability from time to time of
amounts other than Distributable Principal to amortize the Certificate Balances
of the respective Classes of Certificates, and (iii) the extent to which the
items described in subclauses (i) and (ii) are applied on any Distribution Date
in reduction of the Certificate Balance of the Class to which such Certificate
belongs. As and to the extent described herein, the holders of each Class of
Offered Certificates will be entitled to receive on each Distribution Date their
allocable share (calculated on the basis of the Ownership Percentage evidenced
by such Class of Certificates immediately prior to such date) of the Scheduled
Principal Distribution Amount for such Distribution Date; however, the
Unscheduled Principal Distribution Amount for each Distribution Date will be
distributable entirely to the holders of the Class A Certificates, until the
Certificate Balance thereof is reduced to zero, and will thereafter be
distributable entirely to the holders of the Class B Certificates, until the
Certificate Balance thereof is reduced to zero. The amount of the Unscheduled
Principal Distribution Amount for any Distribution Date will be dependent in
part upon the amount of principal prepayments received during the related Due
Period. See "--The Mortgage Loans--Prepayments" herein. In addition, as and to
the extent described herein, distributions in respect of an Uncovered Portion of
the Certificate Balance of any Class of Regular Certificates will be applied, to
the extent of such Uncovered Portion, in reduction of the Certificate Balance(s)
of such Class of Regular Certificates and each other Class of Regular
Certificates, if any, with an earlier alphabetical Class designation, in
alphabetical order of such Class designations. See "Description of the
Certificates--Distributions--Priority" and "--Distributions--Scheduled Principal
Distribution Amount and Unscheduled Principal Distribution Amount" herein.
Because it is impossible to predict accurately the timing and amount of
principal prepayments and other unscheduled recoveries of principal, if any,
that will be received, or the availability from time to time of any amounts
other than Distributable Principal to amortize the Certificate Balances of the
respective Classes of Certificates, investors may find it difficult to analyze
the effect that such items might have on the yield and weighted average lives of
the Offered Certificates.
Furthermore, the yield on any Offered Certificate also will be affected by
the rate and timing of delinquencies and defaults on the Mortgage Loans and the
severity of ensuing losses. As and to the extent described herein, the Private
Certificates are subordinate in right and time of payment to the Offered
Certificates and will bear shortfalls in collections and losses incurred in
respect of the Mortgage Loans prior to the Offered Certificates; and the Class B
Certificates are subordinate in right and time of payment to the Class A
Certificates and will bear shortfalls in collections and losses incurred in
respect of the Mortgage Loans prior to the Class A Certificates. See
"Description of the Mortgage Pool", "Description of the
Certificates--Distributions" and "--Subordination" and "Yield and Maturity
Considerations" herein and "Yield and Maturity Considerations" in the
Prospectus.
S-20
<PAGE>
[The following disclosure is applicable to Stripped Interest Certificates...
Yield Sensitivity of the Class S Certificates. The yield to maturity of the
Class S Certificates will be especially sensitive to the prepayment, repurchase
and default experience on the Mortgage Loans, which may fluctuate significantly
from time to time. A rate of principal payments that is more rapid than expected
by investors will have a material negative effect on the yield to maturity of
the Class S Certificates. There can be no assurance that the Mortgage Loans will
prepay at any particular rate. Further, because the Notional Amount of the Class
S Certificates is equal to the Certificate Balance of the Class A Certificates,
any amount distributable in respect of principal of the Class A Certificates
will have a negative effect on the yield to maturity of the Class S
Certificates. Prospective investors in the Class S Certificates should fully
consider the associated risks, including the risk that such investors may not
fully recover their initial investment. See "Yield and Maturity
Considerations--Yield Sensitivity of the Class S Certificates" herein.]
The Mortgage Loans
Nature of the Mortgaged Properties. The Mortgaged Properties consist solely
of multifamily rental properties. Lending on the security of multifamily
residential property is generally viewed as exposing the lender to a greater
risk of loss than lending upon the security of one- to four-family residences.
In contrast to lending on the security of single-family residences, multifamily
residential lending typically involves larger loans to a single obligor or group
of related obligors. Furthermore, the repayment of loans secured by income
producing properties is typically dependent upon the successful operation of the
related real estate project, which in turn is dependent upon, in the case of
multifamily rental properties, among other things, the supply and demand for
rental units in the relevant locale and the performance of the managing agent.
If the cash flow from the project is reduced (for example, if leases are not
obtained or renewed), the obligor's ability to repay the loan may be impaired
and the resale value of the particular property may decline. In addition, the
successful operation of a multifamily rental property may be affected by
circumstances outside the control of the borrower or lender, such as the
deterioration of the surrounding neighborhood, the imposition of rent control or
changes in the tax laws. See "Risk Factors--Risks Associated with Certain
Mortgage Loans and Mortgaged Properties" in the Prospectus.
Limited Recourse. The Mortgage Loans are not insured or guaranteed by any
governmental entity or private mortgage insurer. The Depositor has not
undertaken any evaluation of the significance of the recourse provisions of any
of a number of the Mortgage Loans that provide for recourse against the related
borrower or another person in the event of a default. Accordingly, investors
should consider all of the Mortgage Loans to be non-recourse loans as to which
recourse in the case of default will be limited to the specific property and
such other assets, if any, as were pledged to secure a Mortgage Loan.
Environmental Law Considerations. [The Mortgage Loan Seller has represented
and warranted in the Mortgage Loan Purchase Agreement that an environmental site
assessment was conducted in connection with the origination of each Mortgage
Loan. Furthermore, the Mortgage Loan Seller has agreed that, in the event of a
material breach of such representation and warranty, it will either cure the
breach or repurchase the affected Mortgage Loan. The Mortgage Loan Seller's
representations and warranties regarding the Mortgage Loans set forth in the
Mortgage Loan Purchase Agreement will be assigned, together with the related
cure and repurchase obligations, by the Depositor to the Trustee in connection
with the Depositor's assignment of its interests in the Mortgage Loans.
Furthermore, the Mortgage Loan Seller's repurchase obligation will constitute
the sole remedy to Certificateholders and the Trustee for any material breach of
such representation and warranty, and neither the Depositor nor any of its
affiliates will be obligated to repurchase the affected Mortgage Loan if the
Mortgage Loan Seller defaults on its obligation to do so. See "Description of
the Mortgage Pool--Representations and Warranties; Repurchases" herein.]
The Pooling and Servicing Agreement requires that the Master Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto or assuming its operation. Such prohibition effectively
precludes enforcement of the security for the related Mortgage Note until a
satisfactory environmental site assessment is obtained (or until any required
remedial action is thereafter taken), but will decrease the likelihood that the
Trust Fund will become liable for a material adverse environmental condition at
the Mortgaged Property. However, there can be no assurance that the requirements
of the Pooling and Servicing Agreement will effectively insulate the Trust Fund
from potential liability for a materially adverse environmental condition at any
Mortgaged Property. Given the limited scope of environmental site assessments,
an environmental condition that may affect or exist on or around a particular
S-21
<PAGE>
Mortgaged Property may not have been discovered during the course of such
environmental site assessment (including regulatory file reviews). Moreover, the
severity of an environmental condition discovered during an environmental site
assessment may not have been revealed fully because of the limited nature of the
investigation. In addition, environmental conditions may develop after
completion of the environmental site assessments, by operation of the property
or otherwise. See "Description of the Pooling Agreements--Realization Upon
Defaulted Mortgage Loans", "Risk Factors--Environmental Risks" and "Certain
Legal Aspects of Mortgage Loans--Environmental Legislation" in the Prospectus.
Geographic Concentration. ______ Mortgage Loans, which represent ____% of
the Initial Pool Balance, are secured by liens on Mortgaged Properties located
in _____________. In general, that concentration increases the exposure of the
Mortgage Pool to any adverse economic or other developments that may occur in
_________. In recent periods, _____________ (along with other regions of the
United States) has experienced a significant downturn in the market value of
real estate.
Concentration of Mortgage Loans and Borrowers. Several of the Mortgage
Loans have Cut-off Date Balances that are substantially higher than the average
Cut-off Date Balance. In general, concentrations in a mortgage pool of loans
with larger-than-average balances can result in losses that are more severe,
relative to the size of the pool, than would be the case if the aggregate
balance of the pool were more evenly distributed. Concentration of borrowers
also poses increased risks. For instance, if a borrower that owns several
Mortgaged Properties experiences financial difficulty at one Mortgaged Property,
or at another income-producing property that it owns, it could attempt to avert
foreclosure by filing a bankruptcy petition that might have the effect of
interrupting Monthly Payments for an indefinite period on all of the related
Mortgage Loans.
Adjustable Rate Mortgage Loans. ________ of the Mortgage Loans, which
represent ____% of the Initial Pool Balance, are ARM Loans. Increases in the
required Monthly Payments on ARM Loans in excess of those assumed in the
original underwriting of such loans may result in a default rate higher than
that on mortgage loans with fixed mortgage rates.
Balloon Payments. None of the Mortgage Loans is fully amortizing over its
term to maturity. Thus, each Mortgage Loan will have a substantial payment (that
is, a Balloon Payment) due at its stated maturity unless prepaid prior thereto.
Loans with Balloon Payments involve a greater risk to the lender than
self-amortizing loans because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to refinance the loan or
to sell the related mortgaged property. See "Risk Factors--Balloon Payments" in
the Prospectus.
In order to maximize recoveries on defaulted Mortgage Loans, the Pooling
and Servicing Agreement enables the Master Servicer to extend and modify
Mortgage Loans that are in material default or as to which a payment default
(including the failure to make a Balloon Payment) is imminent; subject, however,
to the limitations described under "Servicing of the Mortgage
Loans--Modifications, Waivers and Amendments" herein. There can be no assurance,
however, that any such extension or modification will increase the present value
of recoveries in a given case. Any delay in collection of a Balloon Payment that
would otherwise be distributable in respect of a Class of Offered Certificates,
whether such delay is due to borrower default or to modification of the related
Mortgage Loan by the Master Servicer, will likely extend the weighted average
life of such Class of Offered Certificates. See "Yield and Maturity
Considerations" herein and in the Prospectus.
DESCRIPTION OF THE MORTGAGE POOL
General
The Trust Fund will consist primarily of ___ conventional, balloon Mortgage
Loans with an Initial Pool Balance of $_______________. Each Mortgage Loan is
evidenced by a promissory note (a "Mortgage Note") and secured by a mortgage,
deed of trust or other similar security instrument (a "Mortgage") that creates a
first mortgage lien on a fee simple estate in a multifamily rental property (a
"Mortgaged Property"). All percentages of the Mortgage Loans, or of any
specified group of Mortgage Loans, referred to herein without further
description are approximate percentages by aggregate Cut-off Date Balance.
S-22
<PAGE>
The Mortgage Loans will be acquired by the Depositor on or before the
Delivery Date from __________________ (the "Mortgage Loan Seller"), which either
originated the Mortgage Loans or acquired them from their respective
originators. See "--The Mortgage Loan Seller" herein.
The Mortgage Loans were originated between 19__ and 19__. [While the
Depositor has caused to be undertaken a limited review of the records and files
related to the Mortgage Loans in connection with the issuance of the
Certificates, none of the Mortgage Loans was "re-underwritten" or subjected to
the type of review that would typically be made in respect of a newly originated
mortgage loan. All of the Mortgaged Properties were inspected by or on behalf of
the Depositor within the ____ month period preceding the Cut-off Date to assess
their general condition, which in virtually all cases was determined to be
average or better. However, no Mortgaged Property was re-appraised by or on
behalf of the Depositor to assess its current value, and no evaluation was made
as to the extent of deferred maintenance at any Mortgaged Property or whether
adequate reserves, if any, have been escrowed to cover such.]
Certain Payment Characteristics
___ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, have Due Dates that occur on the first day of each month. The remaining
Mortgage Loans have Due Dates that occur on the ______ (____% of the Mortgage
Loans), _____ (____% of the Mortgage Loans), _____ (____% of the Mortgage
Loans), and _______ (____% of the Mortgage Loans) day of each month.
____________ of the Mortgage Loans (the "ARM Loans"), which represent ____%
of the Initial Pool Balance, bear interest at Mortgage Rates that are subject to
adjustment on periodically occurring Interest Rate Adjustment Dates by adding
the related Gross Margin to the value of a base index (an "Index"), subject in
______ cases to rounding conventions and lifetime minimum and/or maximum
Mortgage Rates and, in the case of ________ Mortgage Loans, which represent
____% of the Initial Pool Balance, to periodic minimum and/or maximum Mortgage
Rates. The remaining Mortgage Loans (the "Fixed Rate Loans") bear interest at
fixed Mortgage Rates. None of the ARM Loans is convertible into a Fixed Rate
Loan.
[Identify Mortgage Loan Index] The adjustments to the Mortgage Rates on the
ARM Loans may in each case be based on the value of the related Index as
available a specified number of days prior to an Interest Rate Adjustment Date,
or may be based on the value of the related Index as most recently published as
of an Interest Rate Adjustment Date or as of a designated date preceding an
Interest Rate Adjustment Date. ____ of the ARM Loans, which represent ___% of
the Initial Pool Balance, provide for Interest Rate Adjustment Dates that occur
monthly; ____ of the ARM Loans, which represent ___% of the Initial Pool
Balance, provide for Interest Rate Adjustment Date that occur semi-annually; and
the remaining ARM Loans provide for Interest Rate Adjustment Dates that occur
annually.
The Monthly Payments on each ARM Loan are subject to adjustment on each
Payment Adjustment Date to an amount that would amortize fully the principal
balance of the Mortgage Loan over its then remaining amortization schedule and
pay interest at the Mortgage Rate in effect during the one month period
preceding such Payment Adjustment Date. The ARM Loans provide for Payment
Adjustment Dates that occur on the Due Date following each related Interest Rate
Adjustment Date.
All of the Mortgage Loans provide for monthly payments of principal based
on amortization schedules significantly longer than the remaining terms of such
Mortgage Loans, thereby leaving substantial principal amounts due and payable
(each such payment, a "Balloon Payment") on their respective maturity dates,
unless prepaid prior thereto.
No Mortgage Loan currently prohibits principal prepayments; however,
[certain] of the Mortgage Loans impose fees or penalties ("Prepayment Premiums")
in connection with full or partial prepayments. Prepayment Premiums are payable
to the Master Servicer as additional servicing compensation, to the extent not
otherwise applied to offset Prepayment Interest Shortfalls, and may be waived by
the Master Servicer in accordance with the servicing standard described under
"Servicing of the Mortgage Loans--General" herein.
[The Index]
Describe Index and include 5 year history.
S-23
<PAGE>
Additional Mortgage Loan Information
The following tables set forth the specified characteristics of, in each
case as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage
Loans. The sum in any column may not equal the indicated total due to rounding.
The following table sets forth the range of Mortgage Rates on the Mortgage
Loans as of the Cut-off Date:
<TABLE>
<CAPTION>
Mortgage Rates as of the Cut-off Date
Number of Aggregate Percent by
Mortgage Cut-off Percent by Aggregate Cut-off
Range of Mortgage Rates(%) Loans Date Balance Number Date Balance
- -------------------------- --------- ------------ ---------- ------------------
<S> <C> <C> <C> <C>
--------- ------------ ---------- ------------------
Total .............................
========= ============ ========== ==================
</TABLE>
Weighted Average
Mortgage Rate (All Loans): ______% per annum
Weighted Average
Mortgage Rate (ARM Loans): ____% per annum
Weighted Average
Mortgage Rate (Fixed Rate Loans): _____% per annum
The following table sets forth the range of Gross Margins for the ARM
Loans:
<TABLE>
<CAPTION>
Gross Margins for the ARM Loans
Number of Aggregate Percent by
ARM Cut-off Percent by Aggregate Cut-off
Range of Gross Margins (%) Loans Date Balance Number Date Balance
- -------------------------- --------- ------------ ---------- ------------------
<S> <C> <C> <C> <C>
--------- ------------ ---------- ------------------
Total .............................
========= ============ ========== ==================
</TABLE>
Weighted Average
Gross Margin: ______%
S-24
<PAGE>
The following table sets forth the frequency of adjustments to the Mortgage
Rates and Monthly Payments of the ARM Loans.
<TABLE>
<CAPTION>
Frequency of Adjustments to Mortgage Rates and Monthly Payments for the ARM Loans
Monthly Percent by
Mortgage Rate Payment Number of Aggregate Aggregate
Adjustment Adjustment Mortgage Cut-off Percent by Cut-off
Frequency Frequency Loans Date Balance Number Date Balance
------------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Total ..........
=================== ================ ================ ================ ================ ================
</TABLE>
The following table sets forth the range of maximum lifetime Mortgage Rates
for the ARM Loans to which such characteristic applies:
<TABLE>
<CAPTION>
Maximum Lifetime Mortgage Rates for the ARM Loans
Number of Aggregate Percent by
Range of Maximum Lifetime ARM Cut-off Percent by Aggregate Cut-off
Mortgage Rates (%) Loans Date Balance Number Date Balance
------------------------------- --------------- --------------- --------------- -----------------------
<S> <C> <C> <C> <C>
--------------- --------------- --------------- -----------------------
Total ..............................
=============== =============== =============== =======================
</TABLE>
Weighted Average Maximum Lifetime
Mortgage Rate (ARM Loans): ______% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
S-25
<PAGE>
The following table sets forth the range of minimum lifetime Mortgage Rates
for the ARM Loans to which such characteristic applies:
<TABLE>
<CAPTION>
Minimum Lifetime Mortgage Rates for the ARM Loans
Number of Aggregate Percent by
Range of Minimum Lifetime ARM Cut-off Percent by Aggregate Cut-off
Mortgage Rates (%) Loans Date Balance Number Date Balance
------------------------------- --------------- --------------- --------------- -----------------------
<S> <C> <C> <C> <C>
--------------- --------------- --------------- -----------------------
Total ..............................
=============== =============== =============== =======================
</TABLE>
Weighted Average Minimum Lifetime
Mortgage Rate (ARM Loans): ______% per annum (A)
- -----------------
(A) This calculation does not include the _____ ARM Loans without minimum
lifetime Mortgage Rates.
The following table sets forth the range of Cut-off Date Balances of the
Mortgage Loans:
<TABLE>
<CAPTION>
Cut-off Date Balances
Number of Aggregate Percent by
Cut-off Date Mortgage Cut-off Percent by Aggregate Cut-off
Balance Range (%) Loans Date Balance Number Date Balance
------------------------------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
---------------- ---------------- ---------------- -----------------------
Total ...............................
================ ================ ================ =======================
</TABLE>
Average Cut-off Date
Balance (All Loans): $___________
Average Cut-off Date
Balance (ARM Loans): $___________
Average Cut-off Date
Balance (Fixed Rate Loans): $___________
S-26
<PAGE>
The following tables set forth the original and remaining terms to stated
maturity (in months) of the Mortgage Loans:
<TABLE>
<CAPTION>
Original Term to Stated Maturity (in Months)
Number of Aggregate Percent by
Range of Original Mortgage Cut-off Percent by Aggregate Cut-off
Term (In Months) Loans Date Balance Number Date Balance
------------------------------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
---------------- ---------------- ---------------- -----------------------
Total ...............................
================ ================ ================ =======================
</TABLE>
Weighted Average Original
Term to Stated Maturity
(All Loans): _____ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans): _____ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans): _____ months
<TABLE>
<CAPTION>
Remaining Term to Stated Maturity (in Months)
Number of Aggregate Percent by
Range of Remaining Mortgage Cut-off Percent by Aggregate Cut-off
Term (In Months) Loans Date Balance Number Date Balance
------------------------------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
---------------- ---------------- ---------------- -----------------------
Total ...............................
================ ================ ================ =======================
</TABLE>
Weighted Average Remaining
Term to Stated Maturity
(All Loans): _____ months
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans): _____ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans): _____ months
S-27
<PAGE>
The following table sets forth the respective years in which the Mortgage
Loans were originated:
<TABLE>
<CAPTION>
Year of Origination
Number of Aggregate Percent by
Mortgage Cut-off Percent by Aggregate Cut-off
Year Loans Date Balance Number Date Balance
------------------------------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
---------------- ---------------- ---------------- -----------------------
Total ...............................
================ ================ ================ =======================
</TABLE>
The following table sets forth the respective years in which the Mortgage
Loans are scheduled to mature. The table provides an indication (which does not
account for any scheduled amortization or prepayments), of the concentration of
Balloon Payments that will be due in those years with respect to the Mortgage
Loans. See "Risk Factors--Balloon Payments" herein.
S-28
<PAGE>
<TABLE>
<CAPTION>
Year of Scheduled Maturity
Number of Aggregate Percent by
Mortgage Cut-off Percent by Aggregate Cut-off
Year Loans Date Balance Number Date Balance
------------------------------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
---------------- ---------------- ---------------- -----------------------
Total ...............................
================ ================ ================ =======================
</TABLE>
The following table sets forth the range of Cut-off Date LTV Ratios of the
Mortgage Loans. A "Cut-off Date LTV Ratio" is a fraction, expressed as a
percentage, the numerator of which is the Cut-off Date Balance of a Mortgage
Loan, and the denominator of which is the appraised value of the related
Mortgaged Property as determined by an appraisal thereof obtained in connection
with the origination of such Mortgage Loan. A Cut-off Date LTV Ratio, because it
is based on the value of a Mortgaged Property determined as of loan origination,
is not necessarily a reliable measure of the borrower's current equity in that
Mortgaged Property. In a declining real estate market, the fair market value of
the Mortgaged Property could have decreased from the value determined at
origination, and the actual loan-to-value ratio of a Mortgage Loan may be higher
than its Cut-off Date LTV Ratio.
<TABLE>
<CAPTION>
Cut-off Date LTV Ratios
Number of Aggregate Percent by
Range of Cut-off Date Mortgage Cut-off Percent by Aggregate Cut-off
LTV Ratios (%) Loans Date Balance Number Date Balance
------------------------------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
---------------- ---------------- ---------------- -----------------------
Total ...............................
================ ================ ================ =======================
</TABLE>
Weighted Average Cut-off
Date LTV Ratio
(All Loans): _____%
Weighted Average Cut-off
Date LTV Ratio
(ARM Loans): _____%
Weighted Average Cut-off
Date LTV Ratio
(Fixed Rate Loans): _____%
The following table sets forth the range of Debt Service Coverage Ratios
for the Mortgage Loans as of the Cut-off Date. The "Debt Service Coverage Ratio"
for any Mortgage Loan is the ratio of Net Operating Income produced by the
related Mortgaged Property for the period (annualized if the period was less
than one year) covered by an operating statement to the amount of the Monthly
Payment in effect as of the Cut-off Date multiplied by 12. "Net Operating
Income" is the revenue derived from the use and operation of a Mortgaged
Property (consisting primarily of rental income and deposit forfeitures), less
operating expenses (such as utilities, general administrative expenses,
management fees, advertising, repairs and maintenance), and further less fixed
expenses (such as insurance and real estate taxes). Net Operating Income
generally does not reflect capital expenditures. The following table was
prepared using operating statements obtained from the respective mortgagors. In
each case, the information contained in such operating statements was unaudited,
S-29
<PAGE>
and the Depositor has made no attempt to verify its accuracy. In the case of
_____ Mortgage Loans (____ ARM Loans and ____ Fixed Rate Loans), operating
statements could not be obtained, and accordingly, Debt Service Coverage Ratios
for those Mortgage Loans were not calculated. The last day of the period (which
may not correspond to the end of the calendar year most recent to the Cut-off
Date) covered by each operating statement from which a Debt Service Coverage
Ratio was calculated is set forth in Annex A with respect to the related
Mortgage Loan.
<TABLE>
<CAPTION>
Debt Service Coverage Ratios
as of the Cut-off Date
Number of Aggregate Percent by
Range of Debt Service Mortgage Cut-off Percent by Aggregate Cut-off
Coverage Ratios Loans Date Balance Number Date Balance
------------------------------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Not Calculated (A) ..................
---------------- ---------------- ---------------- -----------------------
Total ...............................
================ ================ ================ =======================
</TABLE>
Weighted Average
Debt Service Coverage Ratio
(All Loans): _______x(B)
Weighted Average
Debt Service Coverage Ratio
(ARM Loans): _______x(C)
Weighted Average
Debt Service Coverage Ratio
(Fixed Rate Loans): _______x(D)
- -------------------
(A) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(B) This calculation does not include the ________ Mortgage Loans as to which
Debt Service Coverage Ratios were not calculated.
(C) This calculation does not include the ________ ARM Loans as to which Debt
Service Coverage Ratios were not calculated.
(D) This calculation does not include the ________ Fixed Rate Loans as to which
Debt Service Coverage Ratios were not calculated.
S-30
<PAGE>
The Mortgage Loans are secured by Mortgaged Properties located in _____
different states. The following table sets forth the states in which the
Mortgaged Properties are located:
<TABLE>
<CAPTION>
Geographic Distribution
Number of Aggregate Percent by
Mortgage Cut-off Percent by Aggregate Cut-off
Month Loans Date Balance Number Date Balance
------------------------------- ---------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
---------------- ---------------- ---------------- -----------------------
Total ...............................
================ ================ ================ =======================
</TABLE>
Specified in Annex A to this Prospectus Supplement are the foregoing and
certain additional characteristics of the Mortgage Loans set forth on a
loan-by-loan basis. Certain additional information regarding the Mortgage Loans
is contained herein under "--Underwriting Standards", "--Assignment of the
Mortgage Loans; Repurchases" and "--Representations and Warranties; Repurchases"
and in the Prospectus under "Description of the Trust Funds" and "Certain Legal
Aspects of Mortgage Loans".
The Mortgage Loan Seller
General. On or prior to the Delivery Date, the Depositor will acquire the
Mortgage Loans from ____________ (the "Mortgage Loan Seller") pursuant to a
Mortgage Loan Purchase Agreement, dated [the date hereof], between the Depositor
and the Mortgage Loan Seller (the "Mortgage Loan Purchase Agreement"). [The
Mortgage Loan Seller originated ___ of the Mortgage Loans, which represent ___%
of the Initial Pool Balance, and acquired the remaining Mortgage Loans from the
respective originators thereof, generally in accordance with the underwriting
criteria described below under "--Underwriting Standards".]
[The Mortgage Loans Seller [, a wholly-owned subsidiary of __________,] is
a _________________ organized in ____ under the laws of __________________. As
of December 31, 199_, the Mortgage Loan Seller had a net worth of approximately
$_________________, and currently holds and services for its own account a total
residential and commercial mortgage loan portfolio of approximately
$__________________, of which approximately $__________________ constitutes
multifamily mortgage loans.]
The information set forth herein concerning the Mortgage Loan Seller, the
delinquency, foreclosure and loss experience of its mortgage loan portfolio and
its underwriting standards has been provided by the Mortgage Loan Seller, and
neither the Depositor nor the Underwriter makes any representation or warranty
as to the accuracy or completeness of such information.
[Delinquency and Foreclosure Experience. The following table sets forth
certain information concerning the delinquency experience (including pending
foreclosures) on the Mortgage Loan Seller's portfolio of multifamily mortgage
loans held and serviced for its own account. The indicated periods of
delinquency are based on the number of days past due on a contractual basis. No
mortgage loan is considered delinquent for these purposes until 30 days past due
on a contractual basis.
S-31
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 199 As of December 31, 199 As of _______, 199
----------------------------- ---------------------------- ------------------------------
By Number By Dollar By Number By Dollar By Number By Dollar
of Loans Amount of of Loans Amount of of Loans Amount of
------------- Loans -------------- Loans ------------- Loans
------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Total Multifamily
Mortgage Loans .................... $ $ $
------------- ------------- -------------- ------------- ------------- --------------
Period of Delinquency
30 to 59 days .....................
60 to 89 days .....................
90 days or more ...................
------------- ------------- -------------- ------------- ------------- --------------
Total Delinquent Loans ............
============= ============= ============== ============= ============= ==============
Foreclosures
pending (1) .......................
Real Estate Owned .................
</TABLE>
- --------------------------
(1) Includes bankruptcies which stay foreclosure.
The following table presents, for the Mortgage Loan Seller's portfolio of
multifamily mortgage loans held and serviced for its own account, the net gains
(losses) resulting from foreclosures and the disposition of properties acquired
in foreclosure or by deed in lieu of foreclosure during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31, Months Ended
----------------------------- --------------------- ------
199 199 199 199
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net gains (losses)(1)
</TABLE>
- --------------------------
(1) Gains (losses) are defined as proceeds from sale less outstanding principal
balance less certain capitalized costs related to the foreclosure and/or
disposition of the related property (exclusive of accrued interest).
There can be no assurance that the delinquency and foreclosure experience
of the Mortgage Loans comprising the Mortgage Pool will correspond to the
delinquency, foreclosure and loss experience of the Mortgage Loan Seller's total
multifamily mortgage loan portfolio set forth in the foregoing tables. The
aggregate delinquency, foreclosure and loss experience on the Mortgage Loans
comprising the Mortgage Pool will depend on the results obtained over the life
of the Mortgage Pool.]
Underwriting Standards
[All of the Mortgage Loans were originated or acquired by the Mortgage Loan
Seller, generally in accordance with the underwriting criteria described herein.
[Description of underwriting standards.]
The Depositor believes that the Mortgage Loans selected for inclusion in
the Mortgage Pool from the Mortgage Loan Seller's portfolio were not so selected
on any basis which would have a material adverse effect on the
Certificateholders.]
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Assignment of the Mortgage Loans; Repurchase
On or prior to the Delivery Date, the Depositor will assign its interests
in the Mortgage Loans, without recourse, to the Trustee for the benefit of the
Certificateholders. In connection with such assignment, the Depositor will
require the Mortgage Loan Seller to deliver to the Trustee or to a document
custodian appointed by the Trustee (a "Custodian"), among other things, the
following documents with respect to each Mortgage Loan (collectively, as to such
Mortgage Loan, the "Mortgage File"): [(i) the original Mortgage Note, endorsed
(without recourse) to the order of Trustee; (ii) the original Mortgage or a
certified copy thereof, together with originals or certified copies of any
intervening assignments of such document, in each case with evidence of
recording thereon; (iii) the original or a certified copy of any related
assignment of leases, rents and profits (if such item is a document separate
from the Mortgage), together with originals or certified copies of any
intervening assignments of such document, in each case with evidence of
recording thereon; (iv) the original or a certified copy of any related security
agreement (if such item is a document separate from the Mortgage), together with
originals or certified copies of any intervening assignments of such document;
(v) an assignment of the Mortgage in favor of the Trustee, in recordable form;
(vi) an assignment of any related assignment of leases, rents and profits (if
such item is a document separate from the Mortgage) in favor of the Trustee, in
recordable form; (vii) an assignment of any related security agreement (if such
item is a document separate from the Mortgage) in favor of the Trustee; (viii)
originals or certified copies of all assumption, modification and substitution
agreements in those instances where the terms or provisions of the Mortgage or
Mortgage Note have been modified or the Mortgage or Mortgage Note has been
assumed; (ix) the original lender's title insurance policy issued on the date of
the origination of such Mortgage Loan or, with respect to each Mortgage Loan as
to which a lender's title insurance policy has not yet been issued, a
preliminary title report or a title insurance commitment or binder or, with
respect to each Mortgage Loan not covered by a lender's title insurance policy,
an attorney's opinion of title given by an attorney licensed to practice law in
the jurisdiction where the Mortgaged Property is located; and (x) the original
of any guaranty of the borrower's obligations under the related Mortgage Note.]
The Trustee or a Custodian on its behalf will be required to review each
Mortgage File within a period of ___ days of the receipt thereof, and the
Trustee or a Custodian on its behalf will hold such documents in trust for the
benefit of the Certificateholders. If any of the above-described documents is
found during the course of such review to be missing from any Mortgage File or
defective, and in either case such omission or defect materially and adversely
affects the value of any Mortgage Loan or the interests of Certificateholders
therein, the Trustee will be required to notify the Master Servicer, the
Depositor and the Mortgage Loan Seller. In any such case, and if the Mortgage
Loan Seller cannot deliver the document or cure the defect within a period of
___ days following its receipt of such notice, then, except as otherwise
provided below, the Mortgage Loan Seller will be obligated pursuant to the
Mortgage Loan Purchase Agreement (the relevant rights under which will be
assigned, together with its interests in the Mortgage Loans, by the Depositor to
the Trustee) to repurchase the affected Mortgage Loan within such ___-day period
at a price (the "Purchase Price") equal to the sum of (i) the unpaid principal
balance of such Mortgage Loan, (ii) unpaid accrued interest on such Mortgage
Loan at the Mortgage Rate from the date to which interest was last paid to the
Due Date in the Due Period in which the purchase is to occur, (iii) certain
servicing expenses that are reimbursable to the Master Servicer, and (iv) any
unpaid accrued interest at the Master Servicer Reimbursement Rate that may be
payable to the Master Servicer in respect of related unreimbursed P&I Advances
and servicing expenses as described under "Description of the Certificates P&I
Advances" herein. This repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any defect in or
omission from a Mortgage File, and neither the Depositor nor any of its
affiliates will be obligated to repurchase the affected Mortgage Loan if the
Mortgage Loan Seller defaults on its obligation to do so. Notwithstanding the
foregoing, if a document is missing from any Mortgage File because it has been
submitted for recording, and neither such document nor a certified copy thereof,
in either case with evidence of recording thereon, can be obtained because of
delays on the part of the applicable recording office, then the Mortgage Loan
Seller will not be required to repurchase the affected Mortgage Loan on the
basis of such missing document so long as it continues in good faith to obtain
such document or such certified copy.
The Pooling and Servicing Agreement will require the Master Servicer
promptly (and in any event within ___ days of the Delivery Date) to cause each
assignment of a Mortgage described in clause (v) of the second preceding
paragraph and each assignment of an assignment of leases, rents and profits
described in clause (vi) of the second preceding paragraph to be submitted for
recording in the real property records of the jurisdiction in which the related
Mortgaged Property is located except in states where, in the written opinion of
local counsel acceptable to the Depositor and the Trustee, such recordation is
not required to protect the Trustee's interests in the related Mortgage Loans
against sale, further assignment, satisfaction or discharge by the Mortgage Loan
Seller, the Master Servicer, any sub-servicers or the Depositor. See
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"Description of the Pooling Agreements--Assignment of Mortgage Loans;
Repurchases" in the Prospectus.
Representations and Warranties; Repurchases
In the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller has
represented and warranted with respect to each Mortgage Loan, as of [the
Delivery Date], or as of such other date specifically provided in the
representation and warranty, among other things, that:
[Specify significant representations and warranties.]
If the Master Servicer, the Trustee or the Depositor discovers a breach of
any of the foregoing representations and warranties, and such breach materially
and adversely affects the value of any Mortgage Loan or the interests of
Certificateholders therein, the party making such discovery will be required to
so notify each of the other parties and the Mortgage Loan Seller. In any such
case, and if the Mortgage Loan Seller cannot cure such breach within a period of
____ days following its receipt of such notice, then the Mortgage Loan Seller
will be obligated pursuant to the Mortgage Loan Purchase Agreement (the relevant
rights under which will be assigned, together with its interests in the Mortgage
Loans, by the Depositor to the Trustee) to repurchase the affected Mortgage Loan
within such ___-day period at the applicable Purchase Price.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. [Thus, if the Mortgage Loan Seller were found to have breached its
representation set forth in clause __ above regarding environmental matters, it
would have no obligation to indemnify the Trust Fund for any consequent
liability that the Trust Fund might have incurred for clean-up costs at the
affected Mortgaged Property. However, because of the restrictions imposed by the
Pooling and Servicing Agreement upon the ability of the Master Servicer to
acquire title to a Mortgaged Property or to assume control of its operations,
the Depositor believes that it is unlikely that the Trust Fund will incur any
such liability. See "Risk Factors--Environmental Law Considerations" herein and
"Description of the Pooling Agreements--Realization Upon Defaulted Mortgage
Loans", "Risk Factors--Environmental Risks" and "Certain Legal Aspects of
Mortgage Loans--Environmental Legislation" in the Prospectus.]
The Mortgage Loan Seller will be the sole Warranting Party in respect of
the Mortgage Loans, and neither the Depositor nor any of its affiliates will be
obligated to repurchase any affected Mortgage Loan in connection with a breach
of the Mortgage Loan Seller's representations and warranties if the Mortgage
Loan Seller defaults on its obligation to do so. However, the Depositor will not
include any Mortgage Loan in the Mortgage Pool if anything has come to the
Depositor's attention that would cause it to believe that the representations
and warranties made by the Mortgage Loan Seller regarding such Mortgage Loan
will not be correct in all material respects. See "Description of the Pooling
Agreements--Representations and Warranties; Repurchases" in the Prospectus.
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such Mortgage Loans would materially alter the characteristics of the
Mortgage Pool as described herein. The Depositor believes that the information
set forth herein will be representative of the characteristics of the Mortgage
Pool as it will be constituted at the time the Offered Certificates are issued,
although the range of Mortgage Rates and maturities and certain other
characteristics of the Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Delivery Date and
will be filed, together with the Pooling and Servicing Agreement, with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. In the event Mortgage Loans are removed
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<PAGE>
from or added to the Mortgage Pool as set forth in the preceding paragraph, such
removal or addition will be noted in the Form 8-K.
SERVICING OF THE MORTGAGE LOANS
General
The Master Servicer will be required to service and administer the Mortgage
Loans, either directly or through sub-servicers, on behalf of the Trustee and in
the best interests of and for the benefit of the Certificateholders (as
determined by the Master Servicer in its good faith and reasonable judgment), in
accordance with applicable law, the terms of the Pooling and Servicing
Agreement, the terms of the respective Mortgage Loans and, to the extent
consistent with the foregoing, in the same manner as would prudent institutional
mortgage lenders and loan servicers servicing mortgage loans comparable to the
Mortgage Loans in the jurisdictions where the Mortgaged Properties are located,
and with a view to the maximization of timely and complete recovery of principal
and interest, but without regard to: (i) any relationship that the Master
Servicer or any affiliate of the Master Servicer may have with the related
mortgagor; (ii) the ownership of any Certificate by the Master Servicer or any
affiliate of the Master Servicer; (iii) the Master Servicer's obligation to make
P&I Advances and advances to cover certain servicing expenses; and (iv) the
Master Servicer's right to receive compensation for its services under the
Pooling and Servicing Agreement or with respect to any particular transaction.
Set forth below, following the subsection captioned "--The Master
Servicer", is a description of certain pertinent provisions of the Pooling and
Servicing Agreement relating to the servicing of the Mortgage Loans. Reference
is also made to the Prospectus, in particular to the section captioned
"Description of the Pooling Agreements", for important information in addition
to that set forth herein regarding the terms and conditions of the Pooling and
Servicing Agreement as they relate to the rights and obligations of the Master
Servicer thereunder.
The Master Servicer
[__________________________________, a ___________________, will act as
Master Servicer with respect to the Mortgage Pool. Founded in ____ as a
____________, the Master Servicer today furnishes a variety of wholesale banking
services. As of December 31, 19__, the Master Servicer had a net worth of
approximately $__________, and a total mortgage loan servicing portfolio of
approximately $___________, of which approximately $_____________ represented
multifamily mortgage loans.
The offices of the Master Servicer that will be primarily responsible for
servicing and administering the Mortgage Pool are located at
____________________________.
For so long as the long-term unsecured debt obligations of the Master
Servicer are rated ___ or better by _____________________, the Master Servicer
will not be required to maintain the errors and omissions policy described in
the Prospectus under "Description of the Pooling Agreements--Certain Matters
Regarding the Master Servicer and the Depositor".]
The information set forth herein concerning the Master Servicer has been
provided by the Master Servicer, and neither the Depositor nor the Underwriter
makes any representation or warranty as to the accuracy or completeness of such
information.
Servicing and Other Compensation and Payment of Expenses
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Servicing Fee. The "Servicing Fee"
will be payable monthly on a loan-by-loan basis from amounts received in respect
of interest on each Mortgage Loan, will accrue in accordance with the terms of
the related Mortgage Note at a rate equal to ________% per annum (the "Servicing
Fee Rate") and will be computed on the basis of the same principal amount and
for the same period respecting which any related interest payment on the related
Mortgage Loan is computed. As additional servicing compensation, the Master
Servicer will be entitled to retain all assumption and modification fees, late
charges and penalty interest and, as and to the extent described below,
Prepayment Premiums and Prepayment Interest Excesses collected from mortgagors.
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<PAGE>
In addition, the Master Servicer is authorized but not required to invest or
direct the investment of funds held in the Certificate Account in certain
short-term United States government securities and other obligations acceptable
to the Rating Agencies ("Permitted Investments"), and the Master Servicer will
be entitled to retain any interest or other income earned on such funds.
Although the Master Servicer is required to service and administer the Mortgage
Pool in accordance with the general servicing standard described under
"--General" above and, accordingly, without regard to its right to receive
compensation under the Pooling and Servicing Agreement, additional servicing
compensation in the nature of assumption and modification fees, Prepayment
Premiums and Prepayment Interest Excesses may under certain circumstances
provide the Master Servicer with an economic disincentive to comply with such
standard.
[If a borrower voluntarily prepays a Mortgage Loan in whole or in part
during any Due Period on a date that is prior to its Due Date in such Due
Period, the amount of interest (net of related Servicing Fees) that accrues on
the amount of such principal prepayment will be less (such shortfall, a
"Prepayment Interest Shortfall") than the corresponding amount of interest
accruing on the Certificates. If such a principal prepayment occurs during any
Due Period after the Due Date for such Mortgage Loan in such Due Period, the
amount of interest (net of related Servicing Fees) that accrues on the amount of
such principal prepayment will exceed (such excess, a "Prepayment Interest
Excess") the corresponding amount of interest accruing on the Certificates. As
to any Due Period, to the extent Prepayment Interest Excesses and Prepayment
Premiums collected for all Mortgage Loans are greater than Prepayment Interest
Shortfalls incurred, such excess will be paid to the Master Servicer as
additional servicing compensation.]
[As and to the extent described herein under "Description of the
Certificates--P&I Advances", the Master Servicer will be entitled to receive
interest on P&I Advances and reimbursable servicing expenses, such interest to
be paid, contemporaneously with the reimbursement of the related P&I Advance or
servicing expense, out of any other collections on the Mortgage Loans.]
The Master Servicer generally will be required to pay all expenses incurred
by it in connection with its servicing activities under the Pooling and
Servicing Agreement, and will not be entitled to reimbursement therefor except
as expressly provided in the Pooling and Servicing Agreement. However, the
Master Servicer will be permitted to pay certain such expenses directly out of
the Certificate Account and at times without regard to the relationship between
the expense and the funds from which it is being paid. In connection therewith,
the Master Servicer will be responsible for all fees of any sub-servicers, other
than management fees earned in connection with the operation of an REO Property,
which management fees the Master Servicer will be authorized to pay out of
revenues received from such property (thereby reducing the portion of such
revenues that would otherwise be available for distribution to
Certificateholders). See "Description of the
Certificates--Distributions--Method, Timing and Amount" herein and "Description
of the Pooling Agreements--Certificate Account" and "--Servicing Compensation
and Payment of Expenses" in the Prospectus.
Modifications, Waivers and Amendments
The Master Servicer may agree to modify, waive or amend any term of any
Mortgage Loan in a manner consistent with the servicing standard described
herein, provided that such modification, waiver or amendment will not (i) affect
the amount or timing of any scheduled payments of principal or interest on the
Mortgage Loan or (ii) in its judgment, materially impair the security for the
Mortgage Loan or reduce the likelihood of timely payment of amounts due thereon.
The Master Servicer also may agree to any other modification, waiver or
amendment of the terms of a Mortgage Loan, but only if, in its judgment, a
material default on the Mortgage Loan has occurred or a payment default is
imminent, and such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Mortgage Loan, taking into
account the time value of money, than would liquidation.
To the extent consistent with the foregoing, the Master Servicer will be
permitted: [describe permitted modification standards]
The Master Servicer is required to notify the Trustee of any modification,
waiver or amendment of any term of any Mortgage Loan, and must deliver to the
Trustee or the related Custodian, for deposit in the related Mortgage File, an
original counterpart of the agreement related to such modification, waiver or
amendment, promptly (and in any event within [10] business days) following the
execution thereof. Copies of each agreement whereby any such modification,
waiver or amendment of any term of any Mortgage Loan is effected are to be
available for review during normal business hours at the offices of the Master
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Servicer. See "Description of the Certificates--Reports to Certificateholders;
Available Information" herein.
Inspections; Collection of Operating Information
The Master Servicer is required to perform a physical inspection of each
Mortgaged Property at such times and in such manner as are consistent with the
servicing standard set forth herein, but in any event (i) at least once per
calendar year, commencing in the calendar year _______, and (ii), if any
scheduled payment becomes more than 60 days delinquent on the related Mortgage
Loan, as soon as practicable thereafter. The Master Servicer will be required to
prepare a written report of each such inspection describing the condition of the
Mortgaged Property and specifying the existence of any material vacancies in the
Mortgaged Property, of any sale, transfer or abandonment of the Mortgaged
Property, of any material change in the condition or value of the Mortgaged
Property, or of any waste committed thereon.
With respect to each Mortgage Loan that requires the borrower to deliver
such statements, the Master Servicer is also required to collect and review the
annual operating statements of the related Mortgaged Property. [Most] of the
Mortgages obligate the related borrower to deliver annual property operating
statements. However, there can be no assurance that any operating statements
required to be delivered will in fact be delivered, nor is the Master Servicer
likely to have any practical means of compelling such delivery in the case of an
otherwise performing Mortgage Loan.
Copies of the inspection reports and operating statements referred to above
are to be available for review by Certificateholders during normal business
hours at the offices of the [Trustee]. See "Description of the
Certificates--Reports to Certificateholders; Available Information" herein.
Additional Obligations of the Master Servicer with Respect to ARM Loans
The Master Servicer is responsible for calculating adjustments in the
Mortgage Rate and the Monthly Payment for each ARM Loan and for notifying the
related borrower of such adjustments. If the base index for any ARM Loan is not
published or is otherwise unavailable, then the Master Servicer is required to
select a comparable alternative index over which it has no direct control, that
is readily verifiable and that is acceptable under the terms of the related
Mortgage Note. If the Mortgage Rate or the Monthly Payment with respect to any
ARM Loan is not properly adjusted by the Master Servicer pursuant to the terms
of such Mortgage Loan and applicable law, the Master Servicer is required to
deposit in the Certificate Account on or prior to the Due Date of the affected
Monthly Payment, an amount equal to the excess, if any, of (i) the amount that
would have been received from the borrower if the Mortgage Rate or Monthly
Payment had been properly adjusted, over (ii) the amount of such improperly
adjusted Monthly Payment, subject to reimbursement only out of such amounts as
are recovered from the borrower in respect of such excess.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement, to be dated as of the Cut-off Date, among the Depositor, the Master
Servicer and the Trustee (the "Pooling and Servicing Agreement"), and will
represent in the aggregate the entire beneficial ownership interest in a Trust
Fund consisting of: (i) the Mortgage Loans and all payments under and proceeds
of the Mortgage Loans received after the Cut-off Date (exclusive of payments of
principal and interest due on or before the Cut-off Date); (ii) any Mortgaged
Property acquired on behalf of the Trust Fund through foreclosure, deed in lieu
of foreclosure or otherwise (upon acquisition, an "REO Property"); (iii) such
funds or assets as from time to time are deposited in the Certificate Account;
(iv) the rights of the mortgagee under all insurance policies with respect to
the Mortgage Loans; and (v) certain rights of the Depositor under the Mortgage
Loan Purchase Agreement relating to Mortgage Loan document delivery requirements
and the representations and warranties of the Mortgage Loan Seller regarding the
Mortgage Loans.
The Certificates will consist of four classes to be designated as the Class
A Certificates, the Class B Certificates, the Class C Certificates and the Class
R Certificates. The Class A Certificates will have an initial Certificate
Balance of $____________, which represents ____% of the Initial Pool Balance;
the Class B Certificates will have an initial Certificate Balance of
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<PAGE>
$____________, which represents ____% of the Initial Pool Balance; the Class C
Certificates will have an initial Certificate Balance of $____________, which
represents ___% of the Initial Pool Balance; and the Class R Certificates will
have a Certificate Balance of zero. The Certificate Balance of any Class of
Certificates outstanding at any time represents the maximum amount which the
holders thereof are entitled to receive as distributions allocable to principal
from the cash flow on the Mortgage Loans and the other assets in the Trust Fund.
On each Distribution Date, the respective Certificate Balances of the Class A,
Class B and Class C Certificates (the "Regular Certificates") will in each case
be reduced by any amounts actually distributed on such Class of Certificates on
such Distribution Date that are allocable to principal.
Only the Class A and Class B Certificates (the "Offered Certificates") are
offered hereby. The Class C and Class R Certificates (the "Private
Certificates") have not been registered under the Securities Act of 1933 and are
not offered hereby. [___________________________________, has agreed with the
Depositor to purchase the Class C and, except for a nominal interest therein,
the Class R Certificates.]
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants in denominations of $1,000 and in
integral multiples thereof. The Class B Certificates will be issuable in fully
registered, certificated form in denominations of $____________ and integral
multiples of $1,000 in excess thereof, with one Class B Certificate evidencing
an additional amount equal to the remainder of the initial Certificate Balance
of such Class.
The Class A Certificates will initially be represented by one or more
global Certificates registered in the name of the nominee of DTC. The Depositor
has been informed by DTC that DTC's nominee will be Cede & Co. No Class A
Certificate Owner will be entitled to receive a Definitive Class A Certificate
representing its interest in such Class, except under the limited circumstances
described in the Prospectus under "Description of the Certificates--Book-Entry
Registration and Definitive Certificates". Unless and until Definitive Class A
Certificates are issued, all references to actions by holders of the Class A
Certificates will refer to actions taken by DTC upon instructions received from
Class A Certificate Owners through its Participants, and all references herein
to payments, notices, reports and statements to holders of the Class A
Certificates will refer to payments notices, reports and statements to DTC or
Cede & Co., as the registered holder of the Class A Certificates, for
distribution to Class A Certificate Owners through its Participants in
accordance with DTC procedures. See "Description of the Certificates--Book-Entry
Registration and Definitive Certificates" in the Prospectus.
Until Definitive Class A Certificates are issued, interests in such Class
will be transferred on the book-entry records of DTC and its Participants. The
Class B Certificates may be transferred or exchanged, subject to certain
restrictions on the transfer of such Certificates to Plans (see "ERISA
Considerations" herein), at the offices of ___________________________ located
at ______________________________________________, without the payment of any
service charges, other than any tax or other governmental charge payable in
connection therewith. ________________________ will initially serve as registrar
(in such capacity, the "Certificate Registrar") for purposes of recording and
otherwise providing for the registration of the Offered Certificates and of
transfers and exchanges of the Class B and, if issued, the Definitive Class A
Certificates.
Distributions
Method, Timing and AmountMethod,TimingandAmount""3". Distributions on the
Certificates will be made by the Master Servicer, to the extent of available
funds, on the 25th day of each month or, if any such 25th day is not a business
day, then on the next succeeding business day, commencing in _________ 199__
(each, a "Distribution Date"). All such distributions (other than the final
distribution on any Certificate) will be made to the persons in whose names the
Certificates are registered at the close of business on each Record Date, which
will be the last business day of the month preceding the month in which the
related Distribution Date occurs. Each such distribution will be made by wire
transfer in immediately available funds to the account specified by the
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder will have provided the Master Servicer with
wiring instructions [no less than five business days prior to the related Record
Date (which wiring instructions may be in the form of a standing order
applicable to all subsequent distributions) and is the registered owner of
Certificates with an aggregate initial principal amount of at least $5,000,000],
or otherwise by check mailed to such Certificateholder. The final distribution
on any Certificate will be made in like manner, but only upon presentation and
surrender of such Certificate at the location that will be specified in a notice
of the pendency of such final distribution. All distributions made with respect
to a Class of Certificates will be allocated pro rata among the outstanding
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Certificates of such Class based on their respective Percentage Interests. The
"Percentage Interest" evidenced by any Offered Certificate is equal to the
initial denomination thereof as of the Delivery Date, divided by the initial
Certificate Balance of the Class to which it belongs.
The aggregate amount available for distribution to Certificateholders on
each Distribution Date (the "Available Distribution Amount") will, in general,
equal the sum of the following amounts:
(a) the total amount of all cash received on the Mortgage Loans and
any REO Properties that is on deposit in the Certificate Account as of the
related Determination Date, exclusive of:
(i) all Monthly Payments collected but due on a Due Date subsequent
to the related Due Period,
(ii) all principal prepayments (together with related payments of the
interest thereon and related Prepayment Premiums), Liquidation
Proceeds, Insurance Proceeds and other unscheduled recoveries
received subsequent to the related Due Period, and
(iii) all amounts in the Certificate Account that are due or
reimbursable to any person other than the Certificateholders; and
(b) all P&I Advances made by the Master Servicer with respect to such
Distribution Date. See "Description of the Pooling Agreements--Certificate
Account" in the Prospectus.
The "Due Period" for each Distribution Date will be the period that begins
on the ______ day of the month preceding the month in which such Distribution
Date occurs and ends on the _____ day of the month in which such Distribution
Date occurs. For purposes of the discussion in the Prospectus, the Due Period is
also the Prepayment Period. The "Determination Date" for each Distribution Date
is the _______ day of the month in which such Distribution Date occurs or, if
any such ________ day is not a business day, then the next preceding business
day.
Priority. On each Distribution Date, for so long as the Class A and/or
Class B Certificates are outstanding, the Master Servicer will (except as
otherwise described under "--Termination" below) apply amounts on deposit in the
Certificate Account, to the extent of the Available Distribution Amount, in the
following order of priority:
(1) to distributions of interest to the holders of the Class A
Certificates in an amount equal to all Distributable Certificate
Interest in respect of the Class A Certificates for such
Distribution Date and, to the extent not previously paid, for all
prior Distribution Dates;
(2) _______________ to distributions of principal to the holders of
the Class A Certificates in an amount equal to the sum of (a) the
product of (i) the Class A Certificates' Ownership Percentage (as
calculated immediately prior to such Distribution Date),
multiplied by (ii) the Scheduled Principal Distribution Amount
for such Distribution Date, plus (b) the entire Unscheduled
Principal Distribution Amount for such Distribution Date (but not
more than would be necessary to reduce the Certificate Balance of
the Class A Certificates to zero);
(3) to distributions of principal to the holders of the Class A
Certificates in an amount equal to any Uncovered Portion of the
Certificate Balance of the Class A Certificates immediately prior
to such Distribution Date;
(4) to distributions of interest to the holders of the Class B
Certificates in an amount equal to all Distributable Certificate
Interest in respect of the Class B Certificates for such
Distribution Date and, to the extent not previously paid, for all
prior Distribution Dates;
(5) to distributions of principal to the holders of the Class B
Certificates in an amount equal to the sum of (a) the product of
(i) the Class B Certificates' Ownership Percentage (as calculated
immediately prior to such Distribution Date), multiplied by (ii)
the Scheduled Principal Distribution Amount for such Distribution
Date, plus (b) if the Class A Certificates have been retired,
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then to the extent not distributed in retirement thereof on such
Distribution Date, the entire Unscheduled Principal Distribution
Amount for such Distribution Date (but not more than would be
necessary to reduce the Certificate Balance of the Class B
Certificates to zero);
(6) to distributions of principal to the holders of the Class A
Certificates in an amount equal to any Uncovered Portion of the
Certificate Balance of the Class B Certificates immediately prior
to such Distribution Date (but not more than would be necessary
to reduce the Certificate Balance of the Class A Certificates to
zero);
(7) to distributions of principal to the holders of the Class B
Certificates in an amount equal to any Uncovered Portion of the
Certificate Balance of the Class B Certificates immediately prior
to such Distribution Date, net of any distributions of principal
made on such Distribution Date in respect of the Class A
Certificates as described in the immediately preceding clause
(6);
(8) to distributions of interest to the holders of the Class C
Certificates in an amount equal to all Distributable Certificate
Interest in respect of the Class C Certificates for such
Distribution Date and, to the extent not previously distributed,
for all prior Distribution Dates;
(9) to distributions of principal to the holders of the Class C
Certificates in an amount equal to the product of (a) the Class C
Certificates' Ownership Percentage (as calculated immediately
prior to such Distribution Date), multiplied by (b) the Scheduled
Principal Distribution Amount for such Distribution Date;
(10) to distributions of principal to the holders of the respective
Classes of Regular Certificates, in alphabetical order of their
Class designations (i.e., A, B, C), in an aggregate amount equal
to any Uncovered Portion of the Certificate Balance of the Class
C Certificates immediately prior to such Distribution Date (but,
in each case, not more than would be necessary to reduce the
related Certificate Balance to zero); and
(11) to distributions to the holders of the Class R Certificates in an
amount equal to the remaining balance, if any, of the Available
Distribution Amount.
Pass-Through Rates. The Pass-Through Rate applicable to the Class A and
Class B Certificates for the initial Distribution Date will equal _______% per
annum. With respect to any Distribution Date subsequent to the initial
Distribution Date, the Pass-Through Rate for the Class A Certificates and the
Class B Certificates will equal the Weighted Average Effective Net Mortgage Rate
for such Distribution Date.
[The Pass-Through Rate applicable to the Class C Certificates for any
Distribution Date will equal the Weighted Average Effective Net Mortgage Rate
for such Distribution Date. The Class R Certificates will have no specified
Pass-Through Rate.]
The "Weighted Average Effective Net Mortgage Rate" for each Distribution
Date is the weighted average of the applicable Effective Net Mortgage Rates for
the Mortgage Loans, weighted on the basis of their respective Stated Principal
Balances immediately prior to such Distribution Date. For purposes of
calculating the Weighted Average Effective Net Mortgage Rate for any
Distribution Date, the "applicable Effective Net Mortgage Rate" for each
Mortgage Loan is: (a) if such Mortgage Loan accrues interest on the basis of a
360-day year consisting of twelve 30-day months (a "360/360 basis", which is the
basis of accrual for interest on the Regular Certificates), the Net Mortgage
Rate in effect for such Mortgage Loan as of the commencement of the related Due
Period; and (b) if such Mortgage Loan does not accrue interest on a 360/360
basis, the annualized rate at which interest would have to accrue during the one
month period preceding the Due Date for such Mortgage Loan during the related
Due Period on a 360/360 basis in order to produce the aggregate amount of
interest (adjusted to the actual Net Mortgage Rate) accrued during such period.
The "Net Mortgage Rate" for each Mortgage Loan is equal to the related Mortgage
Rate in effect from time to time less the Servicing Fee Rate.
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Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of Regular Certificates for each Distribution
Date represents that portion of the Accrued Certificate Interest in respect of
such Class of Certificates for such Distribution Date that is net of such
Class's allocable share (calculated as described below) of the aggregate of any
Prepayment Interest Shortfalls resulting from voluntary principal prepayments
made on the Mortgage Loans during the related Due Period that are not offset by
Prepayment Interest Excesses and Prepayment Premiums collected during the
related Due Period (the aggregate of such Prepayment Interest Shortfalls that
are not so offset or covered, as to such Distribution Date, the "Net Aggregate
Prepayment Interest Shortfall").
The "Accrued Certificate Interest" in respect of each Class of Regular
Certificates for each Distribution Date is equal to 30 days' interest at the
Pass-Through Rate applicable to such Class of Certificates for such Distribution
Date accrued on the related Certificate Balance outstanding immediately prior to
such Distribution Date.
The portion of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date that is allocable to each Class of Regular Certificates will
equal the product of (a) such Net Aggregate Prepayment Interest Shortfall,
multiplied by (b) a fraction, the numerator of which is equal to 30 days'
interest at the Pass-Through Rate applicable to such Class of Regular
Certificates for such Distribution Date accrued on the related Certificate
Balance (net of any Uncovered Portion thereof) outstanding immediately prior to
such Distribution Date, and the denominator of which is equal to 30 days'
interest at the Weighted Average Effective Net Mortgage Rate for such
Distribution Date accrued on the aggregate Stated Principal Balance of the
Mortgage Pool outstanding immediately prior to such Distribution Date.
Scheduled Principal Distribution Amount and Unscheduled Principal
Distribution Amount. The "Scheduled Principal Distribution Amount" for each
Distribution Date will equal the aggregate of the principal portions of all
Monthly Payments, including Balloon Payments, due during or, if and to the
extent not previously received or advanced and distributed to Certificateholders
on a preceding Distribution Date, prior to the related Due Period, in each case
to the extent paid by the related borrower or advanced by the Master Servicer
and included in the Available Distribution Amount for such Distribution Date.
The Scheduled Principal Distribution Amount from time to time will include all
late payments of principal made by a borrower, including late payments in
respect of a delinquent Balloon Payment, regardless of the timing of such late
payments, except to the extent such late payments are otherwise reimbursable to
the Master Servicer for prior P&I Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of: (a) all voluntary prepayments of principal received
on the Mortgage Loans during the related Due Period; and (b) any other
collections (exclusive of payments by borrowers) received on the Mortgage Loans
and any REO Properties during the related Due Period, whether in the form of
Liquidation Proceeds, Insurance Proceeds, net income from REO Property or
otherwise, that were identified and applied by the Master Servicer as recoveries
of previously unadvanced principal of the related Mortgage Loan.
The respective amounts which constitute the Scheduled Principal
Distribution Amount and Unscheduled Principal Distribution Amount for any
Distribution Date are herein collectively referred to from time to time as the
"Distributable Principal".
The "Ownership Percentage" evidenced by any Class of Certificates as of any
date of determination will equal a fraction, expressed as a percentage, the
numerator of which is the then Certificate Balance of such Class of
Certificates, net (in the case of a Class of Regular Certificates) of any
Uncovered Portion of such Certificate Balance, and the denominator of which is
the then aggregate Stated Principal Balance of the Mortgage Pool.
Certain Calculations with Respect to Individual Mortgage Loans. The "Stated
Principal Balance" of each Mortgage Loan outstanding at any time represents the
principal balance of such Mortgage Loan ultimately due and payable to the
Certificateholders. The Stated Principal Balance of each Mortgage Loan will
initially equal the Cut-off Date Balance thereof and, on each Distribution Date,
will be reduced by the portion of the Distributable Principal for such date,
which in either case is attributable to such Mortgage Loan. The Stated Principal
Balance of a Mortgage Loan may also be reduced in connection with any forced
reduction of the actual unpaid principal balance thereof imposed by a court
presiding over a bankruptcy proceeding wherein the related borrower is the
debtor. See "Certain Legal Aspects of Mortgage Loans--Foreclosure--Bankruptcy
Laws" in the Prospectus.
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For purposes of calculating distributions on the Certificates, as well as
the amount of Servicing Fees payable each month, each REO Property will be
treated as if there exists with respect thereto an outstanding mortgage loan (an
"REO Loan"), and all references to "Mortgage Loan", "Mortgage Loans" and
"Mortgage Pool" herein and in the Prospectus, when used in such context, will be
deemed to also be references to or to also include, as the case may be, any "REO
Loans". Each REO Loan will generally be deemed to have the same characteristics
as its actual predecessor Mortgage Loan, including the same adjustable or fixed
Mortgage Rate (and, accordingly, the same Net Mortgage Rate and Effective Net
Mortgage Rate) and the same unpaid principal balance and Stated Principal
Balance. Amounts due on such predecessor Mortgage Loan, including any portion
thereof payable or reimbursable to the Master Servicer, will continue to be
"due" in respect of the REO Loan; and amounts received in respect of the related
REO Property, net of payments to be made, or reimbursement to the Master
Servicer for payments previously advanced, in connection with the operation and
management of such property, generally will be applied by the Master Servicer as
if received on the predecessor Mortgage Loan. However, notwithstanding the terms
of the predecessor Mortgage Loan, the Monthly Payment "due" on an REO Loan will
in all cases, for so long as the related Mortgaged Property is part of the Trust
Fund, equal one month's interest thereon at the applicable Mortgage Rate.
Subordination
The rights of holders of the Class B Certificates and each Class of the
Private Certificates (collectively, the "Subordinate Certificates") to receive
distributions of amounts collected or advanced on the Mortgage Loans will be
subordinated, to the extent described herein, to the rights of holders of the
Class A Certificates and each other Class of Subordinate Certificates with an
earlier alphabetical Class designation. This subordination is intended to
enhance the likelihood of timely receipt by the holders of the Class A
Certificates of the full amount of all Distributable Certificate Interest
payable in respect of such Certificates on each Distribution Date, and the
ultimate receipt by such holders of principal in an amount equal to the entire
Certificate Balance of the Class A Certificates. Similarly, but to a lesser
degree, this subordination is also intended to enhance the likelihood of timely
receipt by the holders of the Class B Certificates of the full amount of all
Distributable Certificate Interest payable in respect of such Certificates on
each Distribution Date, and the ultimate receipt by such holders of principal in
an amount equal to the entire Certificate Balance of the Class B Certificates.
The protection afforded to the holders of each Class of Offered Certificates by
means of the subordination of each other Class of Certificates with a later
alphabetical Class designation, will be accomplished by the application of the
Available Distribution Amount on each Distribution Date in accordance with the
order of priority described under "--Distributions--Priority" above. No other
form of Credit Support will be available for the benefit of the holders of the
Offered Certificates.
Allocation to the Class A Certificates, for so long as they are
outstanding, of the entire Unscheduled Principal Distribution Amount for each
Distribution Date will generally accelerate the amortization of the Class A
Certificates relative to the actual amortization of the Mortgage Loans. To the
extent that the Class A Certificates are amortized faster than the Mortgage
Loans, the percentage interest evidenced by the Class A Certificates in the
Trust Fund will be decreased (with a corresponding increase in the interest in
the Trust Fund evidenced by the Subordinate Certificates), thereby increasing,
relative to their respective Certificate Balances, the subordination afforded
the Class A Certificates by the Subordinate Certificates. Following retirement
of the Class A Certificates, allocation to the Class B Certificates, for so long
as they are outstanding, of the entire Unscheduled Principal Distribution Amount
for each Distribution Date will provide a similar benefit to such Class of
Certificates as regards the relative amount of subordination afforded thereto by
the Private Certificates.
Losses and other shortfalls experienced with respect to the Mortgage Loans
will not, with the exception of any Net Aggregate Prepayment Interest
Shortfalls, be applied to reduce either the Certificate Balance or the absolute
entitlement to interest of any Class of Regular Certificates, even though such
losses and shortfalls may cause one or more of such Classes to receive less than
the full amount of principal and interest to which it is entitled. As a result,
the aggregate Stated Principal Balance of the Mortgage Pool at any time may be
less than the aggregate Certificate Balance of the Regular Certificates. Such
deficit will be allocated to the respective Classes of Regular Certificates (in
each case to the extent of its Certificate Balance) in reverse alphabetical
order of their Class designations (i.e., C, B, A). Such allocation will not
reduce the Certificate Balance of any such Class and is intended solely to
identify the portion (the "Uncovered Portion") of the Certificate Balance of
each such Class for which there is at such time no corresponding principal
amount of Mortgage Loans.
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P&I Advances
[On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated, subject to the recoverability determination
described in the next paragraph, to make advances (each, a "P&I Advance") out of
its own funds or, subject to the replacement thereof as provided in the Pooling
and Servicing Agreement, funds held in the Certificate Account that are not
required to be part of the Available Distribution Amount for such Distribution
Date, in an amount equal to the aggregate of: (i) all Monthly Payments (net of
the related Servicing Fee), other than Balloon Payments, which were due on the
Mortgage Loans during the related Due Period and delinquent as of the related
Determination Date; (ii) in the case of each Mortgage Loan delinquent in respect
of its Balloon Payment as of the related Determination Date, an amount equal to
30 days' interest thereon at the related Mortgage Rate in effect as of the
commencement of the related Due Period (net of the related Servicing Fee), but
only to the extent that the related mortgagor has not made a payment sufficient
to cover such amount under any forbearance arrangement or otherwise that has
been included in the Available Distribution Amount for such Distribution Date;
and (iii) in the case of each REO Property, an amount equal to thirty days'
imputed interest with respect thereto at the related Mortgage Rate in effect as
of the commencement of the related Due Period (net of the related Servicing
Fee), but only to the extent that such amount is not covered by any net income
from such REO Property included in the Available Distribution Amount for such
Distribution Date. The Master Servicer's obligations to make P&I Advances in
respect of any Mortgage Loan or REO Property will continue through liquidation
of such Mortgage Loan or disposition of such REO Property, as the case may be.
The Master Servicer will be entitled to recover any P&I Advance made out of
its own funds from any amounts collected in respect of the Mortgage Loan as to
which such P&I Advance was made, whether in the form of late payments, Insurance
Proceeds, Liquidation Proceeds or otherwise ("Related Proceeds").
Notwithstanding the foregoing, the Master Servicer will not be obligated to make
any P&I Advance that it determines in its reasonable good faith judgment would,
if made, not be recoverable out of Related Proceeds (a "Nonrecoverable P&I
Advance"), and the Master Servicer will be entitled to recover any P&I Advance
that it so determines to be a Nonrecoverable P&I Advance out of general funds on
deposit in the Certificate Account. See "Description of the
Certificates--Advances in Respect of Delinquencies" and "Description of the
Pooling Agreements--Certificate Account" in the Prospectus.
In connection with its recovery of any P&I Advance or reimbursable
servicing expense (each, an "Advance"), the Master Servicer will be entitled to
retain, out of any amounts then on deposit in the Certificate Account, interest
at a per annum rate equal to ________________ (the "Master Servicer
Reimbursement Rate"), accrued on the amount of such Advance from the date made
to but not including the date of reimbursement.
To the extent not offset or covered by amounts otherwise payable on the
Private Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Class B Certificates; and to the extent not
offset or covered by amounts otherwise payable on the Class B and the Private
Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Class A Certificates. To the extent that any
holder of an Offered Certificate must bear the cost of the Master Servicer's
Advances, the benefits of such Advances to such holder will be contingent on the
ability of such holder to reinvest the amounts received as a result of such
Advances at a rate of return equal to or greater than the Master Servicer
Reimbursement Rate.]
Reports to Certificateholders; Certain Available Information
On each Distribution Date, the [Master Servicer] [Trustee] will be required
to forward by mail to each holder of an Offered Certificate a statement (a
"Distribution Date Statement") providing various items of information relating
to distributions made on such date with respect to the relevant Class and the
recent status of the Mortgage Pool. For a more detailed discussion of the
particular items of information to be provided in each Distribution Date
Statement, as well as a discussion of certain annual information reports to be
furnished by the [Master Servicer] [Trustee] to persons who at any time during
the prior calendar year were holders of the Offered Certificates, see
"Description of the Certificates--Reports to Certificateholders" in the
Prospectus.
The Pooling and Servicing Agreement requires that the [Master Servicer]
[Trustee] make available at its offices primarily responsible for servicing the
Mortgage Loans, during normal business hours, for review by any holder of an
Offered Certificate, originals or copies of, among other things, the following
items: (a) the Pooling and Servicing Agreement and any amendments thereto, (b)
all Distribution Date Statements delivered to holders of the relevant Class of
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Offered Certificates since the Delivery Date, (c) all officer's certificates
delivered to the Trustee since the Delivery Date as described under "Description
of the Pooling Agreements--Evidence as to Compliance" in the Prospectus, (d) all
accountants' reports delivered to the Trustee since the Delivery Date as
described under "Description of the Pooling Agreements--Evidence as to
Compliance" in the Prospectus, (e) the most recent property inspection report
prepared by or on behalf of the Master Servicer in respect of each Mortgaged
Property, (f) the most recent Mortgaged Property annual operating statements, if
any, collected by or on behalf of the Master Servicer, and (g) any and all
modifications, waivers and amendments of the terms of a Mortgage Loan entered
into by the Master Servicer. Copies of any and all of the foregoing items will
be available from the [Master Servicer] [Trustee] upon request; however, the
[Master Servicer] [Trustee] will be permitted to require payment of a sum
sufficient to cover the reasonable costs and expenses of providing such copies.
Until such time as Definitive Class A Certificates are issued, the
foregoing information will be available to Class A Certificate Owners only to
the extent it is forwarded by or otherwise available through DTC and its
Participants. Conveyance of notices and other communications by DTC to
Participants, and by Participants to Class A Certificate Owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Trustee, the Depositor and the Certificate Registrar are required to recognize
as Certificateholders only those persons in whose names the Certificates are
registered on the books and records of the Certificate Registrar. The initial
registered holder of the Class A Certificates will be Cede & Co. as nominee for
DTC.
Voting Rights
At all times during the term of the Pooling and Servicing Agreement, the
Voting Rights for the series offered hereby shall be allocated among the
respective Classes of Certificateholders in proportion to the Certificate
Balances of their Certificates (net, in the case of a Class of Regular
Certificates, of any Uncovered Portion of the related Certificate Balance).
Voting Rights allocated to a Class of Certificateholders shall be allocated
among such Certificateholders in proportion to the Percentage Interests
evidenced by their respective Certificates. See "Description of the
Certificates--Voting Rights" in the Prospectus.
Termination
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment (or advance in respect
thereof) or other liquidation of the last Mortgage Loan or REO Property subject
thereto, and (ii) the purchase of all of the assets of the Trust Fund by the
Master Servicer. Written notice of termination of the Pooling and Servicing
Agreement will be given to each Certificateholder, and the final distribution
will be made only upon surrender and cancellation of the Certificates at the
office of the Certificate Registrar or other location specified in such notice
of termination.
Any such purchase by the Master Servicer of all the Mortgage Loans and
other assets in the Trust Fund is required to be made at a price equal to the
excess of (a) the sum of (i) the aggregate Purchase Price of all the Mortgage
Loans then included in the Trust Fund and (ii) the fair market value of all REO
Properties then included in the Trust Fund, as determined by an appraiser
mutually agreed upon by the Master Servicer and the Trustee, over (b) the
aggregate of amounts payable or reimbursable to the Master Servicer under the
Pooling and Servicing Agreement. Such purchase will effect early retirement of
the then outstanding Offered Certificates, but the right of the Master Servicer
to effect such termination is subject to the requirement that the then aggregate
Stated Principal Balance of the Mortgage Pool be less than __% of the Initial
Pool Balance.
On the final Distribution Date, the aggregate amount paid by the Master
Servicer for the Mortgage Loans and other assets in the Trust Fund (if the Trust
Fund is to be terminated as a result of the purchase described in the preceding
paragraph), together with all other amounts on deposit in the Certificate
Account and not otherwise payable to a person other than the Certificateholders
(see "Description of the Pooling Agreements--Certificate Account" in the
Prospectus), will be applied: first, to distributions of interest to the holders
of the Class A Certificates in an amount equal to all Distributable Certificate
Interest in respect of the Class A Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates; second, to
distributions of principal to the holders of the Class A Certificates in an
amount equal to the sum of the Certificate Balance of the Class A Certificates
outstanding immediately prior to such Distribution Date; third, to distributions
of interest to the holders of the Class B Certificates in an amount equal to all
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Distributable Certificate Interest in respect of the Class B Certificates for
such Distribution Date and, to the extent not previously paid, for all prior
Distribution Dates; fourth, to distributions of principal to the holders of the
Class B Certificates in an amount equal to the sum of the Certificate Balance of
the Class B Certificates outstanding immediately prior to such Distribution
Date; and thereafter, to distributions to holders of the Private Certificates.
The Trustee
____________, a _____________________, will act as Trustee on behalf of the
Certificateholders. [The Master Servicer will be responsible for the fees and
normal disbursements of the Trustee.] The offices of the Trustee primarily
responsible for the administration of the Trust Fund are located at
_____________________________. See "Description of the Pooling Agreements--the
Trustee", "--Duties of the Trustee", "--Certain Matters Regarding the Trustee"
and "--Resignation and Removal of the Trustee" in the Prospectus.
YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
General. The yield on any Offered Certificate will depend on: (i) the
Pass-Through Rate in effect from time to time for such Certificate; (ii) the
price paid for such Certificate and, if the price was other than par, the rate
and timing of payments of principal on such Certificate; and (iii) the aggregate
amount of distributions on such Certificate.
Pass-Through Rate. The Pass-Through Rate applicable to the Class A
Certificates and the Class B Certificates for any Distribution Date will equal
the Weighted Average Effective Net Mortgage Rate for such date. Accordingly, the
yield on the Offered Certificates will be sensitive to (x) adjustments to the
Mortgage Rates on the ARM Loans and (y) changes in the relative composition of
the Mortgage Pool as a result of scheduled amortization, voluntary prepayments
and involuntary liquidations of the Mortgage Loans. See "Description of the
Mortgage Pool" herein and "--Yield Considerations--Rate and Timing of Principal
Payments" below.
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by the
rate and timing of principal payments on such Certificates. As and to the extent
described herein, the holders of each Class of Offered Certificates will be
entitled to receive on each Distribution Date their allocable share (calculated
on the basis of the Ownership Percentage evidenced by such Class of Certificates
immediately prior to such date) of the Scheduled Principal Distribution Amount
for such Distribution Date; however, the Unscheduled Principal Distribution
Amount for each Distribution Date will be distributable entirely in respect of
the Class A Certificates, until the Certificate Balance thereof is reduced to
zero, and will thereafter be distributable entirely in respect of the Class B
Certificates. See "Description of the Certificates--Distributions--Priority" and
"--Distributions--Scheduled Principal Distribution Amount and Unscheduled
Principal Distribution Amount" herein. Consequently, the rate and timing of
principal payments on the Offered Certificates will be directly related to the
rate and timing of principal payments on or in respect of the Mortgage Loans
(including principal prepayments on the Mortgage Loans resulting from both
voluntary prepayments by the mortgagors and involuntary liquidations). The rate
and timing of principal payments on the Mortgage Loans will in turn be affected
by the amortization schedules thereof, the dates on which Balloon Payments are
due and the rate and timing of principal prepayments and other unscheduled
collections thereon (including for this purpose, collections made in connection
with liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties, or purchases of Mortgage Loans out of the
Trust Fund). Prepayments and, assuming the respective stated maturity dates
therefor have not occurred, liquidations and purchases of the Mortgage Loans,
will result in distributions on the Offered Certificates of amounts that would
otherwise be distributed over the remaining terms of the Mortgage Loans.
Defaults on the Mortgage Loans, particularly at or near their stated maturity
dates, may result in significant delays in payments of principal on the Mortgage
Loans (and, accordingly, on the Offered Certificates) while work-outs are
negotiated or foreclosures are completed. See "Servicing of the Mortgage
Loans--Modifications, Waivers and Amendments" herein and "Description of the
Pooling Agreements--Realization Upon Defaulted Mortgage Loans" and "Certain
Legal Aspects of Mortgage Loans--Foreclosure" in the Prospectus.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which they are purchased at a discount or premium and when, and to what degree,
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payments of principal on the Mortgage Loans are in turn distributed on such
Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the Mortgage Loans could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
any Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield to such
investor that is lower than the anticipated yield. In general, the earlier a
payment of principal on the Mortgage Loans is distributed on an Offered
Certificate purchased at a discount or premium, the greater will be the effect
on an investor's yield to maturity. As a result, the effect on an investor's
yield of principal payments (to the extent distributable on such investor's
Offered Certificates) occurring at a rate higher (or lower) than the rate
anticipated by the investor during any particular period would not be fully
offset by a subsequent like reduction (or increase) in the rate of principal
payments. Because the rate of principal payments on the Mortgage Loans will
depend on future events and a variety of factors (as described more fully
below), no assurance can be given as to such rate or the rate of principal
prepayments in particular. The Depositor is not aware of any relevant publicly
available or authoritative statistics with respect to the historical prepayment
experience of a large group of mortgage loans comparable to the Mortgage Loans.
The yield to maturity of Offered Certificates that are purchased at a
discount or premium will be similarly affected by payments of principal thereon
made with funds in excess of the Distributable Principal to which the holders of
such Certificates may be then entitled. As described herein under "Description
of the Certificates--Distributions--Priority", if there exists an Uncovered
Portion of the Certificate Balance of any Class of Regular Certificates
outstanding immediately prior to a Distribution Date, distributions will be
made, to the extent of the lesser of available funds and such Uncovered Portion,
in reduction of the Certificate Balance(s) of such Class of Regular Certificates
and each other Class of Regular Certificates, if any, with an earlier
alphabetical Class designation, in alphabetical order of such Class
designations. Accordingly, losses incurred in respect of the Mortgage Pool, to
the extent creating an Uncovered Portion of the Certificate Balance of the Class
C Certificates, could speed amortization of the Offered Certificates, to the
extent described above, beyond any positive effect on such amortization that
would generally result from liquidations of Mortgage Loans prior to their
maturity.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will, with the exception of any Net Aggregate
Prepayment Interest Shortfalls, generally be borne: first, by the holders of the
Private Certificates, to the extent of amounts otherwise distributable in
respect of their Certificates; second, by the holders of the Class B
Certificates, to the extent of amounts otherwise distributable in respect of
their Certificates; and last, by the holders of the Class A Certificates. As
more fully described herein under "Description of the
Certificates--Distributions--Distributable Certificate Interest", Net Aggregate
Prepayment Interest Shortfalls will generally be borne by the respective Classes
of Certificateholders on a pro rata basis.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, Prepayment Premiums, adjustable
Mortgage Rates and amortization terms that require balloon payments), the
demographics and relative economic vitality of the areas in which the Mortgaged
Properties are located and the general supply and demand for rental units in
such areas, the quality of management of the Mortgaged Properties, the servicing
of the Mortgage Loans, possible changes in tax laws and other opportunities for
investment. See "Risk Factors--The Mortgage Loans" and "Description of the
Mortgage Pool" herein and "Yield and Maturity Considerations--Principal
Prepayments" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Although most of the Mortgage Loans are ARM Loans, adjustments to the
Mortgage Rates thereon will generally be limited by lifetime and/or periodic
caps and floors and, in each case, will be based on the related Index (which may
not rise and fall consistently with mortgage interest rates then available) plus
the related Gross Margin (which may be different from margins then offered on
adjustable rate mortgage loans). See "Description of the Mortgage Pool--Certain
Payment Characteristics" and "--The Index" herein. As a result, the Mortgage
Rates on the ARM Loans at any time may not be comparable to prevailing market
interest rates. In addition, as prevailing market interest rates decline, and
without regard to whether the Mortgage Rates on the ARM Loans decline in a
manner consistent therewith, related borrowers may have an increased incentive
to refinance for purposes of either (i) converting to a fixed rate loan and
thereby "locking in" such rate, or (ii) taking advantage of a different index,
S-46
<PAGE>
margin or rate cap or floor on another adjustable rate mortgage loan. The
Mortgage Loans may be prepaid at any time and, in ____ cases (approximately
_____% of the Initial Pool Balance), may be prepaid in whole or in part without
payment of a Prepayment Premium.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by Federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to which
a default will have occurred as of any date or as to the overall rate of
prepayment or default on the Mortgage Loans.
Delay in Payment of Distributions. Because monthly distributions will not
be made to Certificateholders until a date that is scheduled to be at least
_____ days and as many as ______ days following the Due Dates for the Mortgage
Loans during the related Due Period, the effective yield to the holders of the
Offered Certificates will be lower than the yield that would otherwise be
produced by the applicable Pass-Through Rates and purchase prices (assuming such
prices did not account for such delay).
Unpaid Distributable Certificate Interest. As described under "Description
of the Certificates--Distributions--Priority" herein, if the portion of the
Available Distribution Amount distributable in respect of interest on either
Class of Offered Certificates on any Distribution Date is less than the
Distributable Certificate Interest then payable for such Class, the shortfall
will be distributable to holders of such Class of Certificates on subsequent
Distribution Dates, to the extent of available funds. Any such shortfall will
not bear interest, however, and will therefore negatively affect the yield to
maturity of such Class of Certificates for so long as it is outstanding.
Weighted Average Life
The weighted average life of an Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each dollar
allocable to principal of such Certificate is distributed to the investor. The
weighted average life of an Offered Certificate will be influenced by, among
other things, the rate at which principal on the Mortgage Loans is paid or
otherwise collected or advanced and by the availability of any amounts other
than Distributable Principal to amortize the Certificate Balance of its Class.
As and to the extent described herein, the holders of each Class of Offered
Certificates will be entitled to receive on each Distribution Date their
allocable share (calculated on the basis of the Ownership Percentage evidenced
by such Class of Certificates immediately prior to such date) of the Scheduled
Principal Distribution Amount for such Distribution Date; however, the
Unscheduled Principal Distribution Amount for each Distribution Date will be
distributable entirely in respect of the Class A Certificates, until the
Certificate Balance thereof is reduced to zero, and will thereafter be
distributable entirely in respect of the Class B Certificates. In addition, as
and to the extent described herein, distributions in respect of an Uncovered
Portion of the Certificate Balance of any Class of Regular Certificates will be
applied, to the extent of such Uncovered Portion, in reduction of the
Certificate Balance(s) of such Class of Regular Certificates and each other
Class of Regular Certificates, if any, with an earlier alphabetical Class
designation, in alphabetical order of such Class designations. See "Description
of the Certificates--Distributions--Priority" and "--Distributions--Scheduled
Principal Distribution Amount and Unscheduled Principal Distribution Amount"
herein. As a consequence of the foregoing, the weighted average life of the
Class A Certificates will be shorter, and the weighted average life of the Class
B Certificates may be longer, than would otherwise be the case if Distributable
Principal and any other amounts being applied in reduction of the Certificate
Balances of the Regular Certificates were being distributed on a pro rata basis
among the respective Classes thereof.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the ["Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant annual rate
of prepayment each month, expressed as a per annum percentage of the then
scheduled principal balance of the pool of mortgage loans. As used in each of
the following tables, the column headed "0%" assumes that none of the Mortgage
Loans is prepaid before maturity. The columns headed "___%", "___%", "___%" and
"___%" assume that prepayments on the Mortgage Loans are made at those CPRs.
There is no assurance, however, that prepayments of the Mortgage Loans will
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<PAGE>
conform to any level of CPR, and no representation is made that the Mortgage
Loans will prepay at the CPRs shown or at any other prepayment rate. ]
The following tables indicate the percentage of the initial Certificate
Balance of each Class of Offered Certificates that would be outstanding after
each of the dates shown at various CPRs and the corresponding weighted average
life of each such Class of Offered Certificates. The tables have been prepared
on the basis of the following assumptions, among others: (i) scheduled monthly
payments of principal and interest on the Mortgage Loans will be timely received
(with no defaults) and will be distributed on the 25th day of each month
commencing in ________ 199___; (ii) the Mortgage Rate in effect for each
Mortgage Loan as of the Cut-off Date will remain in effect (a) in the case of
each Fixed Rate Loan, to maturity and, (b) in the case of each ARM Loan, until
its next Interest Rate Adjustment Date, when a new Mortgage Rate that is to
remain in effect to maturity will be calculated reflecting the value of the
related Index as of ________, 199__, subject to such Mortgage Loan's lifetime
and/or periodic rate caps and floors, if any; (iii) all Mortgage Loans accrue
and pay interest on a 360/360 basis; (iv) the monthly principal and interest
payment due for each Mortgage Loan on the first Due Date following the Cut-off
Date will continue to be due (a) in the case of each Fixed Rate Loan, on each
Due Date until maturity and (b) in the case of each ARM Loan, until its next
Payment Adjustment Date, when a new payment that is to be due on each Due Date
until maturity will be calculated reflecting the appropriate Mortgage Rate and
remaining amortization term; (v) principal prepayments on the Mortgage Loans
will be received on their respective Due Dates at the respective CPRs set forth
in the tables, and there will be no Net Aggregate Prepayment Interest Shortfalls
in connection therewith; and (vi) the Mortgage Loan Seller will not be required
to repurchase any Mortgage Loan, and the Master Servicer will not exercise its
option to purchase all the Mortgage Loans and thereby cause an early termination
of the Trust Fund. To the extent that the Mortgage Loans have characteristics
that differ from those assumed in preparing the tables set forth below, each
Class of the Offered Certificates may mature earlier or later than indicated by
the tables. It is highly unlikely that the Mortgage Loans will prepay at any
constant rate until maturity or that all the Mortgage Loans will prepay at the
same rate. In addition, variations in the actual prepayment experience and the
balance of the Mortgage Loans that prepay may increase or decrease the
percentages of initial Certificate Balances (and weighted average lives) shown
in the following tables. Such variations may occur even if the average
prepayment experience of the Mortgage Loans were to equal any of the specified
CPR percentages.
Investors are urged to conduct their own analyses of the rates at which the
Mortgage Loans may be expected to prepay.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class A Certificates and sets forth the
percentage of the initial Certificate Balance of the Class A Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
S-48
<PAGE>
Percent of the Initial Certificate Balance of the
Class A Certificates at the Respective CPRs
Set Forth Below:
<TABLE>
<CAPTION>
Date 0% % % % %
---- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
Delivery Date........................... 100.0 100.0 100.0 100.0 100.0
_________ 25, 1996......................
_________ 25, 1997......................
_________ 25, 1998......................
_________ 25, 1999......................
_________ 25, 2000......................
_________ 25, 2001......................
_________ 25, 2002......................
_________ 25, 2003......................
Weighted Average Life (years)(A)........
</TABLE>
- --------
(A) The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class A Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class A Certificate.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class B Certificates and sets forth the
percentage of the initial Certificate Balance of the Class B Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
Percent of the Initial Certificate Balance of the
Class B Certificates at the Respective CPRs
Set Forth Below:
<TABLE>
<CAPTION>
Date 0% % % % %
---- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
Delivery Date........................... 100.0 100.0 100.0 100.0 100.0
_________ 25, 1996......................
_________ 25, 1997......................
_________ 25, 1998......................
_________ 25, 1999......................
_________ 25, 2000......................
_________ 25, 2001......................
_________ 25, 2002......................
_________ 25, 2003......................
_________ 25, 2004......................
Weighted Average Life (years)(A)........
</TABLE>
- --------
(A) The weighted average life of a Class B Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class B Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class B Certificate.
[The following disclosure is applicable to Stripped Interest Certificates...
S-49
<PAGE>
Yield Sensitivity of the Class S Certificates
The yield to maturity of the Class S Certificates will be especially
sensitive to the prepayment, repurchase and default experience on the Mortgage
Loans, which may fluctuate significantly from time to time. A rapid rate of
principal payments will have a material negative effect on the yield to maturity
of the Class S Certificates. There can be no assurance that the Mortgage Loans
will prepay at any particular rate. Prospective investors in the Class S
Certificates should fully consider the associated risks, including the risk that
such investors may not fully recover their initial investment.
The following table indicates the sensitivity to various rates of
prepayment on the Mortgage Loans of the annual aggregate payments of interest on
the Class S Certificates and the pre-tax yields to maturity on a corporate bond
equivalent basis of the Class S Certificates. Such calculations are based on the
assumptions described on page __ hereof and that the Class S Certificates are
purchased on _____________, at an assumed aggregate purchase price equal to
$____________ (which includes accrued interest from ____________).
Projected Annual Aggregate Payments of Interest and
Pre-Tax Yield on the Class S Certificates
(in thousands)
<TABLE>
<CAPTION>
Twelve consecutive
Distribution Dates Percentages of [Prepayment speed model]
----------------------------------------------------------------------------
ending % % % % %
------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
________ 25, 1996.......
________ 25, 1997.......
________ 25, 1998.......
________ 25, 1999.......
________ 25, 2000.......
________ 25, 2001.......
________ 25, 2002.......
________ 25, 2003.......
________ 25, 2004.......
________ 25, 2005.......
________ 25, 2006.......
________ 25, 2007.......
Total Payments..........
Pre-Tax Yield...........
</TABLE>
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates that, when applied to the assumed streams
of cash flows to be paid on the Class S Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed
aggregate purchase price of such Certificates and by converting such monthly
rates to corporate bond equivalent rates. Such calculation does not take into
account shortfalls in collection of interest due to prepayments (or other
liquidations) on the Mortgage Loans or the interest rates at which investors may
be able to reinvest funds received by them as distributions on the Class S
Certificates and consequently does not purport to reflect the return on any
investment in the Class S Certificates when such reinvestment rates are
considered. Such calculation does not presume receipt of any distributions in
respect of Prepayment Premiums.
The characteristics of the Mortgage Loans may differ from those assumed in
preparing the table above. There can be no assurance that the Mortgage Loans
will prepay at any of the rates shown in the table or at any other particular
rate, that the cash flows on the Class S Certificates will correspond to the
cash flow shown herein or that the aggregate purchase price of the Class S
Certificates will be as assumed. [Describe prepayment speed model] In addition,
it is unlikely that any Mortgage Loan will prepay at the specified percentages
of [Prepayment speed model] until maturity or that all of the Mortgage Loans
will prepay at the same rate. The timing of changes in the rate of prepayments
may significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments is consistent with the expectations of
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<PAGE>
investors. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Class S
Certificates.]
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Offered Certificates
will be used by the Depositor to purchase the Mortgage Loans and to pay certain
expenses in connection with the issuance of the Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Cadwalader, Wickersham &
Taft, counsel to the Depositor, will deliver its opinion generally to the effect
that, assuming compliance with all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes, the Trust Fund will qualify as a
REMIC under the Code.
For federal income tax purposes, the Class R Certificates will be the sole
class of "residual interests" in the REMIC and the Class A, Class B and Class C
Certificates will be the "regular interests" in the REMIC and will be treated as
debt instruments of the REMIC.
See "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates" in the Prospectus.
The Class _____ Certificates [may] [will not] be treated as having been
issued with original issue discount for federal income tax purposes. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, market discount and premium, if any, for federal income
tax purposes will be based on the assumption that subsequent to the date of any
determination the Mortgage Loans will prepay at a rate equal to ___% [CPR]
[SPA]. No representation is made that the Mortgage Loans will prepay at that
rate or at any other rate. See "Certain Federal Income Tax Consequences--Federal
Income Tax Consequences for REMIC Certificates--Taxation of Regular
Certificates--Original Issue Discount" in the Prospectus.
The Class _____ Certificates may be treated for federal income tax purposes
as having been issued at a premium. Whether any holder of such a class of
Certificates will be treated as holding a certificate with amortizable bond
premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such class of Certificates
should consult their own tax advisors regarding the possibility of making an
election to amortize such premium. See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Regular Certificates--Premium" in the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code[, assets described in
Section 7701(a)(19)(C) of the Code] and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code generally in the same proportion that the
assets of the REMIC underlying such Certificates would be so treated. [In
addition, the Offered Certificates will be "obligation(s) ... which ... [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(C) of the Code generally to the extent that such Offered
Certificates are treated as "real estate assets" under Section 856(c)(5)(A) of
the Code. Moreover, the Offered Certificates will be "obligation[s] ... which
... [are] principally secured by an interest in real property" within the
meaning of Section 860G(a)(3)(C) of the Code.] [The Offered Certificates will
not be considered to represent an interest in "loans ... secured by an interest
in real property" within the meaning of Section 7701(a)(19)(C)(v) of the Code.]
See "Certain Federal Income Tax Consequences--Federal Income Tax Consequences
for REMIC Certificates--Status of REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Class A Certificates, see "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" in the
Prospectus.
S-51
<PAGE>
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and insurance company general and separate
accounts in which such plans, accounts or arrangements are invested, that is
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (each, a "Plan") should carefully review
with its legal advisors whether the purchase or holding of Offered Certificates
could give rise to a transaction that is prohibited or is not otherwise
permitted either under ERISA or Section 4975 of the Code or whether there exists
any statutory or administrative exemption applicable thereto.
[The U.S. Department of Labor issued to The Chase Manhattan Corporation
(formerly known as Chemical Banking Corporation) an individual prohibited
transaction exemption, Prohibited Transaction Exemption 90-33 (the "Exemption"),
which generally exempts from the application of the prohibited transaction
provisions of Section 406 of ERISA, and the excise taxes imposed on such
prohibited transactions pursuant to Sections 4975(a) and (b) of the Code,
certain transactions, among others, relating to the servicing and operation of
mortgage pools, such as the Mortgage Pool, and the purchase, sale and holding of
mortgage pass-through certificates, such as the Class A Certificates,
underwritten by an Underwriter (as hereinafter defined), provided that certain
conditions set forth in the Exemption are satisfied. For purposes of this
Section "ERISA Considerations", the term "Underwriter" shall include (a) The
Chase Manhattan Corporation, (b) any person directly or indirectly, through one
or more intermediaries, controlling, controlled by or under common control with
The Chase Manhattan Corporation [(such as Chase Securities Inc.)], and (c) any
member of the underwriting syndicate or selling group of which a person
described in (a) or (b) is a manager or co-manager with respect to the Class A
Certificates.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of the Class A
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Class A Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the rights and interests evidenced by the Class
A Certificates must not be subordinated to the rights and interests evidenced by
the other certificates of the same trust. Third, the Class A Certificates at the
time of acquisition by the Plan must be rated in one of the three highest
generic rating categories by Standard & Poor's ("Standard & Poor's"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("Duff &
Phelps") or Fitch Investors Service, Inc. ("Fitch"). Fourth, the Trustee cannot
be an affiliate of any other member of the "Restricted Group", which consists of
any Underwriter, the Depositor, the Master Servicer, the Trustee, any
sub-servicer, and any mortgagor with respect to Mortgage Loans constituting more
than 5% of the aggregate unamortized principal balance of the Mortgage Loans as
of the date of initial issuance of the Class A Certificates. Fifth, the sum of
all payments made to and retained by the Underwriter must represent not more
than reasonable compensation for underwriting the Class A Certificates; the sum
of all payments made to and retained by the Depositor pursuant to the assignment
of the Mortgage Loans to the Trust Fund must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Master Servicer and any sub-servicer must represent not more
than reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Because the Class A Certificates are not subordinated to any other Class of
Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Class A
Certificates that they be rated not lower than "__" by
_______________________________________. As of the Delivery Date, the fourth
general condition set forth above will be satisfied with respect to the Class A
Certificates. A fiduciary of a Plan contemplating purchasing a Class A
Certificate in the secondary market must make its own determination that, at the
time of such purchase, the Class A Certificates continue to satisfy the third
and fourth general conditions set forth above. A fiduciary of a Plan
contemplating purchasing a Class A Certificate, whether in the initial issuance
of such Certificates or in the secondary market, must make its own determination
that the first, fifth and sixth general conditions set forth above will be
satisfied with respect to such Class A Certificate.
[The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
Standard & Poor's, Moody's, Duff & Phelps or Fitch for at least one year prior
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<PAGE>
to the Plan's acquisition of Class A Certificates; and (iii) certificates in
such other investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of Class A
Certificates. [The Depositor has confirmed to its satisfaction that such
requirements have been satisfied as of the date hereof.]]
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1) (A) through (D) of the Code) in connection
with (i) the direct or indirect sale, exchange or transfer of Class A
Certificates in the initial issuance of Certificates between the Depositor or an
Underwriter and a Plan when the Depositor, the Underwriter, the Trustee, the
Master Servicer, a sub-servicer or a mortgagor is a Party in Interest with
respect to the investing Plan, (ii) the direct or indirect acquisition or
disposition in the secondary market of the Class A Certificates by a Plan and
(iii) the holding of Class A Certificates by a Plan. However, no exemption is
provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of
ERISA for the acquisition or holding of a Class A Certificate on behalf of an
"Excluded Plan" by any person who has discretionary authority or renders
investment advice with respect to the assets of such Excluded Plan. For purposes
hereof, an Excluded Plan is a Plan sponsored by any member of the Restricted
Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Class A Certificates in the initial issuance of Certificates between
the Depositor or an Underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in such Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the Mortgage Loans or (b) an affiliate of such a person,
(2) the direct or indirect acquisition or disposition in the secondary market of
Class A Certificates by a Plan and (3) the holding of Class A Certificates by a
Plan. Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Mortgage Pool.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm that (i) the Class A Certificates constitute "certificates" for
purposes of the Exemption and (ii) the specific and general conditions and the
other requirements set forth in the Exemption would be satisfied. In addition to
making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other prohibited transaction exemptions. See "ERISA Considerations" in
the Prospectus. A purchaser of a Class A Certificate should be aware, however,
that even if the conditions specified in one or more exemptions are satisfied,
the scope of relief provided by an exemption may not cover all acts which might
be construed as prohibited transactions.]
[Because the characteristics of the Class B Certificates do not meet the
requirements of the Exemption, the purchase or holding of such Certificates by a
Plan may result in prohibited transactions or the imposition of excise taxes or
civil penalties. As a result,] no transfer of a [Class B] Certificate or any
interest therein may be made to a Plan or to any person who is directly or
indirectly purchasing such [Class B] Certificate or interest therein on behalf
of, as named fiduciary of, as trustee of, or with assets of a Plan, unless the
prospective transferee provides the Certificate Registrar with a certification
of facts and an opinion of counsel which establish to the satisfaction of the
Certificate Registrar that such transfer will not result in a violation of
Section 406 of ERISA or Section 4975 of the Code or cause the Master Servicer or
the Trustee to be deemed a fiduciary of such Plan or result in the imposition of
an excise tax under Section 4975 of the Code. See "ERISA Considerations" in the
Prospectus.
Any Plan fiduciary considering whether to purchase an Offered Certificate
on behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment.
The sale of Certificates to a Plan is in no respect a representation by the
Depositor or Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan.
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<PAGE>
LEGAL INVESTMENT
[As long as the Class A Certificates are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization, the Class A Certificates will constitute "mortgage related
securities" within the meaning of the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA"), and as such will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, insurance companies and pension funds)
created pursuant to or existing under the laws of the United States or of any
State whose authorized investments are subject to state regulation to the same
extent that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Pursuant to SMMEA, a
number of States enacted legislation on or prior to the October 3, 1991 cut-off
for such enactments limiting the legal investment authority of certain entities
(in particular, insurance companies) to invest in "mortgage related securities."
Accordingly, such securities will constitute legal investments for entities
subject to such legislation only to the extent provided therein.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
Section 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.]
[The Class B Certificates will not be "mortgage related securities" for
purposes of SMMEA. As a result, the appropriate characterization of the Class B
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Class B Certificates,
is subject to significant interpretive uncertainties.]
[Except as to the status of the Class A Certificates as "mortgage related
securities," no] [No] representation is made as to the proper characterization
of the Offered Certificates for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase the Offered Certificates under applicable legal investment
or other restrictions. All institutions whose investment activities are subject
to legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates constitute legal
investments for them or are subject to investment, capital or other
restrictions.
See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and the Underwriter, the Offered Certificates will be
purchased from the Depositor by the Underwriter, an affiliate of the Depositor,
upon issuance. Proceeds to the Depositor from the sale of the Offered
Certificates, before deducting expenses payable by the Depositor estimated to be
approximately $_______, will be _______% of the initial aggregate Certificate
Balance thereof, plus accrued interest.
Distribution of the Offered Certificates will be made by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The Underwriter may effect such transactions
by selling the Offered Certificates to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter. In connection with the purchase and sale of
the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the "Securities Act").
S-54
<PAGE>
Purchasers of the Offered 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 in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
The Depositor also has been advised by the Underwriter that it, through one
or more of its affiliates, currently intends to make a market in the Offered
Certificates; however, it has no obligation to do so, any market making may be
discontinued at any time and there can be no assurance that an active public
market for the Offered Certificates will develop. See "Risk Factors--Limited
Liquidity" herein and "Risk Factors--Secondary Market" in the Prospectus.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by the Underwriter in
connection with offers and sales related to market-making transactions in the
Offered Certificates in which the Underwriter acts as principal. The Underwriter
may also act as agent in such transactions. Sales may be made at negotiated
prices determined at the time of sale.]
The Depositor has agreed to indemnify the Underwriter and each person, if
any, who controls the Underwriter within the meaning of Section 15 of the
Securities Act against, or make contributions to the Underwriter and each such
controlling person with respect to, certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and the
Underwriter by Cadwalader, Wickersham & Taft, New York, New York.
RATING
It is a condition to issuance that the Class A Certificates be rated not
lower than "__", and the Class B Certificates be rated not lower than "__", by
____________________________________.
A securities rating on mortgage pass-through certificates addresses the
likelihood of the receipt by holders thereof of payments to which they are
entitled. The rating takes into consideration the credit quality of the mortgage
pool, structural and legal aspects associated with the certificates, and the
extent to which the payment stream from the mortgage pool is adequate to make
payments required under the certificates. The ratings on the Offered
Certificates do not, however, constitute a statement regarding the likelihood or
frequency of prepayments (whether voluntary or involuntary) on the Mortgage
Loans, [The following disclosure is applicable to Stripped Interest
Certificates... or the possibility that as a result of prepayments investors in
the Class S Certificates may realize a lower than anticipated yield or may fail
to recover fully their initial investment.]
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to either or both
Classes thereof and, if so, what such rating or ratings would be. A rating
assigned to either Class of Offered Certificates by a rating agency that has not
been requested by the Depositor to do so may be lower than the rating assigned
thereto by ___________________________.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency. See "Risk
Factors--Limited Nature of Ratings" in the Prospectus.
S-55
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
360/360 basis....................................................S-40
Accrued Certificate Interest.....................................S-41
Advance..........................................................S-43
ARM Loans..............................................S-2, S-8, S-23
Available Distribution Amount..............................S-12, S-39
Balloon Payment.............................................S-9, S-23
Certificate Balance...............................................S-2
Certificate Registrar............................................S-38
Certificates.................................................S-1, S-7
Class.............................................................S-1
Class A Certificate Owner.........................................S-7
Class S Certificate...............................................S-2
Code.............................................................S-18
Constant Prepayment Rate.........................................S-47
CPR..............................................................S-47
Custodian........................................................S-33
Cut-off Date.................................................S-1, S-7
Cut-off Date LTV Ratio...........................................S-29
Debt Service Coverage Ratio......................................S-29
Definitive Class A Certificate....................................S-7
Delivery Date................................................S-2, S-7
Depositor....................................................S-1, S-7
Determination Date...............................................S-39
Distributable Certificate Interest.........................S-14, S-41
Distributable Principal....................................S-13, S-41
Distribution Date.....................................S-2, S-11, S-38
Distribution Date Statement......................................S-43
DTC...............................................................S-7
Due Date..........................................................S-8
Due Period.................................................S-11, S-39
Effective Net Mortgage Rate................................S-11, S-40
ERISA......................................................S-18, S-52
ERISA Considerations.............................................S-38
Exemption........................................................S-52
Fixed Rate Loans.......................................S-2, S-8, S-23
Form 8-K.........................................................S-34
Gross Margin......................................................S-8
Index..................................................S-2, S-8, S-23
Initial Pool Balance..............................................S-1
Interest Rate Adjustment Date.....................................S-8
Master Servicer...................................................S-7
Master Servicer Reimbursement Rate.........................S-16, S-43
Monthly Payments.............................................S-2, S-8
Mortgage.........................................................S-22
Mortgage File....................................................S-33
Mortgage Loan Purchase Agreement............................S-8, S-31
Mortgage Loan Seller.............................S-2, S-7, S-23, S-31
Mortgage Loans....................................................S-1
Mortgage Note....................................................S-22
Mortgage Pool.....................................................S-1
Mortgage Rate................................................S-2, S-8
Mortgaged Property..........................................S-8, S-22
Net Aggregate Prepayment Interest Shortfall................S-13, S-41
Net Mortgage Rate..........................................S-11, S-40
Net Operating Income.............................................S-29
Nonrecoverable P&I Advance.......................................S-43
Offered Certificates...................................S-1, S-7, S-38
Ownership Percentage.......................................S-14, S-41
P&I Advance................................................S-16, S-43
Participants......................................................S-7
Pass-Through Rate.................................................S-2
Payment Adjustment Date...........................................S-9
Percentage Interest..............................................S-39
Permitted Investments............................................S-36
Plan.......................................................S-18, S-52
Pooling and Servicing Agreement............................S-10, S-37
Prepayment Interest Excess.................................S-13, S-36
Prepayment Interest Shortfall..............................S-13, S-36
Prepayment Premiums..............................................S-23
Private Certificates........................................S-7, S-38
Purchase Price...................................................S-33
Rating Agencies..................................................S-18
Record Date......................................................S-11
Related Proceeds.................................................S-43
REMIC.............................................................S-3
Regular Certificates...................................S-3, S-7, S-38
REO Loan.........................................................S-42
REO Property...............................................S-14, S-37
Scheduled Principal Distribution Amount....................S-13, S-41
Securities Act...................................................S-54
Servicing Fee....................................................S-35
Servicing Fee Rate...............................................S-35
SMMEA......................................................S-18, S-54
Stated Principal Balance...................................S-11, S-41
Subordinate Certificates...................................S-17, S-42
Trustee...........................................................S-7
Trust Fund..................................................S-1, S-10
Uncovered Portion..........................................S-10, S-42
Underwriter.......................................................S-1
Unscheduled Principal Distribution Amount..................S-14, S-41
Weighted Average Effective Net Mortgage Rate...............S-11, S-40
S-56
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<PAGE>
CHASE COMMERCIAL MORTGAGE
SECURITIES CORP.
$-----------
Class A and Class B
Multifamily Mortgage Pass-Through
Certificates
Series 199_-_
Variable Pass-Through Rate
___________
PROSPECTUS SUPPLEMENT
__________, 199_
___________
[Chase Securities Inc.]
No dealer, salesman or other person has been authorized to give any
information or to make any representations not 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 the Depositor or by the Underwriter. This Prospectus Supplement and the
accompanying Prospectus do not constitute an offer to sell, or a solicitation of
an offer to buy, the securities offered hereby to anyone in any jurisdiction in
which the person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make any such offer or solicitation. Neither
the delivery of this Prospectus Supplement and the accompanying Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that information herein or therein is correct as of any time since the date of
this Prospectus Supplement or the accompanying Prospectus.
TABLE OF CONTENTS
Page
Prospectus Supplement
Summary...................................................S-7
Risk Factors.............................................S-20
Description of the Mortgage Pool.........................S-22
Servicing of the Mortgage Loans..........................S-35
Description of the Certificates..........................S-37
Yield and Maturity Considerations........................S-45
Use of Proceeds..........................................S-51
Certain Federal Income Tax Consequences..................S-51
ERISA Considerations.....................................S-52
Legal Investment.........................................S-54
Method of Distribution...................................S-54
Legal Matters............................................S-55
Rating...................................................S-55
Prospectus
Available Information.......................................3
Incorporation of Certain Information by Reference...........4
Summary of Prospectus.......................................9
Risk Factors...............................................17
Description of the Trust Funds.............................24
Yield and Maturity Considerations..........................29
The Depositor..............................................35
Use of Proceeds............................................35
Description of the Certificates............................35
Description of the Pooling Agreements......................43
Description of Credit Support..............................58
Certain Legal Aspects of Mortgage Loans....................60
Certain Federal Income Tax Consequences....................70
State Tax Considerations...................................96
ERISA Considerations.......................................96
Legal Investment...........................................98
Method of Distribution.....................................99
Legal Matters.............................................101
Financial Information.....................................101
Rating....................................................101
Index of Principal Definitions............................102
<PAGE>
PROSPECTUS
Mortgage Pass-Through Certificates
(Issuable in Series)
Chase Commercial Mortgage Securities Corp.
(Depositor)
--------
The mortgage pass-through certificates (the "Offered Certificates")
offered hereby and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series. The Offered Certificates of any
series, together with any other mortgage pass-through certificates of such
series, are collectively referred to herein as the "Certificates".
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") consisting primarily of a segregated pool (a "Mortgage Asset
Pool") of various types of multifamily or commercial mortgage loans (the
"Mortgage Loans"), mortgage-backed securities ("MBS") that evidence interests
in, or that are secured by pledges of, one or more of various types of
multifamily or commercial mortgage loans, or a combination of Mortgage Loans and
MBS (collectively, "Mortgage Assets"). If so specified in the related Prospectus
Supplement, the Trust Fund for a series of Certificates may include letters of
credit, insurance policies, guarantees, reserve funds or other types of credit
support, or any combination thereof (with respect to any series, collectively,
"Credit Support"), and currency or interest rate exchange agreements and other
financial assets, or any combination thereof (with respect to any series,
collectively, "Cash Flow Agreements"). See "Description of the Trust Funds",
"Description of the Certificates" and "Description of Credit Support".
The Depositor does not intend to list any of the Offered Certificates
on any securities exchange and has not made any other arrangement for secondary
trading of the Offered Certificates. There will have been no public market for
the Certificates of any series prior to the offering thereof. No assurance can
be given that such a market will develop as a result of such an offering. See
"Risk Factors".
See "Risk Factors" beginning on page 17 of this Prospectus for certain
factors to be considered in purchasing the Offered Certificates.
(cover continued on next page)
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
The Offered Certificates of any series may be offered through one or
more different methods, including offerings through underwriters, which may
include Chase Securities Inc., an affiliate of the Depositor, as more fully
described under "Method of Distribution" and in the related Prospectus
Supplement.
This Prospectus may not be used to consummate sales of the Offered
Certificates of any series unless accompanied by the Prospectus Supplement for
such series.
The date of this Prospectus is May 28, 1996
<PAGE>
(cover continued)
As described in the related Prospectus Supplement, the Certificates of
each series, including the Offered Certificates of such series, may consist of
one or more classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionately small, nominal or no
distributions of interest; (iv) are entitled to distributions of interest, with
disproportionately small, nominal or no distributions of principal; (v) provide
for distributions of interest thereon or principal thereof that commence only
following the occurrence of certain events, such as the retirement of one or
more other classes of Certificates of such series; (vi) provide for
distributions of principal thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. See "Description of the
Certificates".
Distributions in respect of the Certificates of each series will be
made on a monthly, quarterly, semi-annual, annual or other periodic basis as
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, such distributions will be made only from the
assets of the related Trust Fund.
No series of Certificates will represent an obligation of or interest
in the Depositor or any of its affiliates, except to the limited extent
described herein and in the related Prospectus Supplement. Neither the
Certificates of any series nor the assets in any Trust Fund will be guaranteed
or insured by any governmental agency or instrumentality or by any other person,
unless otherwise provided in the related Prospectus Supplement. The assets in
each Trust Fund will be held in trust for the benefit of the holders of the
related series of Certificates (the "Certificateholders") pursuant to a Pooling
Agreement, as more fully described herein.
The yield on each class of Certificates of a series will be affected
by, among other things, the rate of payment of principal (including prepayments)
on the Mortgage Assets in the related Trust Fund and the timing of receipt of
such payments as described herein and in the related Prospectus Supplement. See
"Yield and Maturity Considerations". A Trust Fund may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates".
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" (a "REMIC") for federal
income tax purposes. See "Certain Federal Income Tax Consequences".
-2-
<PAGE>
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to each series of Offered Certificates will, among other things, set
forth, as and to the extent appropriate: (i) a description of the class or
classes of such Offered Certificates, including the payment provisions with
respect to each such class, the aggregate principal amount of each such class
(the "Certificate Balance"), the rate at which interest accrues from time to
time, if at all, with respect to each such class (the "Pass-Through Rate") or
the method of determining such rate, and whether interest with respect to each
such class will accrue from time to time on its aggregate principal amount or a
specified notional amount, if at all; (ii) information with respect to any other
classes of Certificates of the same series; (iii) the respective dates on which
distributions are to be made; (iv) information as to the assets constituting the
related Trust Fund, including the general characteristics of the assets included
therein, including the Mortgage Assets and any Credit Support and Cash Flow
Agreements (with respect to the Certificates of any series, the "Trust Assets");
(v) the circumstances, if any, under which the related Trust Fund may be subject
to early termination; (vi) additional information with respect to the method of
distribution of such Offered Certificates; (vii) whether one or more REMIC
elections will be made and the designation of the "regular interests" and
"residual interests" in each REMIC to be created; (viii) the initial percentage
ownership interest in the related Trust Fund to be evidenced by each class of
Certificates of such series; (ix) information concerning the trustee (as to any
series, the "Trustee") of the related Trust Fund; (x) if the related Trust Fund
includes Mortgage Loans, information concerning the master servicer (as to any
series, the "Master Servicer") and any special servicer (as to any series, the
"Special Servicer") of such Mortgage Loans; (xi) information as to the nature
and extent of subordination of any class of Certificates of such series,
including a class of Offered Certificates; and (xii) whether such Offered
Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement (of which this Prospectus forms a
part) under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Offered Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional
Offices located as follows: Chicago Regional Office, 500 West Madison, 14th
Floor, Chicago, Illinois 60661; and New York Regional Office, Seven World Trade
Center, New York, New York 10048.
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and any related Prospectus
Supplement and, if given or made, such information or representation must not be
relied upon. This Prospectus and any related Prospectus Supplement do not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the Offered Certificates, or an offer of the Offered Certificates to
any person in any state or other jurisdiction in which such offer would be
unlawful. The delivery of this Prospectus at any time does not imply that
information herein is correct as of any time subsequent to its date; however, if
any material change occurs while this Prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly.
The Master Servicer or Trustee for each series will be required to mail
to holders of the Offered Certificates of each series periodic unaudited reports
concerning the related Trust Fund. If beneficial interests in a class of Offered
Certificates are being held and transferred in book-entry format through the
facilities of The Depository Trust Company ("DTC") as described herein, then
unless otherwise provided in the related Prospectus Supplement, such reports
-3-
<PAGE>
will be sent on behalf of the related Trust Fund to a nominee of DTC as the
registered holder of such Offered Certificates. Conveyance of notices and other
communications by DTC to its participating organizations, and directly or
indirectly through such participating organizations to the beneficial owners of
the applicable Offered Certificates, will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time. See "Description of the Certificates--Reports to
Certificateholders" and "--Book-Entry Registration and Definitive Certificates"
and "Description of the Pooling Agreements--Evidence as to Compliance". The
Depositor will file or cause to be filed with the Commission such periodic
reports with respect to each Trust Fund as are required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of an offering of Offered Certificates evidencing interests therein.
The Depositor will provide or cause to be provided without charge to each person
to whom this Prospectus is delivered in connection with the offering of one or
more classes of Offered Certificates, upon written or oral request of such
person, a copy of any or all documents or reports incorporated herein by
reference, in each case to the extent such documents or reports relate to one or
more of such classes of such Offered Certificates, other than the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Requests to the Depositor should be directed in writing to
its principal executive offices at 380 Madison Avenue, New York, New York
10017-2951, Attention: President, or by telephone at (212) 622-3510. The
Depositor has determined that its financial statements will not be material to
the offering of any Offered Certificates.
-4-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PROSPECTUS SUPPLEMENT.............................................................................................3
AVAILABLE INFORMATION.............................................................................................3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.................................................................4
SUMMARY OF PROSPECTUS.............................................................................................9
RISK FACTORS.....................................................................................................17
Secondary Market........................................................................................17
Limited Assets..........................................................................................17
Prepayments; Average Life of Certificates; Yields.......................................................18
Limited Nature of Ratings...............................................................................19
Risks Associated with Certain Mortgage Loans and Mortgaged Properties...................................20
Balloon Payments; Borrower Default......................................................................20
Credit Support Limitations..............................................................................21
Leases and Rents........................................................................................21
Environmental Risks.....................................................................................22
Special Hazard Losses...................................................................................22
ERISA Considerations....................................................................................23
Certain Federal Tax Considerations Regarding Residual Certificates......................................23
Certain Federal Tax Considerations Regarding Original Issue Discount....................................23
Book-Entry Registration.................................................................................23
Delinquent and Non-Performing Mortgage Loans............................................................24
DESCRIPTION OF THE TRUST FUNDS...................................................................................24
General.................................................................................................24
Mortgage Loans..........................................................................................24
General........................................................................................24
Default and Loss Considerations with Respect to the Mortgage Loans.............................25
Payment Provisions of the Mortgage Loans.......................................................26
Mortgage Loan Information in Prospectus Supplements............................................27
MBS 27
Certificate Accounts....................................................................................28
Credit Support..........................................................................................28
Cash Flow Agreements....................................................................................28
YIELD AND MATURITY CONSIDERATIONS................................................................................29
General.................................................................................................29
Pass-Through Rate.......................................................................................29
Payment Delays..........................................................................................29
Certain Shortfalls in Collections of Interest...........................................................29
Yield and Prepayment Considerations.....................................................................30
Weighted Average Life and Maturity......................................................................31
Controlled Amortization Classes and Companion Classes...................................................32
Other Factors Affecting Yield, Weighted Average Life and Maturity.......................................33
Balloon Payments; Extensions of Maturity.......................................................33
Negative Amortization..........................................................................33
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Foreclosures and Payment Plans.................................................................34
Losses and Shortfalls on the Mortgage Assets...................................................34
Additional Certificate Amortization............................................................34
Optional Early Termination.....................................................................35
THE DEPOSITOR....................................................................................................35
USE OF PROCEEDS..................................................................................................35
DESCRIPTION OF THE CERTIFICATES..................................................................................35
General.................................................................................................35
Distributions...........................................................................................36
Distributions of Interest on the Certificates...........................................................37
Distributions of Principal on the Certificates..........................................................37
Distributions on the Certificates in Respect of Prepayment Premiums or in Respect of
Equity Participations..............................................................................38
Allocation of Losses and Shortfalls.....................................................................38
Advances in Respect of Delinquencies....................................................................38
Reports to Certificateholders...........................................................................39
Voting Rights...........................................................................................41
Termination.............................................................................................41
Book-Entry Registration and Definitive Certificates.....................................................42
DESCRIPTION OF THE POOLING AGREEMENTS............................................................................43
General.................................................................................................43
Assignment of Mortgage Loans; Repurchases...............................................................44
Representations and Warranties; Repurchases.............................................................45
Collection and Other Servicing Procedures...............................................................45
Sub-Servicers...........................................................................................46
Special Servicers.......................................................................................46
Certificate Account.....................................................................................46
General........................................................................................46
Deposits.......................................................................................47
Withdrawals....................................................................................48
Modifications, Waivers and Amendments of Mortgage Loans.................................................50
Realization Upon Defaulted Mortgage Loans...............................................................50
Hazard Insurance Policies...............................................................................52
Due-on-Sale and Due-on-Encumbrance Provisions...........................................................52
Servicing Compensation and Payment of Expenses..........................................................53
Evidence as to Compliance...............................................................................53
Certain Matters Regarding the Master Servicer and the Depositor.........................................54
Events of Default.......................................................................................55
Rights Upon Event of Default............................................................................55
Amendment...............................................................................................56
List of Certificateholders..............................................................................56
The Trustee.............................................................................................56
Duties of the Trustee...................................................................................56
Certain Matters Regarding the Trustee...................................................................57
Resignation and Removal of the Trustee..................................................................57
DESCRIPTION OF CREDIT SUPPORT....................................................................................58
General.................................................................................................58
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Subordinate Certificates................................................................................58
Cross-Support Provisions................................................................................58
Insurance or Guarantees with Respect to Mortgage Loans..................................................59
Letter of Credit........................................................................................59
Certificate Insurance and Surety Bonds..................................................................59
Reserve Funds...........................................................................................59
Credit Support with respect to MBS......................................................................60
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS..........................................................................60
General.................................................................................................60
Types of Mortgage Instruments...........................................................................60
Leases and Rents........................................................................................61
Personalty..............................................................................................61
Foreclosure.............................................................................................61
General........................................................................................61
Judicial Foreclosure...........................................................................62
Equitable Limitations on Enforceability of Certain Provisions..................................62
Non-Judicial Foreclosure/Power of Sale.........................................................62
Public Sale....................................................................................62
Rights of Redemption...........................................................................63
Anti-Deficiency Legislation....................................................................64
Leasehold Risks................................................................................64
Cooperative Shares.............................................................................64
Bankruptcy Laws.........................................................................................65
Environmental Risks.....................................................................................67
Due-on-Sale and Due-on-Encumbrance......................................................................68
Subordinate Financing...................................................................................68
Default Interest and Limitations on Prepayments.........................................................69
Applicability of Usury Laws.............................................................................69
Soldiers' and Sailors' Civil Relief Act of 1940.........................................................69
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..........................................................................70
Federal Income Tax Consequences for REMIC Certificates...........................................................70
General..........................................................................................................70
Status of REMIC Certificates.....................................................................................70
Qualification as a REMIC.........................................................................................71
Taxation of Regular Certificates........................................................................73
General........................................................................................73
Original Issue Discount........................................................................73
Acquisition Premium............................................................................75
Variable Rate Regular Certificates.............................................................75
Deferred Interest..............................................................................76
Market Discount................................................................................77
Premium........................................................................................77
Election to Treat All Interest Under the Constant Yield Method.................................78
Sale or Exchange of Regular Certificates.......................................................78
Treatment of Losses............................................................................79
Taxation of Residual Certificates.......................................................................79
Taxation of REMIC Income.......................................................................79
Basis and Losses...............................................................................80
Treatment of Certain Items of REMIC Income and Expense.........................................81
Limitations on Offset or Exemption of REMIC Income.............................................82
</TABLE>
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<TABLE>
<S> <C>
Tax-Related Restrictions on Transfer of Residual Certificates..................................83
Sale or Exchange of a Residual Certificate.....................................................85
Mark to Market Regulations.....................................................................86
Taxes That May Be Imposed on the REMIC Pool.............................................................86
Prohibited Transactions........................................................................86
Contributions to the REMIC Pool After the Startup Day..........................................86
Net Income from Foreclosure Property...........................................................86
Liquidation of the REMIC Pool...........................................................................87
Administrative Matters..................................................................................87
Limitations on Deduction of Certain Expenses............................................................87
Taxation of Certain Foreign Investors...................................................................88
Regular Certificates...........................................................................88
Residual Certificates..........................................................................88
Backup Withholding......................................................................................89
Reporting Requirements..................................................................................89
Federal Income Tax Consequences For Certificates As To Which No Remic Election Is Made...........................89
Standard Certificates...................................................................................89
General........................................................................................89
Tax Status.....................................................................................90
Premium and Discount...........................................................................91
Recharacterization of Servicing Fees...........................................................91
Sale or Exchange of Standard Certificates......................................................92
Stripped Certificates...................................................................................92
General........................................................................................92
Status of Stripped Certificates................................................................94
Taxation of Stripped Certificates..............................................................94
Reporting Requirements and Backup Withholding...........................................................95
Taxation of Certain Foreign Investors...................................................................96
STATE AND OTHER TAX CONSIDERATIONS...............................................................................96
ERISA CONSIDERATIONS.............................................................................................96
General.................................................................................................96
Plan Asset Regulations..................................................................................97
Administrative Exemptions...............................................................................97
Unrelated Business Taxable Income; Residual Certificates................................................97
LEGAL INVESTMENT.................................................................................................98
METHOD OF DISTRIBUTION...........................................................................................99
LEGAL MATTERS...................................................................................................101
FINANCIAL INFORMATION...........................................................................................101
RATING..........................................................................................................101
INDEX OF PRINCIPAL DEFINITIONS..................................................................................102
</TABLE>
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<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the more detailed information appearing elsewhere
in this Prospectus and by reference to the information with respect to each
series of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of Offered Certificates of such
series. An Index of Principal Definitions is included at the end of this
Prospectus.
Title of Certificates........ Mortgage Pass-Through Certificates, issuable in
series (the "Certificates").
Depositor.................... Chase Commercial Mortgage Securities Corp., a
wholly-owned subsidiary of Chemical Bank, a New
York bank. Later this year, The Chase Manhattan
Bank (National Association) will be merged with
and into Chemical Bank and Chemical Bank will
then change its name to The Chase Manhattan Bank.
See "The Depositor".
Master Servicer.............. The master servicer (the "Master Servicer"), if
any, for a series of Certificates will be named
in the related Prospectus Supplement. The Master
Servicer for any series of Certificates may be an
affiliate of the Depositor or a Special Servicer.
See "Description of the Pooling
Agreements--Collection and Other Servicing
Procedures".
Special Servicer............. One or more special servicers (each, a "Special
Servicer"), if any, for a series of Certificates
will be named, or the circumstances under which a
Special Servicer will be appointed will be
described, in the related Prospectus Supplement.
A Special Servicer for any series of Certificates
may be an affiliate of the Depositor or the
Master Servicer. See "Description of the Pooling
Agreements--Special Servicers".
Trustee...................... The trustee (the "Trustee") for each series of
Certificates will be named in the related
Prospectus Supplement. See "Description of the
Pooling Agreements--The Trustee".
The Trust Assets............. Each series of Certificates will represent in the
aggregate the entire beneficial ownership
interest in a Trust Fund consisting primarily of:
A. Mortgage Assets........... The Mortgage Assets with respect to each series
of Certificates will, in general, consist of a
pool of loans (collectively, the "Mortgage
Loans") secured by liens on, or security
interests in, (i) residential properties
consisting of five or more rental or
cooperatively-owned dwelling units or by shares
allocable to a number of such units and
proprietary leases appurtenant thereto (the
"Multifamily Properties") or (ii) office
buildings, shopping centers, retail stores and
establishments, hotels or motels, nursing homes,
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hospitals or other health-care related
facilities, mobile home parks, warehouse
facilities, mini-warehouse facilities,
self-storage facilities, industrial plants,
parking lots, mixed use or various other types of
income-producing properties or unimproved land
(the "Commercial Properties"). If so specified in
the related Prospectus Supplement, a Trust Fund
may include Mortgage Loans secured by liens on
real estate projects under construction. The
Mortgage Loans will not be guaranteed or insured
by the Depositor or any of its affiliates or,
unless otherwise provided in the related
Prospectus Supplement, by any governmental agency
or instrumentality or by any other person. If so
specified in the related Prospectus Supplement,
some Mortgage Loans may be delinquent or
non-performing as of the date the related Trust
Fund is formed.
As and to the extent described in the related
Prospectus Supplement, a Mortgage Loan (i) may
provide for no accrual of interest or for accrual
of interest thereon at an interest rate (a
"Mortgage Rate") that is fixed over its term or
that adjusts from time to time, or that may be
converted at the borrower's election from an
adjustable to a fixed Mortgage Rate, or from a
fixed to an adjustable Mortgage Rate, (ii) may
provide for level payments to maturity or for
payments that adjust from time to time to
accommodate changes in the Mortgage Rate or to
reflect the occurrence of certain events, and may
permit negative amortization, (iii) may be fully
amortizing or partially amortizing or
non-amortizing, with a balloon payment due on its
stated maturity date, (iv) may prohibit over its
term or for a certain period prepayments and/or
require payment of a premium or a yield
maintenance penalty in connection with certain
prepayments and (v) may provide for payments of
principal, interest or both, on due dates that
occur monthly, quarterly, semi-annually or at
such other interval as is specified in the
related Prospectus Supplement. Unless otherwise
provided in the related Prospectus Supplement,
each Mortgage Loan will have had a principal
balance at origination of not less than $25,000
and an original term to maturity of not more than
40 years. Unless otherwise provided in the
related Prospectus Supplement, no Mortgage Loan
will have been originated by the Depositor;
however, some or all of the Mortgage Loans in any
Trust Fund may have been originated by an
affiliate of the Depositor. See "Description of
the Trust Funds--Mortgage Loans".
If and to the extent specified in the related
Prospectus Supplement, the Mortgage Assets with
respect to a series of Certificates may also
include, or consist of, (i) private mortgage
participations, mortgage pass-through
certificates or other mortgage-backed securities
or (ii) certificates insured or guaranteed by the
Federal Home Loan Mortgage Corporation ("FHLMC"),
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<PAGE>
the Federal National Mortgage Association
("FNMA"), the Governmental National Mortgage
Association ("GNMA") or the Federal Agricultural
Mortgage Corporation ("FAMC") (collectively, the
mortgage-backed securities referred to in clauses
(i) and (ii), "MBS"), provided that each MBS will
evidence an interest in, or will be secured by a
pledge of, one or more mortgage loans that
conform to the descriptions of the Mortgage Loans
contained herein. See "Description of the Trust
Funds--MBS".
B. Certificate Account....... Each Trust Fund will include one or more accounts
(collectively, the "Certificate Account")
established and maintained on behalf of the
Certificateholders into which the person or
persons designated in the related Prospectus
Supplement will, to the extent described herein
and in such Prospectus Supplement, deposit all
payments and other collections received or
advanced with respect to the Mortgage Assets and
other assets in such Trust Fund. A Certificate
Account may be maintained as an interest bearing
or a non-interest bearing account, and funds held
therein may be held as cash or invested in
certain obligations acceptable to each Rating
Agency (as defined below) rating one or more
classes of the related series of Offered
Certificates. See "Description of the Trust
Funds--Certificate Accounts" and "Description of
the Pooling Agreements--Certificate Account".
C. Credit Support............ If so provided in the related Prospectus
Supplement, partial or full protection against
certain defaults and losses on the Mortgage
Assets in the related Trust Fund may be provided
to one or more classes of Certificates of the
related series in the form of subordination of
one or more other classes of Certificates of such
series, which other classes may include one or
more classes of Offered Certificates, or by one
or more other types of credit support, such as a
letter of credit, insurance policy, guarantee,
reserve fund or another type of credit support,
or a combination thereof (any such coverage with
respect to the Certificates of any series,
"Credit Support"). The amount and types of any
Credit Support, the identification of the entity
providing it (if applicable) and related
information will be set forth in the Prospectus
Supplement for a series of Offered Certificates.
See "Risk Factors--Credit Support Limitations",
"Description of the Trust Funds--Credit Support"
and "Description of Credit Support".
D. Cash Flow Agreements...... If so provided in the related Prospectus
Supplement, a Trust Fund may include guaranteed
investment contracts pursuant to which moneys
held in the funds and accounts established for
the related series will be invested at a
specified rate. The Trust Fund may also include
certain other agreements, such as interest rate
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<PAGE>
exchange agreements, interest rate cap or floor
agreements, currency exchange agreements or other
agreements designed to reduce the effects of
interest rate or currency exchange rate
fluctuations on the Mortgage Assets or on one or
more classes of Certificates. The principal terms
of any such guaranteed investment contract or
other agreement (any such agreement, a "Cash Flow
Agreement"), including, without limitation,
provisions relating to the timing, manner and
amount of payments thereunder and provisions
relating to the termination thereof, will be
described in the Prospectus Supplement for the
related series. In addition, the related
Prospectus Supplement will contain certain
information that pertains to the obligor under
any such Cash Flow Agreement. See "Description of
the Trust Funds--Cash Flow Agreements".
Description of Certificates.. Each series of Certificates will be issued in one
or more classes pursuant to a pooling and
servicing agreement or other agreement specified
in the related Prospectus Supplement (in either
case, a "Pooling Agreement") and will represent
in the aggregate the entire beneficial ownership
interest in the related Trust Fund.
As described in the related Prospectus
Supplement, the Certificates of each series,
including the Offered Certificates of such
series, may consist of one or more classes of
Certificates that, among other things: (i) are
senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate
Certificates") to one or more other classes of
Certificates in entitlement to certain
distributions on the Certificates; (ii) are
entitled to distributions of principal, with
disproportionately small, nominal or no
distributions of interest (collectively,
"Stripped Principal Certificates"); (iii) are
entitled to distributions of interest, with
disproportionately small, nominal or no
distributions of principal (collectively,
"Stripped Interest Certificates"); (iv) provide
for distributions of interest thereon or
principal thereof that commence only after the
occurrence of certain events, such as the
retirement of one or more other classes of
Certificates of such series; (v) provide for
distributions of principal thereof to be made,
from time to time or for designated periods, at a
rate that is faster (and, in some cases,
substantially faster) or slower (and, in some
cases, substantially slower) than the rate at
which payments or other collections of principal
are received on the Mortgage Assets in the
related Trust Fund; (vi) provide for
distributions of principal thereof to be made,
subject to available funds, based on a specified
principal payment schedule or other methodology;
or (vii) provide for distribution based on
collections on the Mortgage Assets in the related
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<PAGE>
Trust Fund attributable to prepayment premiums,
yield maintenance penalties or equity
participations.
Each class of Certificates, other than certain
classes of Stripped Interest Certificates and
certain classes of Residual Certificates (as
defined herein), will have a stated principal
amount (a "Certificate Balance"); and each class
of Certificates, other than certain classes of
Stripped Principal Certificates and certain
classes of Residual Certificates, will accrue
interest on its Certificate Balance or, in the
case of certain classes of Stripped Interest
Certificates, on a notional amount (a "Notional
Amount") based on a fixed, variable or adjustable
interest rate (a "Pass-Through Rate"). The
related Prospectus Supplement will specify the
Certificate Balance, Notional Amount and/or
Pass-Through Rate (or, in the case of a variable
or adjustable Pass-Through Rate, the method for
determining such rate), as applicable, for each
class of Offered Certificates.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person or entity,
unless otherwise provided in the related
Prospectus Supplement. See "Risk Factors--Limited
Assets" and "Description of the Certificates".
Distributions of Interest on
the Certificates........... Interest on each class of Offered Certificates
(other than certain classes of Stripped Principal
Certificates and certain classes of Residual
Certificates) of each series will accrue at the
applicable Pass-Through Rate on the Certificate
Balance or, in the case of certain classes of
Stripped Interest Certificates, the Notional
Amount thereof outstanding from time to time and
will be distributed to Certificateholders as
provided in the related Prospectus Supplement
(each of the specified dates on which
distributions are to be made, a "Distribution
Date"). Distributions of interest with respect to
one or more classes of Certificates
(collectively, "Accrual Certificates") may not
commence until the occurrence of certain events,
such as the retirement of one or more other
classes of Certificates, and interest accrued
with respect to a class of Accrual Certificates
prior to the occurrence of such an event will
either be added to the Certificate Balance
thereof or otherwise deferred. Distributions of
interest with respect to one or more classes of
Certificates may be reduced to the extent of
certain delinquencies, losses and other
contingencies described herein and in the related
Prospectus Supplement. See "Risk
Factors--Prepayments; Average Life of
Certificates; Yields", "Yield and Maturity
Considerations" and "Description of the
Certificates--Distributions of Interest on the
Certificates".
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<PAGE>
Distributions of Principal
of the Certificates........ Each class of Certificates of each series (other
than certain classes of Stripped Interest
Certificates and certain classes of Residual
Certificates) will have a Certificate Balance.
The Certificate Balance of a class of
Certificates outstanding from time to time will
represent the maximum amount that the holders
thereof are then entitled to receive in respect
of principal from future cash flow on the assets
in the related Trust Fund. Unless otherwise
specified in the related Prospectus Supplement,
the initial aggregate Certificate Balance of all
classes of Certificates of a series will not be
greater than the outstanding principal balance of
the related Mortgage Assets as of a specified
date (the "Cut-off Date"), after application of
scheduled payments due on or before such date,
whether or not received. As and to the extent
described in each Prospectus Supplement,
distributions of principal with respect to the
related series of Certificates will be made on
each Distribution Date to the holders of the
class or classes of Certificates of such series
entitled thereto until the Certificate Balances
of such Certificates have been reduced to zero.
Distributions of principal with respect to one or
more classes of Certificates may be made at a
rate that is faster (and, in some cases,
substantially faster) than the rate at which
payments or other collections of principal are
received on the Mortgage Assets in the related
Trust Fund. Distributions of principal with
respect to one or more classes of Certificates
may not commence until the occurrence of certain
events, such as the retirement of one or more
other classes of Certificates of the same series,
or may be made at a rate that is slower (and, in
some cases, substantially slower) than the rate
at which payments or other collections of
principal are received on the Mortgage Assets in
the related Trust Fund. Distributions of
principal with respect to one or more classes of
Certificates (each such class, a "Controlled
Amortization Class") may be made, subject to
certain limitations, based on a specified
principal payment schedule. Distributions of
principal with respect to one or more classes of
Certificates (each such class, a "Companion
Class") may be contingent on the specified
principal payment schedule for a Controlled
Amortization Class of the same series and the
rate at which payments and other collections of
principal on the Mortgage Assets in the related
Trust Fund are received. Unless otherwise
specified in the related Prospectus Supplement,
distributions of principal of any class of
Offered Certificates will be made on a pro rata
basis among all of the Certificates of such
class. See "Description of the
Certificates--Distributions of Principal of the
Certificates".
Advances..................... If and to the extent provided in the related
Prospectus Supplement, if a Trust Fund includes
Mortgage Loans, the Master Servicer, a Special
Servicer, the Trustee, any provider of Credit
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<PAGE>
Support and/or any other specified person may be
obligated to make, or have the option of making,
certain advances with respect to delinquent
scheduled payments of principal and/or interest
on such Mortgage Loans. Any such advances made
with respect to a particular Mortgage Loan will
be reimbursable from subsequent recoveries in
respect of such Mortgage Loan and otherwise to
the extent described herein and in the related
Prospectus Supplement. If and to the extent
provided in the Prospectus Supplement for a
series of Certificates, any entity making such
advances may be entitled to receive interest
thereon for the period that such advances are
outstanding, payable from amounts in the related
Trust Fund. See "Description of the
Certificates--Advances in Respect of
Delinquencies". If a Trust Fund includes MBS, any
comparable advancing obligation of a party to the
related Pooling Agreement, or of a party to the
related MBS Agreement, will be described in the
related Prospectus Supplement.
Termination.................. If so specified in the related Prospectus
Supplement, a series of Certificates may be
subject to optional early termination through the
repurchase of the Mortgage Assets in the related
Trust Fund by the party or parties specified
therein, under the circumstances and in the
manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction
of the Certificate Balance of a specified class
or classes of Certificates by a specified
percentage or amount, a party specified therein
may be authorized or required to solicit bids for
the purchase of all of the Mortgage Assets of the
related Trust Fund, or of a sufficient portion of
such Mortgage Assets to retire such class or
classes, under the circumstances and in the
manner set forth therein. See "Description of the
Certificates--Termination".
Registration of Book-Entry
Certificates............... If so provided in the related Prospectus
Supplement, one or more classes of the Offered
Certificates of any series will be offered in
book-entry format (collectively, "Book-Entry
Certificates") through the facilities of The
Depository Trust Company ("DTC"). Each class of
Book-Entry Certificates will be initially
represented by one or more Certificates
registered in the name of a nominee of DTC. No
person acquiring an interest in a class of
Book-Entry Certificates (a "Certificate Owner")
will be entitled to receive Certificates of such
class in fully registered, definitive form
("Definitive Certificates"), except under the
limited circumstances described herein. See "Risk
Factors--Book-Entry Registration" and
"Description of the Certificates--Book-Entry
Registration and Definitive Certificates".
Certain Federal Income Tax
Consequences............... The federal income tax consequences to
Certificateholders will vary depending on whether
one or more elections are made to treat the Trust
Fund or specified portions thereof as one or more
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<PAGE>
"real estate mortgage investment conduits" (each,
a "REMIC") under the provisions of the Internal
Revenue Code of 1986, as amended (the "Code").
The Prospectus Supplement for each series of
Certificates will specify whether one or more
such elections will be made. See "Certain Federal
Income Tax Consequences".
ERISA Considerations......... Fiduciaries of employee benefit plans and certain
other retirement plans and arrangements,
including individual retirement accounts,
annuities, Keogh plans, and collective investment
funds and insurance company general and separate
accounts in which such plans, accounts, annuities
or arrangements are invested, that are subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of
the Code, should carefully review with their
legal advisors whether the purchase or holding of
Offered Certificates could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA or
Section 4975 of the Code. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
Legal Investment............. The Offered Certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
only if so specified in the related Prospectus
Supplement. Investors whose investment authority
is subject to legal restrictions should consult
their own legal advisors to determine whether and
to what extent the Offered Certificates
constitute legal investments for them. See "Legal
Investment" herein and in the related Prospectus
Supplement.
Rating....................... At their respective dates of issuance, each class
of Offered Certificates will be rated not lower
than investment grade by one or more nationally
recognized statistical rating agencies (each, a
"Rating Agency"). See "Rating" herein and in the
related Prospectus Supplement.
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<PAGE>
RISK FACTORS
In considering an investment in the Offered Certificates of any series,
investors should consider, among other things, the following risk factors and
any other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Trust Fund, they would similarly pertain
to and be influenced by the characteristics or behavior of the mortgage loans
underlying any MBS included in such Trust Fund.
Secondary Market
There can be no assurance that a secondary market for the Offered
Certificates of any series will develop or, if it does develop, that it will
provide holders with liquidity of investment or will continue for as long as
such Certificates remain outstanding. The Prospectus Supplement for any series
of Offered Certificates may indicate that an underwriter specified therein
intends to make a secondary market in such Offered Certificates; however, no
underwriter will be obligated to do so. Any such secondary market may provide
less liquidity to investors than any comparable market for securities that
evidence interests in single-family mortgage loans.
The primary source of ongoing information regarding the Offered
Certificates of any series, including information regarding the status of the
related Mortgage Assets and any Credit Support for such Certificates, will be
the periodic reports to Certificateholders to be delivered pursuant to the
related Pooling Agreement as described herein under the heading "Description of
the Certificates--Reports to Certificateholders". There can be no assurance that
any additional ongoing information regarding the Offered Certificates of any
series will be available through any other source. The limited nature of such
information in respect of a series of Offered Certificates may adversely affect
the liquidity thereof, even if a secondary market for such Certificates does
develop.
Insofar as a secondary market does develop with respect to any series
of Offered Certificates or class thereof, the market value of such Certificates
will be affected by several factors, including the perceived liquidity thereof,
the anticipated cash flow thereon (which may vary widely depending upon the
prepayment and default assumptions applied in respect of the underlying Mortgage
Loans) and prevailing interest rates. The price payable at any given time in
respect of certain classes of Offered Certificates (in particular, a class with
a relatively long average life, a Companion Class or a class of Stripped
Interest Certificates or Stripped Principal Certificates) may be extremely
sensitive to small fluctuations in prevailing interest rates; and the relative
change in price for an Offered Certificate in response to an upward or downward
movement in prevailing interest rates may not necessarily equal the relative
change in price for such Offered Certificate in response to an equal but
opposite movement in such rates. Accordingly, the sale of Offered Certificates
by a holder in any secondary market that may develop may be at a discount from
the price paid by such holder. The Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis.
Except to the extent described herein and in the related Prospectus
Supplement, Certificateholders will have no redemption rights, and the Offered
Certificates of each series are subject to early retirement only under certain
specified circumstances described herein and in the related Prospectus
Supplement. See "Description of the Certificates--Termination".
Limited Assets
Unless otherwise specified in the related Prospectus Supplement,
neither the Offered Certificates of any series nor the Mortgage Assets in the
related Trust Fund will be guaranteed or insured by the Depositor or any of its
affiliates, by any governmental agency or instrumentality or by any other person
or entity; and no Offered Certificate of any series will represent a claim
against or security interest in the Trust Funds for any other series.
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<PAGE>
Accordingly, if the related Trust Fund has insufficient assets to make payments
on a series of Offered Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts on deposit from time to
time in certain funds or accounts constituting part of a Trust Fund, including
the Certificate Account and any accounts maintained as Credit Support, may be
withdrawn under certain conditions, as described in the related Prospectus
Supplement, for purposes other than the payment of principal of or interest on
the related series of Certificates. If and to the extent so provided in the
Prospectus Supplement for a series of Certificates consisting of one or more
classes of Subordinate Certificates, on any Distribution Date in respect of
which losses or shortfalls in collections on the Mortgage Assets have been
incurred, all or a portion of the amount of such losses or shortfalls will be
borne first by one or more classes of the Subordinate Certificates, and,
thereafter, by the remaining classes of Certificates in the priority and manner
and subject to the limitations specified in such Prospectus Supplement.
Prepayments; Average Life of Certificates; Yields
As a result of, among other things, prepayments on the Mortgage Loans
in any Trust Fund, the amount and timing of distributions of principal and/or
interest on the Offered Certificates of the related series may be highly
unpredictable. Prepayments on the Mortgage Loans in any Trust Fund will result
in a faster rate of principal payments on one or more classes of the related
series of Certificates than if payments on such Mortgage Loans were made as
scheduled. Thus, the prepayment experience on the Mortgage Loans in a Trust Fund
may affect the average life of one or more classes of Certificates of the
related series, including a class of Offered Certificates. The rate of principal
payments on pools of mortgage loans varies among pools and from time to time is
influenced by a variety of economic, demographic, geographic, social, tax, legal
and other factors. For example, if prevailing interest rates fall significantly
below the Mortgage Rates borne by the Mortgage Loans included in a Trust Fund,
then, subject to, among other things, the particular terms of the Mortgage Loans
(e.g., provisions that prohibit voluntary prepayments during specified periods
or impose penalties in connection therewith) and the ability of borrowers to get
new financing, principal prepayments on such Mortgage Loans are likely to be
higher than if prevailing interest rates remain at or above the rates borne by
those Mortgage Loans. Conversely, if prevailing interest rates rise
significantly above the Mortgage Rates borne by the Mortgage Loans included in a
Trust Fund, then principal prepayments on such Mortgage Loans are likely to be
lower than if prevailing interest rates remain at or below the rates borne by
those Mortgage Loans. There can be no assurance as to the actual rate of
prepayment on the Mortgage Loans in any Trust Fund or that such rate of
prepayment will conform to any model described herein or in any Prospectus
Supplement. As a result, depending on the anticipated rate of prepayment for the
Mortgage Loans in any Trust Fund, the retirement of any class of Certificates of
the related series could occur significantly earlier or later than expected.
The extent to which prepayments on the Mortgage Loans in any Trust Fund
ultimately affect the average life of any class of Certificates of the related
series will depend on the terms of such Certificates. A class of Certificates,
including a class of Offered Certificates, may provide that on any Distribution
Date the holders of such Certificates are entitled to a pro rata share of the
prepayments on the Mortgage Loans in the related Trust Fund that are
distributable on such date, to a disproportionately large share (which, in some
cases, may be all) of such prepayments, or to a disproportionately small share
(which, in some cases, may be none) of such prepayments. A class of Certificates
that entitles the holders thereof to a disproportionately large share of the
prepayments on the Mortgage Loans in the related Trust Fund increases the
likelihood of early retirement of such class ("call risk") if the rate of
prepayment is relatively fast; while a class of Certificates that entitles the
holders thereof to a disproportionately small share of the prepayments on the
Mortgage Loans in the related Trust Fund increases the likelihood of an extended
average life of such class ("extension risk") if the rate of prepayment is
relatively slow. As and to the extent described in the related Prospectus
Supplement, the respective entitlements of the various classes of
Certificateholders of any series to receive payments (and, in particular,
prepayments) of principal of the Mortgage Loans in the related Trust Fund may
vary based on the occurrence of certain events (e.g., the retirement of one or
more classes of Certificates of such series) or subject to certain contingencies
(e.g., prepayment and default rates with respect to such Mortgage Loans).
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A series of Certificates may include one or more Controlled
Amortization Classes, which will entitle the holders thereof to receive
principal distributions according to a specified principal payment schedule.
Although prepayment risk cannot be eliminated entirely for any class of
Certificates, a Controlled Amortization Class will generally provide a
relatively stable cash flow so long as the actual rate of prepayment on the
Mortgage Loans in the related Trust Fund remains relatively constant at the
rate, or within the range of rates, of prepayment used to establish the specific
principal payment schedule for such Certificates. Prepayment risk with respect
to a given Mortgage Asset Pool does not disappear, however, and the stability
afforded to a Controlled Amortization Class comes at the expense of one or more
Companion Classes of the same series, any of which Companion Classes may also be
a class of Offered Certificates. In general, and as more specifically described
in the related Prospectus Supplement, a Companion Class may entitle the holders
thereof to a disproportionately large share of prepayments on the Mortgage Loans
in the related Trust Fund when the rate of prepayment is relatively fast, and/or
may entitle the holders thereof to a disproportionately small share of
prepayments on the Mortgage Loans in the related Trust Fund when the rate of
prepayment is relatively slow. As and to the extent described in the related
Prospectus Supplement, a Companion Class absorbs some (but not all) of the "call
risk" and/or "extension risk" that would otherwise belong to the related
Controlled Amortization Class if all payments of principal of the Mortgage Loans
in the related Trust Fund were allocated on a pro rata basis.
A series of Certificates may include one or more classes of Offered
Certificates offered at a premium or discount. Yields on such classes of
Certificates will be sensitive, and in some cases extremely sensitive, to
prepayments on the Mortgage Loans in the related Trust Fund and, where the
amount of interest payable with respect to a class is disproportionately large,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might fail to recover its original investment
under some prepayment scenarios. The extent to which the yield to maturity of
any class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which they are purchased at a discount or premium and
the amount and timing of distributions thereon. An investor should consider, in
the case of any Offered Certificate purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the Mortgage Loans could
result in an actual yield to such investor that is lower than the anticipated
yield and, in the case of any Offered Certificate purchased at a premium, the
risk that a faster than anticipated rate of principal payments could result in
an actual yield to such investor that is lower than the anticipated yield. See
"Yield and Maturity Considerations" herein.
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a class of Offered
Certificates will reflect only its assessment of the likelihood that holders of
such Offered Certificates will receive payments to which such Certificateholders
are entitled under the related Pooling Agreement. Such rating will not
constitute an assessment of the likelihood that principal prepayments on the
related Mortgage Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the related Trust Fund. Furthermore, such rating
will not address the possibility that prepayment of the related Mortgage Loans
at a higher or lower rate than anticipated by an investor may cause such
investor to experience a lower than anticipated yield or that an investor that
purchases an Offered Certificate at a significant premium might fail to recover
its initial investment under certain prepayment scenarios.
The amount, type and nature of Credit Support, if any, provided with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of the Certificates of such
series. Those criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the data derived from a large pool of
mortgage loans will accurately predict the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. In other cases, such
criteria may be based upon determinations of the values of the Mortgaged
Properties that provide security for the Mortgage Loans. However, no assurance
can be given that those values will not decline in the future. See "Description
of Credit Support" and "Rating".
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Risks Associated with Certain Mortgage Loans and Mortgaged Properties
A description of risks associated with investments in mortgage loans is
included herein under "Certain Legal Aspects of Mortgage Loans". Mortgage loans
made on the security of multifamily or commercial property may entail risks of
delinquency and foreclosure, and risks of loss in the event thereof, that are
greater than similar risks associated with loans made on the security of an
owner-occupied single-family property. See "Description of the Trust
Funds--Mortgage Loans". The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower; thus, the value of an income-producing property is
directly related to the net operating income derived from such property. If the
net operating income of the property is reduced (for example, if rental or
occupancy rates decline or real estate tax rates or other operating expenses
increase), the borrower's ability to repay the loan may be impaired. A number of
the Mortgage Loans may be secured by liens on owner-occupied Mortgaged
Properties or on Mortgaged Properties leased to a single tenant or a small
number of significant tenants. Accordingly, a decline in the financial condition
of the borrower or a significant tenant, as applicable, may have a
disproportionately greater effect on the net operating income from such
Mortgaged Properties than would be the case with respect to Mortgaged Properties
with multiple tenants. Furthermore, the value of any Mortgaged Property may be
adversely affected by risks generally incident to interests in real property,
including changes in general or local economic conditions and/or specific
industry segments; declines in real estate values; declines in rental or
occupancy rates; increases in interest rates, real estate tax rates and other
operating expenses; changes in governmental rules, regulations and fiscal
policies, including environmental legislation; acts of God; and other factors
beyond the control of a Master Servicer.
In addition, additional risk may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that operate
as hospitals and nursing homes may present special risks to lenders due to the
significant governmental regulation of the ownership, operation, maintenance and
financing of health care institutions. Hotel and motel properties are often
operated pursuant to franchise, management or operating agreements that may be
terminable by the franchisor or operator. Moreover, the transferability of a
hotel's operating, liquor and other licenses upon a transfer of the hotel,
whether through purchase or foreclosure, is subject to local law requirements.
The ability of a borrower to repay a Mortgage Loan secured by shares allocable
to one or more cooperative dwelling units may be dependent upon the ability of
the dwelling units to generate sufficient rental income, which may be subject to
rent control or stabilization laws, to cover both debt service on the loan as
well as maintenance charges to the cooperative. Further, a Mortgage Loan secured
by cooperative shares is subordinate to the mortgage, if any, on the cooperative
apartment building.
It is anticipated that some or all of the Mortgage Loans included in
any Trust Fund will be nonrecourse loans or loans for which recourse may be
restricted or unenforceable. As to any such Mortgage Loan, recourse in the event
of borrower default will be limited to the specific real property and other
assets, if any, that were pledged to secure the Mortgage Loan. However, even
with respect to those Mortgage Loans that provide for recourse against the
borrower and its assets generally, there can be no assurance that enforcement of
such recourse provisions will be practicable, or that the assets of the borrower
will be sufficient to permit a recovery in respect of a defaulted Mortgage Loan
in excess of the liquidation value of the related Mortgaged Property. See
"Certain Legal Aspects of Mortgage Loans--Foreclosure".
Further, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be greater
than for pools of single-family loans because Mortgage Loans in a Trust Fund
will generally consist of a smaller number of higher balance loans than would a
pool of single-family loans of comparable aggregate unpaid principal balance.
Balloon Payments; Borrower Default
Certain of the Mortgage Loans included in a Trust Fund may be
non-amortizing or only partially amortizing over their terms to maturity and,
thus, will require substantial principal payments (that is, balloon payments) at
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their stated maturity. Mortgage Loans of this type involve a greater degree of
risk than self-amortizing loans because the ability of a borrower to make a
balloon payment typically will depend upon its ability either to refinance the
loan or to sell the related Mortgaged Property. The ability of a borrower to
accomplish either of these goals will be affected by a number of factors,
including the value of the related Mortgaged Property, the level of available
mortgage rates at the time of sale or refinancing, the borrower's equity in the
related Mortgaged Property, the financial condition and operating history of the
borrower and the related Mortgaged Property, tax laws, rent control laws (with
respect to certain residential properties), Medicaid and Medicare reimbursement
rates (with respect to hospitals and nursing homes), prevailing general economic
conditions and the availability of credit for loans secured by multifamily or
commercial, as the case may be, real properties generally. Neither the Depositor
nor any of its affiliates will be required to refinance any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or a Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to which a
payment default is imminent. While a Master Servicer or a Special Servicer
generally will be required to determine that any such extension or modification
is reasonably likely to produce a greater recovery, taking into account the time
value of money, than liquidation, there can be no assurance that any such
extension or modification will in fact increase the present value of receipts
from or proceeds of the affected Mortgage Loans.
Credit Support Limitations
The Prospectus Supplement for a series of Certificates will describe
any Credit Support provided with respect thereto. Use of Credit Support will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such Credit Support may not cover all potential
losses or risks; for example, Credit Support may or may not cover fraud or
negligence by a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Certificates of a series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related Credit
Support may be exhausted before the principal of the later paid classes of
Certificates of such series has been repaid in full. As a result, the impact of
losses and shortfalls experienced with respect to the Mortgage Assets may fall
primarily upon those classes of Certificates having a later right of payment.
Moreover, if a form of Credit Support covers more than one series of
Certificates, holders of Certificates of one series will be subject to the risk
that such Credit Support will be exhausted by the claims of the holders of
Certificates of one or more other series.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria established
by each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies and losses on the underlying Mortgage Assets
and certain other factors. There can, however, be no assurance that the loss
experience on the related Mortgage Assets will not exceed such assumed levels.
See "--Limited Nature of Ratings", "Description of the Certificates" and
"Description of Credit Support".
Leases and Rents
Each Mortgage Loan included in any Trust Fund secured by Mortgaged
Property that is subject to leases typically will be secured by an assignment of
leases and rents pursuant to which the borrower assigns to the lender its right,
title and interest as landlord under the leases of the related Mortgaged
Property, and the income derived therefrom, as further security for the related
Mortgage Loan, while retaining a license to collect rents for so long as there
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is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect rents. Some state laws may require that the lender take
possession of the Mortgaged Property and obtain a judicial appointment of a
receiver before becoming entitled to collect the rents. In addition, if
bankruptcy or similar proceedings are commenced by or in respect of the
borrower, the lender's ability to collect the rents may be adversely affected.
See "Certain Legal Aspects of Mortgage Loans--Leases and Rents".
Environmental Risks
Under the laws of certain states, contamination of real property may
give rise to a lien on the property to assure the costs of cleanup. In several
states, such a lien has priority over an existing mortgage lien on such
property. In addition, under various federal, state and local laws, ordinances
and regulations, an owner or operator of real estate may be liable for the costs
of removal or remediation of hazardous substances or toxic substances on, in or
beneath such property. Such liability may be imposed without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner or
operator's liability therefor as to any property is generally not limited under
such laws, ordinances and regulations and could exceed the value of the
mortgaged property and the aggregate assets of the owner or operator. In
addition, as to the owners or operators of mortgaged properties that generate
hazardous substances that are disposed of at "off-site" locations, such owners
or operators may be held strictly, jointly and severally liable if there are
releases or threatened releases of hazardous substances at the off-site
locations where such person's hazardous substances were disposed.
Although the federal Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended ("CERCLA"), provides an exemption from the
definition of "owner" for lenders whose primary indicia of ownership in a
particular property is the holding of a security interest, lenders may forfeit,
as a result of their actions with respect to particular borrowers, their secured
creditor exemption and be deemed an owner or operator of property such that they
are liable for remediation costs. See "Certain Legal Aspects of Mortgage
Loans--Environmental Risks" herein. A lender also risks such liability on
foreclosure of the mortgage. Unless otherwise specified in the related
Prospectus Supplement, if a Trust Fund includes Mortgage Loans, then the related
Pooling Agreement will contain provisions generally to the effect that the
Master Servicer, acting on behalf of the Trust Fund, may not acquire title to a
Mortgaged Property or assume control of its operation unless the Master
Servicer, based upon a report prepared by a person who regularly conducts
environmental audits, has made the determination that it is appropriate to do
so, as described under "Description of the Pooling Agreements--Realization Upon
Defaulted Mortgage Loans". See "Certain Legal Aspects of Mortgage
Loans--Environmental Risks". There can be no assurance that any such
requirements of a Pooling Agreement will effectively insulate the related Trust
Fund from potential liability for a materially adverse environmental condition
at a Mortgaged Property.
Special Hazard Losses
Unless otherwise specified in a Prospectus Supplement, the Master
Servicer for the related Trust Fund will be required to cause the borrower on
each Mortgage Loan in such Trust Fund to maintain such insurance coverage in
respect of the related Mortgaged Property as is required under the related
Mortgage, including hazard insurance; provided that, as and to the extent
described herein and in the related Prospectus Supplement, the Master Servicer
may satisfy its obligation to cause hazard insurance to be maintained with
respect to any Mortgaged Property through acquisition of a blanket policy. In
general, the standard form of fire and extended coverage policy covers physical
damage to or destruction of the improvements of the property by fire, lightning,
explosion, smoke, windstorm and hail, and riot, strike and civil commotion,
subject to the conditions and exclusions specified in each policy. Although the
policies covering the Mortgaged Properties will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms, and therefore will not contain identical terms and conditions, most
such policies typically do not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of risks. Unless the related
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Mortgage specifically requires the mortgagor to insure against physical damage
arising from such causes, then, to the extent any consequent losses are not
covered by Credit Support, such losses may be borne, at least in part, by the
holders of one or more classes of Offered Certificates of the related series.
See "Description of the Pooling Agreements--Hazard Insurance Policies".
ERISA Considerations
Generally, ERISA applies to investments made by employee benefit plans
and transactions involving the assets of such plans. Due to the complexity of
regulations that govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
series. See "ERISA Considerations".
Certain Federal Tax Considerations Regarding Residual Certificates
Holders of Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their receipt
of cash payments, as described in "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates".
Accordingly, under certain circumstances, holders of Offered Certificates that
constitute Residual Certificates may have taxable income and tax liabilities
arising from such investment during a taxable year in excess of the cash
received during such period. The requirement that holders of Residual
Certificates report their pro rata share of the taxable income and net loss of
the REMIC will continue until the Certificate Balances of all classes of
Certificates of the related series have been reduced to zero, even though
holders of Residual Certificates have received full payment of their stated
interest and principal. A portion (or, in certain circumstances, all) of such
Certificateholder's share of the REMIC taxable income may be treated as "excess
inclusion" income to such holder which (i) generally, will not be subject to
offset by losses from other activities, (ii) for a tax-exempt holder, will be
treated as unrelated business taxable income and (iii) for a foreign holder,
will not qualify for exemption from withholding tax. Individual holders of
Residual Certificates may be limited in their ability to deduct servicing fees
and other expenses of the REMIC. In addition, Residual Certificates are subject
to certain restrictions on transfer. Because of the special tax treatment of
Residual Certificates, the taxable income arising in a given year on a Residual
Certificate will not be equal to the taxable income associated with investment
in a corporate bond or stripped instrument having similar cash flow
characteristics and pre-tax yield. Therefore, the after-tax yield on the
Residual Certificate may be significantly less than that of a corporate bond or
stripped instrument having similar cash flow characteristics.
Certain Federal Tax Considerations Regarding Original Issue Discount
Accrual Certificates will be, and certain of the other Classes of
Certificates of a series may be, issued with "original issue discount" for
federal income tax purposes, which generally will result in recognition of some
taxable income in advance of the receipt of cash attributable to such income.
See "Certain Federal Income Tax Consequences--Federal Income Tax Consequences
for REMIC Certificates--Taxation of Regular Certificates".
Book-Entry Registration
If so provided in the related Prospectus Supplement, one or more
classes of the Offered Certificates of any series will be issued as Book-Entry
Certificates. Each class of Book-Entry Certificates will be initially
represented by one or more Certificates registered in the name of a nominee for
DTC. As a result, unless and until corresponding Definitive Certificates are
issued, the Certificate Owners with respect to any class of Book-Entry
Certificates will be able to exercise the rights of Certificateholders only
indirectly through DTC and its participating organizations ("Participants"). In
addition, the access of Certificate Owners to information regarding the
Book-Entry Certificates in which they hold interests may be limited. Conveyance
of notices and other communications by DTC to its Participants, and directly and
indirectly through such Participants to Certificate Owners, will be governed by
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arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. Furthermore, as described herein,
Certificate Owners may suffer delays in the receipt of payments on the
Book-Entry Certificates, and the ability of any Certificate Owner to pledge or
otherwise take actions with respect to its interest in the Book-Entry
Certificates may be limited due to the lack of a physical certificate evidencing
such interest. See "Description of the Certificates--Book-Entry Registration and
Definitive Certificates".
Delinquent and Non-Performing Mortgage Loans
If so provided in the related Prospectus Supplement, the Trust Fund for
a particular series of Certificates may include Mortgage Loans that are past due
or are non-performing. If so specified in the related Prospectus Supplement, the
servicing of such Mortgage Loans may be performed by a Special Servicer. Credit
Support provided with respect to a particular series of Certificates may not
cover all losses related to such delinquent or non-performing Mortgage Loans,
and investors should consider the risk that the inclusion of such Mortgage Loans
in the Trust Fund may adversely affect the rate of defaults and prepayments on
the Mortgage Assets in such Trust Fund and the yield on the Offered Certificates
of such series. See "Description of the Trust Funds--Mortgage Loans--General".
DESCRIPTION OF THE TRUST FUNDS
General
The primary assets of each Trust Fund will consist of (i) various types
of multifamily or commercial mortgage loans (the "Mortgage Loans"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans or
(iii) a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets").
Each Trust Fund will be established by Chase Commercial Mortgage Securities
Corp. (the "Depositor"). Each Mortgage Asset will be selected by the Depositor
for inclusion in a Trust Fund from among those purchased, either directly or
indirectly, from a prior holder thereof (a "Mortgage Asset Seller"), which prior
holder may or may not be the originator of such Mortgage Loan or the issuer of
such MBS and may be an affiliate of the Depositor. The Mortgage Assets will not
be guaranteed or insured by the Depositor or any of its affiliates or, unless
otherwise provided in the related Prospectus Supplement, by any governmental
agency or instrumentality or by any other person. The discussion below under the
heading "--Mortgage Loans", unless otherwise noted, applies equally to mortgage
loans underlying any MBS included in a particular Trust Fund.
Mortgage Loans
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create liens on fee or leasehold estates in
properties (the "Mortgaged Properties") consisting of (i) residential properties
consisting of five or more rental or cooperatively-owned dwelling units in
high-rise, mid-rise or garden apartment buildings or other residential
structures ("Multifamily Properties") or (ii) office buildings, retail stores
and establishments, hotels or motels, nursing homes, hospitals or other health
care-related facilities, mobile home parks, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial plants, parking lots, mixed use
or various other types of income-producing properties or unimproved land
("Commercial Properties"). The Multifamily Properties may include mixed
commercial and residential structures, apartment buildings owned by private
cooperative housing corporations ("Cooperatives"), and shares of the Cooperative
allocable to one or more dwelling units occupied by non-owner tenants or to
vacant units. Unless otherwise specified in the related Prospectus Supplement,
each Mortgage will create a first priority mortgage lien on a borrower's fee
estate in a Mortgaged Property. If a Mortgage creates a lien on a borrower's
leasehold estate in a property, then, unless otherwise specified in the related
Prospectus Supplement, the term of any such leasehold will exceed the term of
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the Mortgage Note by at least two years. Unless otherwise specified in the
related Prospectus Supplement, each Mortgage Loan will have been originated by a
person (the "Originator") other than the Depositor; however, the Originator may
be or may have been an affiliate of the Depositor.
If so specified in the related Prospectus Supplement, Mortgage Assets
for a series of Certificates may include Mortgage Loans made on the security of
real estate projects under construction. In that case, the related Prospectus
Supplement will describe the procedures and timing for making disbursements from
construction reserve funds as portions of the related real estate project are
completed. In addition, the Mortgage Assets for a particular series of
Certificates may include Mortgage Loans that are delinquent or non-performing as
of the date such Certificates are issued. In that case, the related Prospectus
Supplement will set forth, as to each such Mortgage Loan, available information
as to the period of such delinquency or non-performance, any forbearance
arrangement then in effect, the condition of the related Mortgaged Property and
the ability of the Mortgaged Property to generate income to service the mortgage
debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, some or all of the Mortgage Loans
included in a particular Trust Fund may be non-recourse loans, which means that,
absent special facts, recourse in the case of default will be limited to the
Mortgaged Property and such other assets, if any, that were pledged to secure
repayment of the Mortgage Loan.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important factor in evaluating the
risk of default on such a loan. Unless otherwise defined in the related
Prospectus Supplement, the "Debt Service Coverage Ratio" of a Mortgage Loan at
any given time is the ratio of (i) the Net Operating Income derived from the
related Mortgaged Property for a twelve-month period to (ii) the annualized
scheduled payments on the Mortgage Loan and any other loans senior thereto that
are secured by the related Mortgaged Property. Unless otherwise defined in the
related Prospectus Supplement, "Net Operating Income" means, for any given
period, the total operating revenues derived from a Mortgaged Property during
such period, minus the total operating expenses incurred in respect of such
Mortgaged Property during such period other than (i) non-cash items such as
depreciation and amortization, (ii) capital expenditures and (iii) debt service
on the related Mortgage Loan or on any other loans that are secured by such
Mortgaged Property. The Net Operating Income of a Mortgaged Property will
fluctuate over time and may or may not be sufficient to cover debt service on
the related Mortgage Loan at any given time. As the primary source of the
operating revenues of a non-owner occupied, income-producing property, rental
income (and, with respect to a Mortgage Loan secured by a Cooperative apartment
building, maintenance payments from tenant-stockholders of a Cooperative) may be
affected by the condition of the applicable real estate market and/or area
economy. In addition, properties typically leased, occupied or used on a
short-term basis, such as certain health care-related facilities, hotels and
motels, and mini-warehouse and self-storage facilities, tend to be affected more
rapidly by changes in market or business conditions than do properties typically
leased for longer periods, such as warehouses, retail stores, office buildings
and industrial plants. Commercial Properties may be owner-occupied or leased to
a small number of tenants. Thus, the Net Operating Income of such a Mortgaged
Property may depend substantially on the financial condition of the borrower or
a tenant, and Mortgage Loans secured by liens on such properties may pose
greater risks than loans secured by liens on Multifamily Properties or on
multi-tenant Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the risk of default on a Mortgage Loan. As may
be further described in the related Prospectus Supplement, in some cases leases
of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will result
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in stable Net Operating Income to the borrower/landlord only to the extent that
the lessee is able to absorb operating expense increases while continuing to
make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
factor in evaluating risk of loss if a property must be liquidated following a
default. Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (i) the then outstanding principal balance of the
Mortgage Loan and any other loans senior thereto that are secured by the related
Mortgaged Property to (ii) the Value of the related Mortgaged Property. The
"Value" of a Mortgaged Property is generally its fair market value determined in
an appraisal obtained by the Originator at the origination of such loan. The
lower the Loan-to-Value Ratio, the greater the percentage of the borrower's
equity in a Mortgaged Property, and thus (a) the greater the incentive of the
borrower to perform under the terms of the related Mortgage Loan (in order to
protect such equity) and (b) the greater the cushion provided to the lender
against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate
measure of the risk of liquidation loss in a pool of Mortgage Loans. For
example, the value of a Mortgaged Property as of the date of initial issuance of
the related series of Certificates may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
changes in economic conditions, the real estate market and other factors
described herein. Moreover, even when current, an appraisal is not necessarily a
reliable estimate of value. Appraised values of income-producing properties are
generally based on the market comparison method (recent resale value of
comparable properties at the date of the appraisal), the cost replacement method
(the cost of replacing the property at such date), the income capitalization
method (a projection of value based upon the property's projected net cash
flow), or upon a selection from or interpolation of the values derived from such
methods. Each of these appraisal methods can present analytical difficulties. It
is often difficult to find truly comparable properties that have recently been
sold; the replacement cost of a property may have little to do with its current
market value; and income capitalization is inherently based on inexact
projections of income and expense and the selection of an appropriate
capitalization rate and discount rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of default and
loss risks, is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be no
assurance that all of such factors will in fact have been prudently considered
by the Originators of the Mortgage Loans, or that, for a particular Mortgage
Loan, they are complete or relevant. See "Risk Factors--Risks Associated with
Certain Mortgage Loans and Mortgaged Properties" and "--Balloon Payments;
Borrower Default".
Payment Provisions of the Mortgage Loans. Unless otherwise specified in
the related Prospectus Supplement, all of the Mortgage Loans will (i) have had
individual principal balances at origination of not less than $25,000, (ii) have
had original terms to maturity of not more than 40 years and (iii) provide for
scheduled payments of principal, interest or both, to be made on specified dates
("Due Dates") that occur monthly, quarterly, semi-annually or annually. A
Mortgage Loan (i) may provide for no accrual of interest or for accrual of
interest thereon at an interest rate (a "Mortgage Rate") that is fixed over its
term or that adjusts from time to time, or that may be converted at the
borrower's election from an adjustable to a fixed Mortgage Rate, or from a fixed
to an adjustable Mortgage Rate, (ii) may provide for level payments to maturity
or for payments that adjust from time to time to accommodate changes in the
Mortgage Rate or to reflect the occurrence of certain events, and may permit
negative amortization, (iii) may be fully amortizing or partially amortizing or
non-amortizing, with a balloon payment due on its stated maturity date, and (iv)
may prohibit over its term or for a certain period prepayments (the period of
such prohibition, a "Lock-out Period" and its date of expiration, a "Lock-out
Date") and/or require payment of a premium or a yield maintenance penalty (a
"Prepayment Premium") in connection with certain prepayments, in each case as
described in the related Prospectus Supplement. A Mortgage Loan may also contain
a provision that entitles the lender to a share of appreciation of the related
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Mortgaged Property, or profits realized from the operation or disposition of
such Mortgaged Property or the benefit, if any, resulting from the refinancing
of the Mortgage Loan (any such provision, an "Equity Participation"), as
described in the related Prospectus Supplement. If holders of any class or
classes of Offered Certificates of a series will be entitled to all or a portion
of an Equity Participation in addition to payments of interest on and/or
principal of such Offered Certificates, the related Prospectus Supplement will
describe the Equity Participation and the method or methods by which
distributions in respect thereof will be made to such holders.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Trust Fund, which will generally be current as of a date specified
in the related Prospectus Supplement and which, to the extent then applicable
and specifically known to the Depositor, will include the following: (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans, (ii) the type or types of
property that provide security for repayment of the Mortgage Loans, (iii) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(iv) the original and remaining terms to maturity of the Mortgage Loans, or the
respective ranges thereof, and the weighted average original and remaining terms
to maturity of the Mortgage Loans, (v) the original Loan-to-Value Ratios of the
Mortgage Loans, or the range thereof, and the weighted average original
Loan-to-Value Ratio of the Mortgage Loans, (vi) the Mortgage Rates borne by the
Mortgage Loans, or range thereof, and the weighted average Mortgage Rate borne
by the Mortgage Loans, (vii) with respect to Mortgage Loans with adjustable
Mortgage Rates ("ARM Loans"), the index or indices upon which such adjustments
are based, the adjustment dates, the range of gross margins and the weighted
average gross margin, and any limits on Mortgage Rate adjustments at the time of
any adjustment and over the life of the ARM Loan, (viii) information regarding
the payment characteristics of the Mortgage Loans, including, without
limitation, balloon payment and other amortization provisions, Lock-out Periods
and Prepayment Premiums, (ix) the Debt Service Coverage Ratios of the Mortgage
Loans (either at origination or as of a more recent date), or the range thereof,
and the weighted average of such Debt Service Coverage Ratios, and (x) the
geographic distribution of the Mortgaged Properties on a state-by-state basis.
In appropriate cases, the related Prospectus Supplement will also contain
certain information available to the Depositor that pertains to the provisions
of leases and the nature of tenants of the Mortgaged Properties. If the
Depositor is unable to tabulate the specific information described above at the
time Offered Certificates of a series are initially offered, more general
information of the nature described above will be provided in the related
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of those Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on Form
8-K with the Commission within fifteen days following such issuance.
MBS
MBS may include (i) private (that is, not guaranteed or insured by the
United States or any agency or instrumentality thereof) mortgage participations,
mortgage pass-through certificates or other mortgage-backed securities or (ii)
certificates insured or guaranteed by FHLMC, FNMA, GNMA or FAMC provided that,
unless otherwise specified in the related Prospectus Supplement, each MBS will
evidence an interest in, or will be secured by a pledge of, mortgage loans that
conform to the descriptions of the Mortgage Loans contained herein.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer") and/or the
servicer of the underlying mortgage loans (the "MBS Servicer") will have entered
into the MBS Agreement, generally with a trustee (the "MBS Trustee") or, in the
alternative, with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with
characteristics similar to the classes of Certificates described herein.
Distributions in respect of the MBS will be made by the MBS Issuer, the MBS
Servicer or the MBS Trustee on the dates specified in the related Prospectus
Supplement. The MBS Issuer or the MBS Servicer or another person specified in
the related Prospectus Supplement may have the right or obligation to repurchase
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or substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount of
such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any Rating Agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount and type of the MBS to be
included in the Trust Fund, (ii) the original and remaining term to stated
maturity of the MBS, if applicable, (iii) the pass-through or bond rate of the
MBS or the formula for determining such rates, (iv) the payment characteristics
of the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee, as applicable,
(vi) a description of the credit support, if any, (vii) the circumstances under
which the related underlying mortgage loans, or the MBS themselves, may be
purchased prior to their maturity, (viii) the terms on which mortgage loans may
be substituted for those originally underlying the MBS, (ix) the type of
mortgage loans underlying the MBS and, to the extent available to the Depositor
and appropriate under the circumstances, such other information in respect of
the underlying mortgage loans described under "--Mortgage Loans--Mortgage Loan
Information in Prospectus Supplements", and (x) the characteristics of any cash
flow agreements that relate to the MBS.
Certificate Accounts
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which the person or persons designated in the related
Prospectus Supplement will, to the extent described herein and in such
Prospectus Supplement, deposit all payments and collections received or advanced
with respect to the Mortgage Assets and other assets in the Trust Fund. A
Certificate Account may be maintained as an interest bearing or a non-interest
bearing account, and funds held therein may be held as cash or invested in
certain obligations acceptable to each Rating Agency rating one or more classes
of the related series of Offered Certificates.
Credit Support
If so provided in the Prospectus Supplement for a series of
Certificates, partial or full protection against certain defaults and losses on
the Mortgage Assets in the related Trust Fund may be provided to one or more
classes of Certificates of such series in the form of subordination of one or
more other classes of Certificates of such series or by one or more other types
of credit support, such as a letter of credit, insurance policy, guarantee or
reserve fund, among others, or a combination thereof (any such coverage with
respect to the Certificates of any series, "Credit Support"). The amount and
types of Credit Support, the identification of the entity providing it (if
applicable) and related information with respect to each type of Credit Support,
if any, will be set forth in the Prospectus Supplement for a series of
Certificates. See "Risk Factors--Credit Support Limitations" and "Description of
Credit Support".
Cash Flow Agreements
If so provided in the Prospectus Supplement for a series of
Certificates, the related Trust Fund may include guaranteed investment contracts
pursuant to which moneys held in the funds and accounts established for such
series will be invested at a specified rate. The Trust Fund may also include
certain other agreements, such as interest rate exchange agreements, interest
rate cap or floor agreements, currency exchange agreements or other agreements
designed to reduce the effects of interest rate or currency exchange rate
fluctuations on the Mortgage Assets on one or more classes of Certificates. The
principal terms of any such guaranteed investment contract or other agreement
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(any such agreement, a "Cash Flow Agreement"), and the identity of the Cash Flow
Agreement obligor, will be described in the Prospectus Supplement for a series
of Certificates.
YIELD AND MATURITY CONSIDERATIONS
General
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate and the amount
and timing of distributions on the Certificate. See "Risk Factors--Prepayments;
Average Life of Certificates; Yields". The following discussion contemplates a
Trust Fund that consists solely of Mortgage Loans. While the characteristics and
behavior of mortgage loans underlying an MBS can generally be expected to have
the same effect on the yield to maturity and/or weighted average life of a class
of Certificates as will the characteristics and behavior of comparable Mortgage
Loans, the effect may differ due to the payment characteristics of the MBS. If a
Trust Fund includes MBS, the related Prospectus Supplement will discuss the
effect that the MBS payment characteristics may have on the yield to maturity
and weighted average lives of the Offered Certificates of the related series.
Pass-Through Rate
The Certificates of any class within a series may have a fixed,
variable or adjustable Pass-Through Rate, which may or may not be based upon the
interest rates borne by the Mortgage Loans in the related Trust Fund. The
Prospectus Supplement with respect to any series of Certificates will specify
the Pass-Through Rate for each class of Offered Certificates of such series or,
in the case of a class of Offered Certificates with a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Loan on the Pass-Through Rate of one
or more classes of Offered Certificates; and whether the distributions of
interest on the Offered Certificates of any class will be dependent, in whole or
in part, on the performance of any obligor under a Cash Flow Agreement.
Payment Delays
With respect to any series of Certificates, a period of time will
elapse between the date upon which payments on the Mortgage Loans in the related
Trust Fund are due and the Distribution Date on which such payments are passed
through to Certificateholders. That delay will effectively reduce the yield that
would otherwise be produced if payments on such Mortgage Loans were distributed
to Certificateholders on or near the date they were due.
Certain Shortfalls in Collections of Interest
When a principal prepayment in full or in part is made on a Mortgage
Loan, the borrower is generally charged interest on the amount of such
prepayment only through the date of such prepayment, instead of through the Due
Date for the next succeeding scheduled payment. However, interest accrued on any
series of Certificates and distributable thereon on any Distribution Date will
generally correspond to interest accrued on the Mortgage Loans to their
respective Due Dates during the related Due Period. Unless otherwise specified
in the Prospectus Supplement for a series of Certificates, a "Due Period" is a
specified time period generally corresponding in length to the time period
between Distribution Dates, and all scheduled payments on the Mortgage Loans in
the related Trust Fund that are due during a given Due Period will, to the
extent received by a specified date (the "Determination Date") or otherwise
advanced by the related Master Servicer or other specified person, be
distributed to the holders of the Certificates of such series on the next
succeeding Distribution Date. Consequently, if a prepayment on any Mortgage Loan
is distributable to Certificateholders on a particular Distribution Date, but
such prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
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accrued and otherwise payable on the Certificates of the related series. If and
to the extent that any such shortfall is allocated to a class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for each series of Certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such Certificates. If so
specified in the Prospectus Supplement for a series of Certificates, the Master
Servicer for such series will be required to apply some or all of its servicing
compensation for the corresponding period to offset the amount of any such
shortfalls. The related Prospectus Supplement will also describe any other
amounts available to offset such shortfalls. See "Description of the Pooling
Agreements--Servicing Compensation and Payment of Expenses".
Yield and Prepayment Considerations
A Certificate's yield to maturity will be affected by the rate of
principal payments on the Mortgage Loans in the related Trust Fund and the
allocation thereof to reduce the principal balance (or notional amount, if
applicable) of such Certificate. The rate of principal payments on the Mortgage
Loans in any Trust Fund will in turn be affected by the amortization schedules
thereof (which, in the case of ARM Loans, may change periodically to accommodate
adjustments to the Mortgage Rates thereon), the dates on which any balloon
payments are due, and the rate of principal prepayments thereon (including for
this purpose, prepayments resulting from liquidations of Mortgage Loans due to
defaults, casualties or condemnations affecting the Mortgaged Properties, or
purchases of Mortgage Loans out of the related Trust Fund). Because the rate of
principal prepayments on the Mortgage Loans in any Trust Fund will depend on
future events and a variety of factors (as described more fully below), no
assurance can be given as to such rate.
The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in the related Trust
Fund are in turn distributed on such Certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the Notional Amount
thereof). An investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans in the related Trust Fund could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Certificate purchased at a premium, the risk
that a faster than anticipated rate of principal payments on such Mortgage Loans
could result in an actual yield to such investor that is lower than the
anticipated yield. In addition, if an investor purchases an Offered Certificate
at a discount (or premium), and principal payments are made in reduction of the
principal balance or notional amount of such investor's Offered Certificates at
a rate slower (or faster) than the rate anticipated by the investor during any
particular period, the consequent adverse effects on such investor's yield would
not be fully offset by a subsequent like increase (or decrease) in the rate of
principal payments.
A class of Certificates, including a class of Offered Certificates, may
provide that on any Distribution Date the holders of such Certificates are
entitled to a pro rata share of the prepayments on the Mortgage Loans in the
related Trust Fund that are distributable on such date, to a disproportionately
large share (which, in some cases, may be all) of such prepayments, or to a
disproportionately small share (which, in some cases, may be none) of such
prepayments. As and to the extent described in the related Prospectus
Supplement, the respective entitlements of the various classes of Certificates
of any series to receive distributions in respect of payments (and, in
particular, prepayments) of principal of the Mortgage Loans in the related Trust
Fund may vary based on the occurrence of certain events (e.g., the retirement of
one or more classes of Certificates of such series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to such Mortgage
Loans).
In general, the Notional Amount of a class of Stripped Interest
Certificates will either (i) be based on the principal balances of some or all
of the Mortgage Assets in the related Trust Fund or (ii) equal the Certificate
Balances of one or more of the other classes of Certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be inversely
related to the rate at which payments and other collections of principal are
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received on such Mortgage Assets or distributions are made in reduction of the
Certificate Balances of such classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Trust Fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the Offered Certificates of a series
include any such Certificates, the related Prospectus Supplement will include a
table showing the effect of various assumed levels of prepayment on yields on
such Certificates. Such tables will be intended to illustrate the sensitivity of
yields to various assumed prepayment rates and will not be intended to predict,
or to provide information that will enable investors to predict, yields or
prepayment rates.
The Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience of
a group of multifamily or commercial mortgage loans. However, the extent of
prepayments of principal of the Mortgage Loans in any Trust Fund may be affected
by a number of factors, including, without limitation, the availability of
mortgage credit, the relative economic vitality of the area in which the
Mortgaged Properties are located, the quality of management of the Mortgaged
Properties, the servicing of the Mortgage Loans, possible changes in tax laws
and other opportunities for investment. In addition, the rate of principal
payments on the Mortgage Loans in any Trust Fund may be affected by the
existence of Lock-out Periods and requirements that principal prepayments be
accompanied by Prepayment Premiums, and by the extent to which such provisions
may be practicably enforced.
The rate of prepayment on a pool of mortgage loans is also affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Even in the case of ARM Loans, as prevailing market interest rates
decline, and without regard to whether the Mortgage Rates on such ARM Loans
decline in a manner consistent therewith, the related borrowers may have an
increased incentive to refinance for purposes of either (i) converting to a
fixed rate loan and thereby "locking in" such rate or (ii) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits. The Depositor
will make no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Trust Fund, as to the relative
importance of such factors, as to the percentage of the principal balance of
such Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment on such Mortgage Loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the Mortgage Loans
in any Trust Fund will affect the ultimate maturity and the weighted average
life of one or more classes of the Certificates of such series. Weighted average
life refers to the average amount of time that will elapse from the date of
issuance of an instrument until each dollar allocable as principal of such
instrument is repaid to the investor.
The weighted average life and maturity of a class of Certificates of
any series will be influenced by the rate at which principal on the related
Mortgage Loans, whether in the form of scheduled amortization or prepayments
(for this purpose, the term "prepayment" includes voluntary prepayments,
liquidations due to default and purchases of Mortgage Loans out of the related
Trust Fund), is paid to such class. Prepayment rates on loans are commonly
measured relative to a prepayment standard or model, such as the Constant
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Prepayment Rate ("CPR") prepayment model or the Standard Prepayment Assumption
("SPA") prepayment model. CPR represents an assumed constant rate of prepayment
each month (expressed as an annual percentage) relative to the then outstanding
principal balance of a pool of loans for the life of such loans. SPA represents
an assumed variable rate of prepayment each month (expressed as an annual
percentage) relative to the then outstanding principal balance of a pool of
loans, with different prepayment assumptions often expressed as percentages of
SPA. For example, a prepayment assumption of 100% of SPA assumes prepayment
rates of 0.2% per annum of the then outstanding principal balance of such loans
in the first month of the life of the loans and an additional 0.2% per annum in
each month thereafter until the thirtieth month. Beginning in the thirtieth
month, and in each month thereafter during the life of the loans, 100% of SPA
assumes a constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption
purports to be a historical description of prepayment experience or a prediction
of the anticipated rate of prepayment of any particular pool of loans. Moreover,
the CPR and SPA models were developed based upon historical prepayment
experience for single-family loans. Thus, it is unlikely that the prepayment
experience of the Mortgage Loans included in any Trust Fund will conform to any
particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates
will contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage of
the initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the related Mortgage Loans
are made at rates corresponding to various percentages of CPR or SPA, or at such
other rates specified in such Prospectus Supplement. Such tables and assumptions
will illustrate the sensitivity of the weighted average lives of the
Certificates to various assumed prepayment rates and will not be intended to
predict, or to provide information that will enable investors to predict, the
actual weighted average lives of the Certificates.
Controlled Amortization Classes and Companion Classes
A series of Certificates may include one or more Controlled
Amortization Classes, which will entitle the holders thereof to receive
principal distributions according to a specified principal payment schedule,
which schedule is supported by creating priorities, as and to the extent
described in the related Prospectus Supplement, to receive principal payments
from the Mortgage Loans in the related Trust Fund. Unless otherwise specified in
the related Prospectus Supplement, each Controlled Amortization Class will
either be a Planned Amortization Class (a "PAC") or a Targeted Amortization
Class (a "TAC"). In general, a PAC has a "prepayment collar" (that is, a range
of prepayment rates that can be sustained without disruption) that determines
the principal cash flow of such Certificates. Such a prepayment collar is not
static, and may expand or contract after the issuance of the PAC depending on
the actual prepayment experience for the underlying Mortgage Loans.
Distributions of principal on a PAC would be made in accordance with the
specified schedule so long as prepayments on the underlying Mortgage Loans
remain at a relatively constant rate within the prepayment collar and, as
described below, Companion Classes exist to absorb "excesses" or "shortfalls" in
principal payments on the underlying Mortgage Loans. If the rate of prepayment
on the underlying Mortgage Loans from time to time falls outside the prepayment
collar, or fluctuates significantly within the prepayment collar, especially for
any extended period of time, such an event may have material consequences in
respect of the anticipated weighted average life and maturity for a PAC. A TAC
is structured so that principal distributions generally will be payable thereon
in accordance with its specified principal payments schedule so long as the rate
of prepayments on the related Mortgage Assets remains relatively constant at the
particular rate used in establishing such schedule. A TAC will generally afford
the holders thereof some protection against early retirement or some protection
against an extended average life, but not both.
Although prepayment risk cannot be eliminated entirely for any class of
Certificates, a Controlled Amortization Class will generally provide a
relatively stable cash flow so long as the actual rate of prepayment on the
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Mortgage Loans in the related Trust Fund remains relatively constant at the
rate, or within the range of rates, of prepayment used to establish the specific
principal payment schedule for such Certificates. Prepayment risk with respect
to a given Mortgage Asset Pool does not disappear, however, and the stability
afforded to a Controlled Amortization Class comes at the expense of one or more
Companion Classes of the same series, any of which Companion Classes may also be
a class of Offered Certificates. In general, and as more particularly described
in the related Prospectus Supplement, a Companion Class will entitle the holders
thereof to a disproportionately large share of prepayments on the Mortgage Loans
in the related Trust Fund when the rate of prepayment is relatively fast, and
will entitle the holders thereof to a disproportionately small share of
prepayments on the Mortgage Loans in the related Trust Fund when the rate of
prepayment is relatively slow. A class of Certificates that entitles the holders
thereof to a disproportionately large share of the prepayments on the Mortgage
Loans in the related Trust Fund enhances the risk of early retirement of such
class ("call risk") if the rate of prepayment is relatively fast; while a class
of Certificates that entitles the holders thereof to a disproportionately small
share of the prepayments on the Mortgage Loans in the related Trust Fund
enhances the risk of an extended average life of such class ("extension risk")
if the rate of prepayment is relatively slow. Thus, as and to the extent
described in the related Prospectus Supplement, a Companion Class absorbs some
(but not all) of the "call risk" and/or "extension risk" that would otherwise
belong to the related Controlled Amortization Class if all payments of principal
of the Mortgage Loans in the related Trust Fund were allocated on a pro rata
basis.
Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage
Loans included in a particular Trust Fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related Mortgaged Property, there is a risk that Mortgage Loans that require
balloon payments may default at maturity, or that the maturity of such a
Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the Master
Servicer or a Special Servicer, to the extent and under the circumstances set
forth herein and in the related Prospectus Supplement, may be authorized to
modify Mortgage Loans that are in default or as to which a payment default is
imminent. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Loan may delay distributions of principal on a class of
Offered Certificates and thereby extend the weighted average life of such
Certificates and, if such Certificates were purchased at a discount, reduce the
yield thereon.
Negative Amortization. The weighted average life of a class of
Certificates can be affected by Mortgage Loans that permit negative amortization
to occur. A Mortgage Loan that provides for the payment of interest calculated
at a rate lower than the rate at which interest accrues thereon would be
expected during a period of increasing interest rates to amortize at a slower
rate (and perhaps not at all) than if interest rates were declining or were
remaining constant. Such slower rate of Mortgage Loan amortization would
correspondingly be reflected in a slower rate of amortization for one or more
classes of Certificates of the related series. In addition, negative
amortization on one or more Mortgage Loans in any Trust Fund may result in
negative amortization on the Certificates of the related series. The related
Prospectus Supplement will describe, if applicable, the manner in which negative
amortization in respect of the Mortgage Loans in any Trust Fund is allocated
among the respective classes of Certificates of the related series. The portion
of any Mortgage Loan negative amortization allocated to a class of Certificates
may result in a deferral of some or all of the interest payable thereon, which
deferred interest may be added to the Certificate Balance thereof. Accordingly,
the weighted average lives of Mortgage Loans that permit negative amortization
(and that of the classes of Certificates to which any such negative amortization
would be allocated or that would bear the effects of a slower rate of
amortization on such Mortgage Loans) may increase as a result of such feature.
Negative amortization also may occur in respect of an ARM Loan that
limits the amount by which its scheduled payment may adjust in response to a
change in its Mortgage Rate, provides that its scheduled payment will adjust
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less frequently than its Mortgage Rate or provides for constant scheduled
payments notwithstanding adjustments to its Mortgage Rate. Accordingly, during a
period of declining interest rates, the scheduled payment on such a Mortgage
Loan may exceed the amount necessary to amortize the loan fully over its
remaining amortization schedule and pay interest at the then applicable Mortgage
Rate, thereby resulting in the accelerated amortization of such Mortgage Loan.
Any such acceleration in amortization of its principal balance will shorten the
weighted average life of such Mortgage Loan and, correspondingly, the weighted
average lives of those classes of Certificates entitled to a portion of the
principal payments on such Mortgage Loan.
The extent to which the yield on any Offered Certificate will be
affected by the inclusion in the related Trust Fund of Mortgage Loans that
permit negative amortization, will depend upon (i) whether such Offered
Certificate was purchased at a premium or a discount and (ii) the extent to
which the payment characteristics of such Mortgage Loans delay or accelerate the
distributions of principal on such Certificate (or, in the case of a Stripped
Interest Certificate, delay or accelerate the amortization of the notional
amount thereof). See "--Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance with
their terms will affect the weighted average lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Certificates of the
related series. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings, may also have an
effect upon the payment patterns of particular Mortgage Loans and thus the
weighted average lives of and yields on the Certificates of the related series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of
the Offered Certificates of any series will directly depend on the extent to
which such holders are required to bear the effects of any losses or shortfalls
in collections arising out of defaults on the Mortgage Loans in the related
Trust Fund and the timing of such losses and shortfalls. In general, the earlier
that any such loss or shortfall occurs, the greater will be the negative effect
on yield for any class of Certificates that is required to bear the effects
thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by a reduction in the entitlements to interest and/or
Certificate Balances of one or more such classes of Certificates, or by
establishing a priority of payments among such classes of Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
Additional Certificate Amortization. In addition to entitling the
holders thereof to a specified portion (which may during specified periods range
from none to all) of the principal payments received on the Mortgage Assets in
the related Trust Fund, one or more classes of Certificates of any series,
including one or more classes of Offered Certificates of such series, may
provide for distributions of principal thereof from (i) amounts attributable to
interest accrued but not currently distributable on one or more classes of
Accrual Certificates, (ii) Excess Funds or (iii) any other amounts described in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, "Excess Funds" will, in general, represent that portion
of the amounts distributable in respect of the Certificates of any series on any
Distribution Date that represent (i) interest received or advanced on the
Mortgage Assets in the related Trust Fund that is in excess of the interest
currently accrued on the Certificates of such series, or (ii) Prepayment
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Premiums, payments from Equity Participations or any other amounts received on
the Mortgage Assets in the related Trust Fund that do not constitute interest
thereon or principal thereof.
The amortization of any class of Certificates out of the sources
described in the preceding paragraph would shorten the weighted average life of
such Certificates and, if such Certificates were purchased at a premium, reduce
the yield thereon. The related Prospectus Supplement will discuss the relevant
factors to be considered in determining whether distributions of principal of
any class of Certificates out of such sources would have any material effect on
the rate at which such Certificates are amortized.
Optional Early Termination. If so specified in the related Prospectus
Supplement, a series of Certificates may be subject to optional early
termination through the repurchase of the Mortgage Assets in the related Trust
Fund by the party or parties specified therein, under the circumstances and in
the manner set forth therein. If so provided in the related Prospectus
Supplement, upon the reduction of the Certificate Balance of a specified class
or classes of Certificates by a specified percentage or amount, a party
specified therein may be authorized or required to solicit bids for the purchase
of all of the Mortgage Assets of the related Trust Fund, or of a sufficient
portion of such Mortgage Assets to retire such class or classes, under the
circumstances and in the manner set forth therein. In the absence of other
factors, any such early retirement of a class of Offered Certificates would
shorten the weighted average life thereof and, if such Certificates were
purchased at premium, reduce the yield thereon.
THE DEPOSITOR
Chase Commercial Mortgage Securities Corp., the Depositor, is a New
York corporation organized on August 2, 1993 as a wholly-owned subsidiary of
Chemical Bank, a New York bank. Later this year, The Chase Manhattan Bank
(National Association) will be merged with and into Chemical Bank, a New York
bank, and Chemical Bank will then change its name to The Chase Manhattan Bank.
The Depositor maintains its principal office at 380 Madison Avenue, New York,
New York 10017-2951. Its telephone number is (212) 622-3510. The Depositor does
not have, nor is it expected in the future to have, any significant assets.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of
any series will be applied by the Depositor to the purchase of Trust Assets or
will be used by the Depositor for general corporate purposes. The Depositor
expects to sell the Certificates from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
DESCRIPTION OF THE CERTIFICATES
General
Each series of Certificates will represent the entire beneficial
ownership interest in the Trust Fund created pursuant to the related Pooling
Agreement. As described in the related Prospectus Supplement, the Certificates
of each series, including the Offered Certificates of such series, may consist
of one or more classes of Certificates that, among other things: (i) provide for
the accrual of interest thereon at a fixed, variable or adjustable rate; (ii)
are senior (collectively, "Senior Certificates") or subordinate (collectively,
"Subordinate Certificates") to one or more other classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionately small, nominal or no
distributions of interest (collectively, "Stripped Principal Certificates");
(iv) are entitled to distributions of interest, with disproportionately small,
nominal or no distributions of principal (collectively, "Stripped Interest
Certificates"); (v) provide for distributions of interest thereon or principal
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thereof that commence only after the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal thereof to be made, from time to time or
for designated periods, at a rate that is faster (and, in some cases,
substantially faster) or slower (and, in some cases, substantially slower) than
the rate at which payments or other collections of principal are received on the
Mortgage Assets in the related Trust Fund; (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology; or (viii) provide for
distributions based on collections on the Mortgage Assets in the related Trust
Fund attributable to Prepayment Premiums and Equity Participations.
Each class of Offered Certificates of a series will be issued in
minimum denominations corresponding to the principal balances or, in case of
certain classes of Stripped Interest Certificates or Residual Certificates,
notional amounts or percentage interests, specified in the related Prospectus
Supplement. As provided in the related Prospectus Supplement, one or more
classes of Offered Certificates of any series may be issued in fully registered,
definitive form (such Certificates, "Definitive Certificates") or may be offered
in book-entry format (such Certificates, "Book-Entry Certificates") through the
facilities of The Depository Trust Company ("DTC"). The Offered Certificates of
each series (if issued as Definitive Certificates) may be transferred or
exchanged, subject to any restrictions on transfer described in the related
Prospectus Supplement, at the location specified in the related Prospectus
Supplement, without the payment of any service charges, other than any tax or
other governmental charge payable in connection therewith. Interests in a class
of Book-Entry Certificates will be transferred on the book-entry records of DTC
and its participating organizations. See "Risk Factors--Limited Liquidity" and
"--Book-Entry Registration".
Distributions
Distributions on the Certificates of each series will be made by or on
behalf of the related Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available Distribution
Amount for such series and such Distribution Date. Unless otherwise provided in
the related Prospectus Supplement, the "Available Distribution Amount" for any
series of Certificates and any Distribution Date will refer to the total of all
payments or other collections (or advances in lieu thereof) on, under or in
respect of the Mortgage Assets and any other assets included in the related
Trust Fund that are available for distribution to the holders of Certificates of
such series on such date. The particular components of the Available
Distribution Amount for any series on each Distribution Date will be more
specifically described in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Certificates are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
class. Payments will be made either by wire transfer in immediately available
funds to the account of a Certificateholder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder has provided the
person required to make such payments with wiring instructions (which may be
provided in the form of a standing order applicable to all subsequent
distributions) no later than the date specified in the related Prospectus
Supplement (and, if so provided in the related Prospectus Supplement, such
Certificateholder holds Certificates in the requisite amount or denomination
specified therein), or by check mailed to the address of such Certificateholder
as it appears on the Certificate Register; provided, however, that the final
distribution in retirement of any class of Certificates (whether Definitive
Certificates or Book-Entry Certificates) will be made only upon presentation and
surrender of such Certificates at the location specified in the notice to
Certificateholders of such final distribution.
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Distributions of Interest on the Certificates
Each class of Certificates of each series (other than certain classes
of Stripped Principal Certificates and certain classes of Residual Certificates
that have no Pass-Through Rate) may have a different Pass-Through Rate, which in
each case may be fixed, variable or adjustable. The related Prospectus
Supplement will specify the Pass-Through Rate or, in the case of a variable or
adjustable Pass-Through Rate, the method for determining the Pass-Through Rate,
for each class. Unless otherwise specified in the related Prospectus Supplement,
interest on the Certificates of each series will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
Distributions of interest in respect of any class of Certificates
(other than certain classes of Certificates that will be entitled to
distributions of accrued interest commencing only on the Distribution Date, or
under the circumstances, specified in the related Prospectus Supplement
("Accrual Certificates"), and other than any class of Stripped Principal
Certificates or Residual Certificates that is not entitled to any distributions
of interest) will be made on each Distribution Date based on the Accrued
Certificate Interest for such class and such Distribution Date, subject to the
sufficiency of the portion of the Available Distribution Amount allocable to
such class on such Distribution Date. Prior to the time interest is
distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates (other than certain classes of Stripped Interest
Certificates and certain classes of Residual Certificates), the "Accrued
Certificate Interest" for each Distribution Date will be equal to interest at
the applicable Pass-Through Rate accrued for a specified period (generally equal
to the time period between Distribution Dates) on the outstanding Certificate
Balance of such class of Certificates immediately prior to such Distribution
Date. Unless otherwise provided in the related Prospectus Supplement, the
Accrued Certificate Interest for each Distribution Date on a class of Stripped
Interest Certificates will be similarly calculated except that it will accrue on
a notional amount (a "Notional Amount") that is either (i) based on the
principal balances of some or all of the Mortgage Assets in the related Trust
Fund or (ii) equal to the Certificate Balances of one or more other classes of
Certificates of the same series. Reference to a Notional Amount with respect to
a class of Stripped Interest Certificates is solely for convenience in making
certain calculations and does not represent the right to receive any
distributions of principal. If so specified in the related Prospectus
Supplement, the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise be
added to the Certificate Balance of) one or more classes of the Certificates of
a series will be reduced to the extent that any Prepayment Interest Shortfalls,
as described under "Yield and Maturity Considerations--Certain Shortfalls in
Collections of Interest", exceed the amount of any sums (including, if and to
the extent specified in the related Prospectus Supplement, all or a portion of
the Master Servicer's servicing compensation) that are applied to offset the
amount of such shortfalls. The particular manner in which such shortfalls will
be allocated among some or all of the classes of Certificates of that series
will be specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Assets in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement, any reduction in the amount of
Accrued Certificate Interest otherwise distributable on a class of Certificates
by reason of the allocation to such class of a portion of any deferred interest
on or in respect of the Mortgage Assets in the related Trust Fund will result in
a corresponding increase in the Certificate Balance of such class. See "Risk
Factors--Prepayments; Average Life of Certificates; Yields" and "Yield and
Maturity Considerations".
Distributions of Principal on the Certificates
Each class of Certificates of each series (other than certain classes
of Stripped Interest Certificates and certain classes of Residual Certificates)
will have a "Certificate Balance" which, at any time, will equal the then
maximum amount that the holders of Certificates of such class will be entitled
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to receive in respect of principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a class of Certificates will be reduced by distributions
of principal made thereon from time to time and, if so provided in the related
Prospectus Supplement, further by any losses incurred in respect of the related
Mortgage Assets allocated thereto from time to time. In turn, the outstanding
Certificate Balance of a class of Certificates may be increased as a result of
any deferred interest on or in respect of the related Mortgage Assets being
allocated thereto from time to time, and will be increased, in the case of a
class of Accrual Certificates prior to the Distribution Date on which
distributions of interest thereon are required to commence, by the amount of any
Accrued Certificate Interest in respect thereof (reduced as described above).
Unless otherwise provided in the related Prospectus Supplement, the initial
aggregate Certificate Balance of all classes of a series of Certificates will
not be greater than the aggregate outstanding principal balance of the related
Mortgage Assets as of the applicable Cut-off Date, after application of
scheduled payments due on or before such date, whether or not received. The
initial Certificate Balance of each class of a series of Certificates will be
specified in the related Prospectus Supplement. As and to the extent described
in the related Prospectus Supplement, distributions of principal with respect to
a series of Certificates will be made on each Distribution Date to the holders
of the class or classes of Certificates of such series entitled thereto until
the Certificate Balances of such Certificates have been reduced to zero.
Distributions of principal with respect to one or more classes of Certificates
may be made at a rate that is faster (and, in some cases, substantially faster)
than the rate at which payments or other collections of principal are received
on the Mortgage Assets in the related Trust Fund. Distributions of principal
with respect to one or more classes of Certificates may not commence until the
occurrence of certain events, such as the retirement of one or more other
classes of Certificates of the same series, or may be made at a rate that is
slower (and, in some cases, substantially slower) than the rate at which
payments or other collections of principal are received on the Mortgage Assets
in the related Trust Fund. Distributions of principal with respect to one or
more classes of Certificates (each such class, a "Controlled Amortization
Class") may be made, subject to available funds, based on a specified principal
payment schedule. Distributions of principal with respect to one or more classes
of Certificates (each such class, a "Companion Class") may be contingent on the
specified principal payment schedule for a Controlled Amortization Class of the
same series and the rate at which payments and other collections of principal on
the Mortgage Assets in the related Trust Fund are received. Unless otherwise
specified in the related Prospectus Supplement, distributions of principal of
any class of Offered Certificates will be made on a pro rata basis among all of
the Certificates of such class.
Distributions on the Certificates in Respect of Prepayment Premiums or in
Respect of Equity Participations
If so provided in the related Prospectus Supplement, Prepayment
Premiums or payments in respect of Equity Participations received on or in
connection with the Mortgage Assets in any Trust Fund will be distributed on
each Distribution Date to the holders of the class of Certificates of the
related series entitled thereto in accordance with the provisions described in
such Prospectus Supplement.
Allocation of Losses and Shortfalls
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by a reduction in the entitlements to interest and/or
Certificate Balances of one or more such classes of Certificates, or by
establishing a priority of payments among such classes of Certificates.
Advances in Respect of Delinquencies
If and to the extent provided in the related Prospectus Supplement, if
a Trust Fund includes Mortgage Loans, the Master Servicer, a Special Servicer,
the Trustee, any provider of Credit Support and/or any other specified person
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may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than any balloon
payments) and interest that were due on or in respect of such Mortgage Loans
during the related Due Period and were delinquent on the related Determination
Date.
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses.
Accordingly, all advances made out of a specific entity's own funds will be
reimbursable out of related recoveries on the Mortgage Loans (including amounts
received under any instrument of Credit Support) respecting which such advances
were made (as to any Mortgage Loan, "Related Proceeds") and such other specific
sources as may be identified in the related Prospectus Supplement, including in
the case of a series that includes one or more classes of Subordinate
Certificates, collections on other Mortgage Loans in the related Trust Fund that
would otherwise be distributable to the holders of one or more classes of such
Subordinate Certificates. No advance will be required to be made by a Master
Servicer, Special Servicer or Trustee if, in the good faith judgment of the
Master Servicer, Special Servicer or Trustee, as the case may be, such advance
would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "Nonrecoverable Advance"); and, if
previously made by a Master Servicer, Special Servicer or Trustee, a
Nonrecoverable Advance will be reimbursable thereto from any amounts in the
related Certificate Account prior to any distributions being made to the related
series of Certificateholders.
If advances have been made by a Master Servicer, Special Servicer,
Trustee or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on any future
Distribution Date to the extent that funds in such Certificate Account on such
Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer, Special Servicer,
Trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement,
any entity making advances will be entitled to receive interest thereon for the
period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and such entity will be entitled to payment of such
interest periodically from general collections on the Mortgage Loans in the
related Trust Fund prior to any payment to the related series of
Certificateholders or as otherwise provided in the related Pooling Agreement and
described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any comparable
advancing obligation of a party to the related Pooling Agreement or of a party
to the related MBS Agreement.
Reports to Certificateholders
On each Distribution Date, together with the distribution to the
holders of each class of the Offered Certificates of a series, a Master Servicer
or Trustee, as provided in the related Prospectus Supplement, will forward to
each such holder, a statement (a "Distribution Date Statement") that, unless
otherwise provided in the related Prospectus Supplement, will set forth, among
other things, in each case to the extent applicable:
(i) the amount of such distribution to holders of such class of Offered
Certificates that was applied to reduce the Certificate Balance thereof;
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(ii) the amount of such distribution to holders of such class of
Offered Certificates that is allocable to Accrued Certificate Interest;
(iii) the amount, if any, of such distribution to holders of such class
of Offered Certificates that is allocable to (A) Prepayment Premiums and (B)
payments on account of Equity Participations;
(iv) the amount, if any, by which such distribution is less than the
amounts to which holders of such class of Offered Certificates are entitled;
(v) if the related Trust Fund includes Mortgage Loans, the aggregate
amount of advances included in such distribution;
(vi) if the related Trust Fund includes Mortgage Loans, the amount of
servicing compensation received by the related Master Servicer (and, if payable
directly out of the related Trust Fund, by any Special Servicer and any
Sub-Servicer) and such other customary information as the reporting party deems
necessary or desirable, or that a Certificateholder reasonably requests, to
enable Certificateholders to prepare their tax returns;
(vii) information regarding the aggregate principal balance of the
related Mortgage Assets on or about such Distribution Date;
(viii) if the related Trust Fund includes Mortgage Loans, information
regarding the number and aggregate principal balance of such Mortgage Loans that
are delinquent in varying degrees;
(ix) if the related Trust Fund includes Mortgage Loans, information
regarding the aggregate amount of losses incurred and principal prepayments made
with respect to such Mortgage Loans during the related Prepayment Period (that
is, the specified period, generally equal in length to the time period between
Distribution Dates, during which prepayments and other unscheduled collections
on the Mortgage Loans in the related Trust Fund must be received in order to be
distributed on a particular Distribution Date);
(x) the Certificate Balance or Notional Amount, as the case may be, of
each class of Certificates (including any class of Certificates not offered
hereby) at the close of business on such Distribution Date, separately
identifying any reduction in such Certificate Balance or Notional Amount due to
the allocation of any losses in respect of the related Mortgage Assets, any
increase in such Certificate Balance or Notional Amount due to the allocation of
any negative amortization in respect of the related Mortgage Assets and any
increase in the Certificate Balance of a class of Accrual Certificates, if any,
in the event that Accrued Certificate Interest has been added to such balance;
(xi) if such class of Offered Certificates has a variable Pass-Through
Rate or an adjustable Pass-Through Rate, the Pass-Through Rate applicable
thereto for such Distribution Date and, if determinable, for the next succeeding
Distribution Date;
(xii) the amount deposited in or withdrawn from any reserve fund on
such Distribution Date, and the amount remaining on deposit in such reserve fund
as of the close of business on such Distribution Date;
(xiii) if the related Trust Fund includes one or more instruments of
Credit Support, such as a letter of credit, an insurance policy and/or a surety
bond, the amount of coverage under each such instrument as of the close of
business on such Distribution Date; and
(xiv) to the extent not otherwise reflected through the information
furnished pursuant to subclauses (viii) and (x) above, the amount of Credit
Support being afforded by any classes of Subordinate Certificates.
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In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of Offered Certificates or per a specified portion of such
minimum denomination. The Prospectus Supplement for each series of Certificates
may describe additional information to be included in reports to the holders of
the Offered Certificates of such series.
Within a reasonable period of time after the end of each calendar year, the
Master Servicer or Trustee for a series of Certificates, as the case may be,
will be required to furnish to each person who at any time during the calendar
year was a holder of an Offered Certificate of such series a statement
containing the information set forth in subclauses (i)-(iii) above, aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Code as are from time to time in force. See,
however, "Description of the Certificates--Book-Entry Registration and
Definitive Certificates".
If the Trust Fund for a series of Certificates includes MBS, the
ability of the related Master Servicer or Trustee, as the case may be, to
include in any Distribution Date Statement information regarding the mortgage
loans underlying such MBS will depend on the reports received with respect to
such MBS. In such cases, the related Prospectus Supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the Offered Certificates of that series
in connection with distributions made to them.
Voting Rights
The voting rights evidenced by each series of Certificates (as to such
series, the "Voting Rights") will be allocated among the respective classes of
such series in the manner described in the related Prospectus Supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related Pooling
Agreement and as otherwise specified in the related Prospectus Supplement. See
"Description of the Pooling Agreements--Amendment". The holders of specified
amounts of Certificates of a particular series will have the right to act as a
group to remove the related Trustee and also upon the occurrence of certain
events which if continuing would constitute an Event of Default on the part of
the related Master Servicer. See "Description of the Pooling Agreements--Events
of Default", "--Rights Upon Event of Default" and "--Resignation and Removal of
the Trustee".
Termination
The obligations created by the Pooling Agreement for each series of
Certificates will terminate following (i) the final payment or other liquidation
of the last Mortgage Asset subject thereto or the disposition of all property
acquired upon foreclosure of any Mortgage Loan subject thereto and (ii) the
payment to the Certificateholders of that series of all amounts required to be
paid to them pursuant to such Pooling Agreement. Written notice of termination
of a Pooling Agreement will be given to each Certificateholder of the related
series, and the final distribution will be made only upon presentation and
surrender of the Certificates of such series at the location to be specified in
the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the Mortgage Assets in the related Trust Fund by the party or parties
specified therein, under the circumstances and in the manner set forth therein.
If so provided in the related Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount, a party designated therein may be authorized or
required to solicit bids for the purchase of all the Mortgage Assets of the
related Trust Fund, or of a sufficient portion of such Mortgage Assets to retire
such class or classes, under the circumstances and in the manner set forth
therein.
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Book-Entry Registration and Definitive Certificates
If so provided in the Prospectus Supplement for a series of
Certificates, one or more classes of the Offered Certificates of such series
will be offered in book-entry format through the facilities of The Depository
Trust Company ("DTC"), and each such class will be represented by one or more
global Certificates registered in the name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement of
securities certificates. "Direct Participants", which maintain accounts with
DTC, include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made
by or through Direct Participants, which will receive a credit for the
Book-Entry Certificates on DTC's records. The ownership interest of each actual
purchaser of a Book-Entry Certificate (a "Certificate Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Certificate Owners
will not receive written confirmation from DTC of their purchases, but
Certificate Owners are expected to receive written confirmations providing
details of such transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which each Certificate Owner
entered into the transaction. Transfers of ownership interest in the Book-Entry
Certificates are to be accomplished by entries made on the books of Participants
acting on behalf of Certificate Owners. Certificate Owners will not receive
certificates representing their ownership interests in the Book-Entry
Certificates, except in the event that use of the book-entry system for the
Book-Entry Certificates of any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of each such Participant (and not
of DTC, the Depositor or any Trustee or Master Servicer), subject to any
statutory or regulatory requirements as may be in effect from time to time.
Under a book-entry system, Certificate Owners may receive payments after the
related Distribution Date.
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Unless otherwise provided in the related Prospectus Supplement, the
only "Certificateholder"(as such term is used in the related Pooling Agreement)
will be the nominee of DTC, and the Certificate Owners will not be recognized as
Certificateholders under the Pooling Agreement. Certificate Owners will be
permitted to exercise the rights of Certificateholders under the related Pooling
Agreement only indirectly through the Participants who in turn will exercise
their rights through DTC. The Depositor is informed that DTC will take action
permitted to be taken by a Certificateholder under a Pooling Agreement only at
the direction of one or more Participants to whose account with DTC interests in
the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain Certificate Owners, the ability of a
Certificate Owner to pledge its interest in Book-Entry Certificates to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in Book-Entry Certificates, may be limited due to the
lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Certificates and the Depositor is unable to locate a
qualified successor or (ii) the Depositor, at its option, elects to terminate
the book-entry system through DTC with respect to such Certificates. Upon the
occurrence of either of the events described in the preceding sentence, DTC will
be required to notify all Participants of the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the certificate or
certificates representing a class of Book-Entry Certificates, together with
instructions for registration, the Trustee for the related series or other
designated party will be required to issue to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the holders of such Definitive Certificates will be recognized as
Certificateholders under the related Pooling Agreement.
DESCRIPTION OF THE POOLING AGREEMENTS
General
The Certificates of each series will be issued pursuant to a pooling
and servicing agreement or other agreement specified in the related Prospectus
Supplement (in either case, a "Pooling Agreement"). In general, the parties to a
Pooling Agreement will include the Depositor, the Trustee, the Master Servicer
and, in some cases, a Special Servicer appointed as of the date of the Pooling
Agreement. However, a Pooling Agreement may include a Mortgage Asset Seller as a
party, and a Pooling Agreement that relates to a Trust Fund that consists solely
of MBS may not include a Master Servicer or other servicer as a party. All
parties to each Pooling Agreement under which Certificates of a series are
issued will be identified in the related Prospectus Supplement. If so specified
in the related Prospectus Supplement, an affiliate of the Depositor, or the
Mortgage Asset Seller or an affiliate thereof, may perform the functions of
Master Servicer or Special Servicer. Any party to a Pooling Agreement may own
Certificates issued thereunder; however, except with respect to required
consents to certain amendments to a Pooling Agreement, Certificates issued
thereunder that are held by the Master Servicer or Special Servicer for the
related series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
However, the provisions of each Pooling Agreement will vary depending upon the
nature of the Certificates to be issued thereunder and the nature of the related
Trust Fund. The following summaries describe certain provisions that may appear
in a Pooling Agreement under which Certificates that evidence interests in
Mortgage Loans will be issued. The Prospectus Supplement for a series of
Certificates will describe any provision of the related Pooling Agreement that
materially differs from the description thereof contained in this Prospectus
and, if the related Trust Fund includes MBS, will summarize all of the material
provisions of the related Pooling Agreement. The summaries herein do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Pooling Agreement for each series of
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Certificates and the description of such provisions in the related Prospectus
Supplement. As used herein with respect to any series, the term "Certificate"
refers to all of the Certificates of that series, whether or not offered hereby
and by the related Prospectus Supplement, unless the context otherwise requires.
The Depositor will provide a copy of the Pooling Agreement (without exhibits)
that relates to any series of Certificates without charge upon written request
of a holder of a Certificate of such series addressed to Chase Commercial
Mortgage Securities Corp., 380 Madison Avenue, New York, New York 10017-2951,
Attention: President.
Assignment of Mortgage Loans; Repurchases
At the time of issuance of any series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Mortgage
Loans to be included in the related Trust Fund, together with, unless otherwise
specified in the related Prospectus Supplement, all principal and interest to be
received on or with respect to such Mortgage Loans after the Cut-off Date, other
than principal and interest due on or before the Cut-off Date. The Trustee will,
concurrently with such assignment, deliver the Certificates to or at the
direction of the Depositor in exchange for the Mortgage Loans and the other
assets to be included in the Trust Fund for such series. Each Mortgage Loan will
be identified in a schedule appearing as an exhibit to the related Pooling
Agreement. Such schedule generally will include detailed information that
pertains to each Mortgage Loan included in the related Trust Fund, which
information will typically include the address of the related Mortgaged Property
and type of such property; the Mortgage Rate and, if applicable, the applicable
index, gross margin, adjustment date and any rate cap information; the original
and remaining term to maturity; the original amortization term; and the original
and outstanding principal balance.
With respect to each Mortgage Loan to be included in a Trust Fund, the
Depositor will deliver (or cause to be delivered) to the related Trustee (or to
a custodian appointed by the Trustee) certain loan documents which, unless
otherwise specified in the related Prospectus Supplement, will include the
original Mortgage Note endorsed, without recourse, to the order of the Trustee,
the original Mortgage (or a certified copy thereof) with evidence of recording
indicated thereon and an assignment of the Mortgage to the Trustee in recordable
form. Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the related Pooling Agreement will require that the Depositor or
another party thereto promptly cause each such assignment of Mortgage to be
recorded in the appropriate public office for real property records.
The Trustee (or a custodian appointed by the Trustee) for a series of
Certificates will be required to review the Mortgage Loan documents delivered to
it within a specified period of days after receipt thereof, and the Trustee (or
such custodian) will hold such documents in trust for the benefit of the
Certificateholders of such series. Unless otherwise specified in the related
Prospectus Supplement, if any such document is found to be missing or defective,
and such omission or defect, as the case may be, materially and adversely
affects the interests of the Certificateholders of the related series, the
Trustee (or such custodian) will be required to notify the Master Servicer and
the Depositor, and one of such persons will be required to notify the relevant
Mortgage Asset Seller. In that case, and if the Mortgage Asset Seller cannot
deliver the document or cure the defect within a specified number of days after
receipt of such notice, then, except as otherwise specified below or in the
related Prospectus Supplement, the Mortgage Asset Seller will be obligated to
repurchase the related Mortgage Loan from the Trustee at a price that will be
specified in the related Prospectus Supplement. If so provided in the Prospectus
Supplement for a series of Certificates, a Mortgage Asset Seller, in lieu of
repurchasing a Mortgage Loan as to which there is missing or defective loan
documentation, will have the option, exercisable upon certain conditions and/or
within a specified period after initial issuance of such series of Certificates,
to replace such Mortgage Loan with one or more other mortgage loans, in
accordance with standards that will be described in the Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, this repurchase
or substitution obligation will constitute the sole remedy to holders of the
Certificates of any series or to the related Trustee on their behalf for missing
or defective loan documentation and neither the Depositor nor, unless it is the
Mortgage Asset Seller, the Master Servicer will be obligated to purchase or
replace a Mortgage Loan if a Mortgage Asset Seller defaults on its obligation to
do so. Notwithstanding the foregoing, if a document has not been delivered to
the related Trustee (or to a custodian appointed by the Trustee) because such
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document has been submitted for recording, and neither such document nor a
certified copy thereof, in either case with evidence of recording thereon, can
be obtained because of delays on the part of the applicable recording office,
then, unless otherwise specified in the related Prospectus Supplement, the
Mortgage Asset Seller will not be required to repurchase or replace the affected
Mortgage Loan on the basis of such missing document so long as it continues in
good faith to attempt to obtain such document or such certified copy.
Representations and Warranties; Repurchases
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the Depositor will, with respect to each Mortgage Loan in the
related Trust Fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making such representations and
warranties, the "Warranting Party") covering, by way of example: (i) the
accuracy of the information set forth for such Mortgage Loan on the schedule of
Mortgage Loans appearing as an exhibit to the related Pooling Agreement; (ii)
the enforceability of the related Mortgage Note and Mortgage and the existence
of title insurance insuring the lien priority of the related Mortgage; (iii) the
Warranting Party's title to the Mortgage Loan and the authority of the
Warranting Party to sell the Mortgage Loan; and (iv) the payment status of the
Mortgage Loan. It is expected that in most cases the Warranting Party will be
the Mortgage Asset Seller; however, the Warranting Party may also be an
affiliate of the Mortgage Asset Seller, the Depositor or an affiliate of the
Depositor, the Master Servicer, a Special Servicer or another person acceptable
to the Depositor. The Warranting Party, if other than the Mortgage Asset Seller,
will be identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will provide that the Master Servicer and/or Trustee will be
required to notify promptly any Warranting Party of any breach of any
representation or warranty made by it in respect of a Mortgage Loan that
materially and adversely affects the interests of the Certificateholders of the
related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related Prospectus Supplement, it will be
obligated to repurchase such Mortgage Loan from the Trustee at a price that will
be specified in the related Prospectus Supplement. If so provided in the
Prospectus Supplement for a series of Certificates, a Warranting Party, in lieu
of repurchasing a Mortgage Loan as to which a breach has occurred, will have the
option, exercisable upon certain conditions and/or within a specified period
after initial issuance of such series of Certificates, to replace such Mortgage
Loan with one or more other mortgage loans, in accordance with standards that
will be described in the Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, this repurchase or substitution obligation
will constitute the sole remedy available to holders of the Certificates of any
series or to the related Trustee on their behalf for a breach of representation
and warranty by a Warranting Party and neither the Depositor nor the Master
Servicer, in either case unless it is the Warranting Party, will be obligated to
purchase or replace a Mortgage Loan if a Warranting Party defaults on its
obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Loan as of a date prior to the date upon which the related
series of Certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the 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 made in respect of such Mortgage Loan
will not be accurate in all material respects as of the date of issuance. The
date as of which the representations and warranties regarding the Mortgage Loans
in any Trust Fund were made will be specified in the related Prospectus
Supplement.
Collection and Other Servicing Procedures
The Master Servicer for any Trust Fund, directly or through
Sub-Servicers, will be required to make reasonable efforts to collect all
scheduled payments under the Mortgage Loans in such Trust Fund, and will be
required to follow such collection procedures as it would follow with respect to
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mortgage loans that are comparable to the Mortgage Loans in such Trust Fund and
held for its own account, provided such procedures are consistent with (i) the
terms of the related Pooling Agreement and any related instrument of Credit
Support included in such Trust Fund, (ii) applicable law and (iii) the servicing
standard specified in the related Pooling Agreement and Prospectus Supplement
(the "Servicing Standard").
The Master Servicer for any Trust Fund, directly or through
Sub-Servicers, will also be required to perform as to the Mortgage Loans in such
Trust Fund various other customary functions of a servicer of comparable loans,
including maintaining escrow or impound accounts, if required under the related
Pooling Agreement, for payment of taxes, insurance premiums, ground rents and
similar items, or otherwise monitoring the timely payment of those items;
attempting to collect delinquent payments; supervising foreclosures; negotiating
modifications; conducting property inspections on a periodic or other basis;
managing (or overseeing the management of) Mortgaged Properties acquired on
behalf of such Trust Fund through foreclosure, deed-in-lieu of foreclosure or
otherwise (each, an "REO Property"); and maintaining servicing records relating
to such Mortgage Loans. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will be responsible for filing and settling
claims in respect of particular Mortgage Loans under any applicable instrument
of Credit Support. See "Description of Credit Support".
Sub-Servicers
A Master Servicer may delegate its servicing obligations in respect of
the Mortgage Loans serviced thereby to one or more third-party servicers (each,
a "Sub-Servicer"); provided that, unless otherwise specified in the related
Prospectus Supplement, such Master Servicer will remain obligated under the
related Pooling Agreement. A Sub-Servicer for any series of Certificates may be
an affiliate of the Depositor or Master Servicer. Unless otherwise provided in
the related Prospectus Supplement, each sub-servicing agreement between a Master
Servicer and a Sub-Servicer (a "Sub-Servicing Agreement") will provide that, if
for any reason the Master Servicer is no longer acting in such capacity, the
Trustee or any successor Master Servicer may assume the Master Servicer's rights
and obligations under such Sub-Servicing Agreement. A Master Servicer will be
required to monitor the performance of Sub-Servicers retained by it and will
have the right to remove a Sub-Servicer retained by it at any time it considers
such removal to be in the best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a
Master Servicer will be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether the Master Servicer's compensation
pursuant to the related Pooling Agreement is sufficient to pay such fees. Each
Sub-Servicer will be reimbursed by the Master Servicer that retained it for
certain expenditures which it makes, generally to the same extent the Master
Servicer would be reimbursed under a Pooling Agreement. See "--Certificate
Account" and "--Servicing Compensation and Payment of Expenses".
Special Servicers
To the extent so specified in the related Prospectus Supplement, one or
more special servicers (each, a "Special Servicer") may be a party to the
related Pooling Agreement or may be appointed by the Master Servicer or another
specified party. A Special Servicer for any series of Certificates may be an
affiliate of the Depositor or the Master Servicer. A Special Servicer may be
entitled to any of the rights, and subject to any of the obligations, described
herein in respect of a Master Servicer. The related Prospectus Supplement will
describe the rights, obligations and compensation of any Special Servicer for a
particular series of Certificates. The Master Servicer will be liable for the
performance of a Special Servicer only if, and to the extent, set forth in the
related Prospectus Supplement.
Certificate Account
General. The Master Servicer, the Trustee and/or a Special Servicer
will, as to each Trust Fund that includes Mortgage Loans, establish and maintain
or cause to be established and maintained one or more separate accounts for the
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collection of payments on or in respect of such Mortgage Loans (collectively,
the "Certificate Account"), which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of
Certificates of the related series. A Certificate Account may be maintained as
an interest-bearing or a non-interest-bearing account and the funds held therein
may be invested pending each succeeding Distribution Date in United States
government securities and other obligations that are acceptable to each Rating
Agency that has rated any one or more classes of Certificates of the related
series ("Permitted Investments"). Unless otherwise provided in the related
Prospectus Supplement, any interest or other income earned on funds in a
Certificate Account will be paid to the related Master Servicer, Trustee or
Special Servicer (if any) as additional compensation. A Certificate Account may
be maintained with the related Master Servicer, Special Servicer or Mortgage
Asset Seller or with a depository institution that is an affiliate of any of the
foregoing or of the Depositor, provided that it complies with applicable Rating
Agency standards. If permitted by the applicable Rating Agency or Agencies and
so specified in the related Prospectus Supplement, a Certificate Account may
contain funds relating to more than one series of mortgage pass-through
certificates and may contain other funds representing payments on mortgage loans
owned by the related Master Servicer or Special Servicer (if any) or serviced by
either on behalf of others.
Deposits. Unless otherwise provided in the related Pooling Agreement
and described in the related Prospectus Supplement, a Master Servicer, Trustee
or Special Servicer will be required to deposit or cause to be deposited in the
Certificate Account for each Trust Fund that includes Mortgage Loans, within a
certain period following receipt (in the case of collections on or in respect of
the Mortgage Loans) or otherwise as provided in the related Pooling Agreement,
the following payments and collections received or made by the Master Servicer,
the Trustee or any Special Servicer subsequent to the Cut-off Date (other than
payments due on or before the Cut-off Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans,
including any default interest collected, in each case net of any portion
thereof retained by the Master Servicer or any Special Servicer as its servicing
compensation or as compensation to the Trustee;
(iii) all proceeds received under any hazard, title or other insurance
policy that provides coverage with respect to a Mortgaged Property or the
related Mortgage Loan or in connection with the full or partial condemnation of
a Mortgaged Property (other than proceeds applied to the restoration of the
property or released to the related borrower in accordance with the customary
servicing practices of the Master Servicer (or, if applicable, a Special
Servicer) and/or the terms and conditions of the related Mortgage)
(collectively, "Insurance and Condemnation Proceeds") and all other amounts
received and retained in connection with the liquidation of defaulted Mortgage
Loans or property acquired in respect thereof, by foreclosure or otherwise
("Liquidation Proceeds"), together with the net operating income (less
reasonable reserves for future expenses) derived from the operation of any
Mortgaged Properties acquired by the Trust Fund through foreclosure or
otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as described
under "Description of Credit Support";
(v) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(vi) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
(vii) all proceeds of the purchase of any Mortgage Loan, or property
acquired in respect thereof, by the Depositor, any Mortgage Asset Seller or any
other specified person as described under "--Assignment of Mortgage Loans;
Repurchases" and "--Representations and Warranties; Repurchases", all proceeds
of the purchase of any defaulted Mortgage Loan as described under "--Realization
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Upon Defaulted Mortgage Loans", and all proceeds of any Mortgage Asset purchased
as described under "Description of the Certificates--Termination" (all of the
foregoing, also "Liquidation Proceeds");
(viii) any amounts paid by the Master Servicer to cover Prepayment
Interest Shortfalls arising out of the prepayment of Mortgage Loans as described
under "--Servicing Compensation and Payment of Expenses";
(ix) to the extent that any such item does not constitute additional
servicing compensation to the Master Servicer or a Special Servicer, any
payments on account of modification or assumption fees, late payment charges,
Prepayment Premiums or Equity Participations with respect to the Mortgage Loans;
(x) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy described
under "--Hazard Insurance Policies";
(xi) any amount required to be deposited by the Master Servicer or the
Trustee in connection with losses realized on investments for the benefit of the
Master Servicer or the Trustee, as the case may be, of funds held in the
Certificate Account; and
(xii) any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling Agreement and described in the
related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Pooling Agreement
and described in the related Prospectus Supplement, a Master Servicer, Trustee
or Special Servicer may make withdrawals from the Certificate Account for each
Trust Fund that includes Mortgage Loans for any of the following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to pay the Master Servicer, the Trustee or a Special Servicer any
servicing fees not previously retained thereby, such payment to be made out of
payments on the particular Mortgage Loans as to which such fees were earned;
(iii) to reimburse the Master Servicer, a Special Servicer, the Trustee
or any other specified person for any unreimbursed amounts advanced by it as
described under "Description of the Certificates--Advances in Respect of
Delinquencies", such reimbursement to be made out of amounts received that were
identified and applied by the Master Servicer or a Special Servicer, as
applicable, as late collections of interest on and principal of the particular
Mortgage Loans with respect to which the advances were made or out of amounts
drawn under any form of Credit Support with respect to such Mortgage Loans;
(iv) to reimburse the Master Servicer, the Trustee or a Special Servicer
for unpaid servicing fees earned by it and certain unreimbursed servicing
expenses incurred by it with respect to Mortgage Loans in the Trust Fund and
properties acquired in respect thereof, such reimbursement to be made out of
amounts that represent Liquidation Proceeds and Insurance and Condemnation
Proceeds collected on the particular Mortgage Loans and properties, and net
income collected on the particular properties, with respect to which such fees
were earned or such expenses were incurred or out of amounts drawn under any
form of Credit Support with respect to such Mortgage Loans and properties;
(v) to reimburse the Master Servicer, a Special Servicer, the Trustee or
other specified person for any advances described in clause (iii) above made by
it and/or any servicing expenses referred to in clause (iv) above incurred by it
that, in the good faith judgment of the Master Servicer, Special Servicer,
Trustee or other specified person, as applicable, will not be recoverable from
the amounts described in clauses (iii) and (iv), respectively, such
reimbursement to be made from amounts collected on other Mortgage Loans in the
same Trust Fund or, if and to the extent so provided by the related Pooling
Agreement and described in the related Prospectus Supplement, only from that
portion of amounts collected on such other Mortgage Loans that is otherwise
distributable on one or more classes of Subordinate Certificates of the related
series;
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(vi) if and to the extent described in the related Prospectus
Supplement, to pay the Master Servicer, a Special Servicer, the Trustee or any
other specified person interest accrued on the advances described in clause
(iii) above made by it and the servicing expenses described in clause (iv) above
incurred by it while such remain outstanding and unreimbursed;
(vii) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged Properties
that constitute security for defaulted Mortgage Loans, and for any containment,
clean-up or remediation of hazardous wastes and materials present on such
Mortgaged Properties, as described under "--Realization Upon Defaulted Mortgage
Loans";
(viii) to reimburse the Master Servicer, the Special Servicer, the
Depositor, or any of their respective directors, officers, employees and agents,
as the case may be, for certain expenses, costs and liabilities incurred
thereby, as and to the extent described under "--Certain Matters Regarding the
Master Servicer and the Depositor";
(ix) if and to the extent described in the related Prospectus
Supplement, to pay the fees of Trustee;
(x) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "--Certain
Matters Regarding the Trustee";
(xi) if and to the extent described in the related Prospectus
Supplement, to pay the fees of any provider of Credit Support;
(xii) if and to the extent described in the related Prospectus
Supplement, to reimburse prior draws on any form of Credit Support;
(xiii) to pay the Master Servicer, a Special Servicer or the Trustee,
as appropriate, interest and investment income earned in respect of amounts held
in the Certificate Account as additional compensation;
(xiv) to pay (generally from related income) for costs incurred in
connection with the operation, management and maintenance of any Mortgaged
Property acquired by the Trust Fund by foreclosure or otherwise;
(xv) if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or local taxes
imposed on the Trust Fund or its assets or transactions, as and to the extent
described under "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMICs Certificates--Taxes That May Be Imposed on the REMIC
Pool";
(xvi) to pay for the cost of an independent appraiser or other expert
in real estate matters retained to determine a fair sale price for a defaulted
Mortgage Loan or a property acquired in respect thereof in connection with the
liquidation of such Mortgage Loan or property;
(xvii) to pay for the cost of various opinions of counsel obtained
pursuant to the related Pooling Agreement for the benefit of Certificateholders;
(xviii) to make any other withdrawals permitted by the related Pooling
Agreement and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account upon the
termination of the Trust Fund.
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Modifications, Waivers and Amendments of Mortgage Loans
A Master Servicer may agree to modify, waive or amend any term of any
Mortgage Loan serviced by it in a manner consistent with the applicable
Servicing Standard; provided that, unless otherwise set forth in the related
Prospectus Supplement, the modification, waiver or amendment (i) will not affect
the amount or timing of any scheduled payments of principal or interest on the
Mortgage Loan, (ii) will not, in the judgment of the Master Servicer, materially
impair the security for the Mortgage Loan or reduce the likelihood of timely
payment of amounts due thereon and (iii) will not adversely affect the coverage
under any applicable instrument of Credit Support. Unless otherwise provided in
the related Prospectus Supplement, a Master Servicer also may agree to any other
modification, waiver or amendment if, in its judgment, (i) a material default on
the Mortgage Loan has occurred or a payment default is imminent, (ii) such
modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Mortgage Loan, taking into account the time value
of money, than would liquidation and (iii) such modification, waiver or
amendment will not adversely affect the coverage under any applicable instrument
of Credit Support.
Realization Upon Defaulted Mortgage Loans
A borrower's failure to make required Mortgage Loan payments may mean
that operating income is insufficient to service the mortgage debt, or may
reflect the diversion of that income from the servicing of the mortgage debt. In
addition, a borrower that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and insurance premiums and to otherwise
maintain the related Mortgaged Property. In general, the Master Servicer for a
series of Certificates will be required to monitor any Mortgage Loan in the
related Trust Fund that is in default, evaluate whether the causes of the
default can be corrected over a reasonable period without significant impairment
of the value of the related Mortgaged Property, initiate corrective action in
cooperation with the borrower if cure is likely, inspect the related Mortgaged
Property and take such other actions as are consistent with the Servicing
Standard. A significant period of time may elapse before the Master Servicer is
able to assess the success of any such corrective action or the need for
additional initiatives.
The time within which the Master Servicer can make the initial
determination of appropriate action, evaluate the success of corrective action,
develop additional initiatives, institute foreclosure proceedings and actually
foreclose (or accept a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders may vary considerably depending on the
particular Mortgage Loan, the Mortgaged Property, the borrower, the presence of
an acceptable party to assume the Mortgage Loan and the laws of the jurisdiction
in which the Mortgaged Property is located. If a borrower files a bankruptcy
petition, the Master Servicer may not be permitted to accelerate the maturity of
the related Mortgage Loan or to foreclose on the related Mortgaged Property for
a considerable period of time, and such Mortgage Loan may be restructured in the
resulting bankruptcy proceedings. See "Certain Legal Aspects of Mortgage Loans".
A Pooling Agreement may grant to the Master Servicer, a Special
Servicer, a provider of Credit Support and/or the holder or holders of certain
classes of the related series of Certificates a right of first refusal to
purchase from the Trust Fund, at a predetermined purchase price (which, if
insufficient to fully fund the entitlements of Certificateholders to principal
and interest thereon, will be specified in the related Prospectus Supplement),
any Mortgage Loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer may offer to sell any defaulted Mortgage Loan if
and when the Master Servicer determines, consistent with the applicable
Servicing Standard, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the related Pooling Agreement will require that the Master Servicer
accept the highest cash bid received from any person (including itself, the
Depositor or any affiliate of either of them or any Certificateholder) that
constitutes a fair price for such defaulted Mortgage Loan. In the absence of any
bid determined in accordance with the related Pooling Agreement to be fair, the
Master Servicer will generally be required to proceed against the related
Mortgaged Property, subject to the discussion below.
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If a default on a Mortgage Loan has occurred or, in the Master
Servicer's judgment, a payment default is imminent, the Master Servicer, on
behalf of the Trustee, may at any time institute foreclosure proceedings,
exercise any power of sale contained in the related Mortgage, obtain a deed in
lieu of foreclosure, or otherwise acquire title to the related Mortgaged
Property, by operation of law or otherwise, if such action is consistent with
the Servicing Standard. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer may not, however, acquire title to any Mortgaged
Property, have a receiver of rents appointed with respect to any Mortgaged
Property or take any other action with respect to any Mortgaged Property that
would cause the Trustee, for the benefit of the related series of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Master Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such actions
as are necessary to bring the Mortgaged Property into compliance
therewith is reasonably likely to produce a greater recovery, taking
into account the time value of money, than not taking such actions; and
(ii) there are no circumstances or conditions present at the
Mortgaged Property that have resulted in any contamination for which
investigation, testing, monitoring, containment, clean-up or
remediation could be required under any applicable environmental laws
and regulations or, if such circumstances or conditions are present for
which any such action could be required, taking such actions with
respect to the Mortgaged Property is reasonably likely to produce a
greater recovery, taking into account the time value of money, than not
taking such actions. See "Certain Legal Aspects of Mortgage
Loans--Environmental Risks".
Unless otherwise provided in the related Prospectus Supplement, if
title to any Mortgaged Property is acquired by a Trust Fund as to which one or
more REMIC elections have been made, the Master Servicer, on behalf of the Trust
Fund, will be required to sell the Mortgaged Property within two years of
acquisition, unless (i) the Internal Revenue Service grants an extension of time
to sell such property or (ii) the Trustee receives an opinion of independent
counsel to the effect that the holding of the property by the Trust Fund for
more than two years after its acquisition will not result in the imposition of a
tax on the Trust Fund or cause the Trust Fund (or any designated portion
thereof) to fail to qualify as a REMIC under the Code at any time that any
Certificate is outstanding. Subject to the foregoing, the Master Servicer will
generally be required to solicit bids for any Mortgaged Property so acquired in
such a manner as will be reasonably likely to realize a fair price for such
property. If the Trust Fund acquires title to any Mortgaged Property, the Master
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Master Servicer of its obligation to manage such
Mortgaged Property in a manner consistent with the Servicing Standard.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Master Servicer in connection with such Mortgage Loan,
the Trust Fund will realize a loss in the amount of such shortfall. The Master
Servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted Mortgage Loan, prior to the distribution of such
Liquidation Proceeds to Certificateholders, amounts that represent unpaid
servicing compensation in respect of the Mortgage Loan, unreimbursed servicing
expenses incurred with respect to the Mortgage Loan and any unreimbursed
advances of delinquent payments made with respect to the Mortgage Loan.
If any Mortgaged Property suffers damage such that the proceeds, if
any, of the related hazard insurance policy are insufficient to restore fully
the damaged property, the Master Servicer will not be required to expend its own
funds to effect such restoration unless (and to the extent not otherwise
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provided in the related Prospectus Supplement) it determines (i) that such
restoration will increase the proceeds to Certificateholders on liquidation of
the Mortgage Loan after reimbursement of the Master Servicer for its expenses
and (ii) that such expenses will be recoverable by it from related Insurance
Proceeds or Liquidation Proceeds.
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will require the Master Servicer to cause each Mortgage Loan
borrower to maintain a hazard insurance policy that provides for such coverage
as is required under the related Mortgage or, if the Mortgage permits the holder
thereof to dictate to the borrower the insurance coverage to be maintained on
the related Mortgaged Property, such coverage as is consistent with the
requirements of the Servicing Standard. Unless otherwise specified in the
related Prospectus Supplement, such coverage generally will be in an amount
equal to the lesser of the principal balance owing on such Mortgage Loan and the
replacement cost of the related Mortgaged Property. The ability of a Master
Servicer to assure that hazard insurance proceeds are appropriately applied may
be dependent upon its being named as an additional insured under any hazard
insurance policy and under any other insurance policy referred to below, or upon
the extent to which information concerning covered losses is furnished by
borrowers. All amounts collected by a Master Servicer under any such policy
(except for amounts to be applied to the restoration or repair of the Mortgaged
Property or released to the borrower in accordance with the Master Servicer's
normal servicing procedures and/or to the terms and conditions of the related
Mortgage and Mortgage Note) will be deposited in the related Certificate
Account. The Pooling Agreement may provide that the Master Servicer may satisfy
its obligation to cause each borrower to maintain such a hazard insurance policy
by maintaining a blanket policy insuring against hazard losses on all of the
Mortgage Loans in a Trust Fund. If such blanket policy contains a deductible
clause, the Master Servicer will be required, in the event of a casualty covered
by such blanket policy, to deposit in the related Certificate Account all sums
that would have been deposited therein but for such deductible clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies covering the Mortgaged Properties will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms, and therefore will not contain identical terms
and conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin, domestic animals and certain other kinds of
risks. Accordingly, a Mortgaged Property may not be insured for losses arising
from any such cause unless the related Mortgage specifically requires, or
permits the holder thereof to require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (i) the
replacement cost of the improvements less physical depreciation and (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
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Servicer will determine whether to exercise any right the Trustee may have under
any such provision in a manner consistent with the Servicing Standard. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will be entitled to retain as additional servicing compensation any fee
collected in connection with the permitted transfer of a Mortgaged Property. See
"Certain Legal Aspects of Mortgage Loans--Due-on-Sale and Due-on-Encumbrance".
Servicing Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, a
Master Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion of
the interest payments on each Mortgage Loan in the related Trust Fund. Because
that compensation is generally based on a percentage of the principal balance of
each such Mortgage Loan outstanding from time to time, it will decrease in
accordance with the amortization of the Mortgage Loans. The Prospectus
Supplement with respect to a series of Certificates may provide that, as
additional compensation, the Master Servicer may retain all or a portion of late
payment charges, Prepayment Premiums, modification fees and other fees collected
from borrowers and any interest or other income that may be earned on funds held
in the Certificate Account. Any Sub-Servicer will receive a portion of the
Master Servicer's compensation as its sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, a Master Servicer
may be required, to the extent provided in the related Prospectus Supplement, to
pay from amounts that represent its servicing compensation certain expenses
incurred in connection with the administration of the related Trust Fund,
including, without limitation, payment of the fees and disbursements of
independent accountants and payment of expenses incurred in connection with
distributions and reports to Certificateholders. Certain other expenses,
including certain expenses related to Mortgage Loan defaults and liquidations
and, to the extent so provided in the related Prospectus Supplement, interest on
such expenses at the rate specified therein, and the fees of any Special
Servicer, may be required to be borne by the Trust Fund.
If and to the extent provided in the related Prospectus Supplement, a
Master Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any period to Prepayment Interest
Shortfalls. See "Yield and Maturity Considerations--Certain Shortfalls in
Collections of Interest".
Evidence as to Compliance
Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will require, on or before a specified date in each year, the
Master Servicer to cause a firm of independent public accountants to furnish to
the Trustee a statement to the effect that, on the basis of the examination by
such firm conducted substantially in compliance with either the Uniform Single
Audit Program for Mortgage Bankers or the Audit Program for Mortgages serviced
for FHLMC, the servicing by or on behalf of the Master Servicer of mortgage
loans under pooling and servicing agreements substantially similar to each other
(which may include such Pooling Agreement) was conducted through the preceding
calendar year or other specified twelve month period in compliance with the
terms of such agreements except for any significant exceptions or errors in
records that, in the opinion of the firm, either the Audit Program for Mortgages
serviced for FHLMC, or paragraph 4 of the Uniform Single Audit Program for
Mortgage Bankers, requires it to report.
Each Pooling Agreement will also require, on or before a specified date
in each year, the Master Servicer to furnish to the Trustee a statement signed
by one or more officers of the Master Servicer to the effect that the Master
Servicer has fulfilled its material obligations under such Pooling Agreement
throughout the preceding calendar year or other specified twelve month period.
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Certain Matters Regarding the Master Servicer and the Depositor
The entity serving as Master Servicer under a Pooling Agreement may be
an affiliate of the Depositor and may have other normal business relationships
with the Depositor or the Depositor's affiliates. Unless otherwise specified in
the Prospectus Supplement for a series of Certificates, the related Pooling
Agreement will permit the Master Servicer to resign from its obligations
thereunder only upon (a) the appointment of, and the acceptance of such
appointment by, a successor thereto and receipt by the Trustee of written
confirmation from each applicable Rating Agency that such resignation and
appointment will not have an adverse effect on the rating assigned by such
Rating Agency to any class of Certificates of such series or (b) a determination
that such obligations are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under the Pooling Agreement. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer for each Trust Fund will be required
to maintain a fidelity bond and errors and omissions policy or their equivalent
that provides coverage against losses that may be sustained as a result of an
officer's or employee's misappropriation of funds or errors and omissions,
subject to certain limitations as to amount of coverage, deductible amounts,
conditions, exclusions and exceptions permitted by the related Pooling
Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will further provide that none of the Master Servicer, the
Depositor or any director, officer, employee or agent of either of them will be
under any liability to the related Trust Fund or Certificateholders for any
action taken, or not taken, in good faith pursuant to the Pooling Agreement or
for errors in judgment; provided, however, that none of the Master Servicer, the
Depositor or any such person will be protected against any breach of a
representation, warranty or covenant made in such Pooling Agreement, or against
any expense or liability that such person is specifically required to bear
pursuant to the terms of such Pooling Agreement, or against any liability that
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of obligations or duties thereunder or by reason
of reckless disregard of such obligations and duties. Unless otherwise specified
in the related Prospectus Supplement, each Pooling Agreement will further
provide that the Master Servicer, the Depositor and any director, officer,
employee or agent of either of them will be entitled to indemnification by the
related Trust Fund against any loss, liability or expense incurred in connection
with any legal action that relates to such Pooling Agreement or the related
series of Certificates; provided, however, that such indemnification will not
extend to any loss, liability or expense (i) that such person is specifically
required to bear pursuant to the terms of such agreement, or is incidental to
the performance of obligations and duties thereunder and is not otherwise
reimbursable pursuant to such Pooling Agreement; (ii) incurred in connection
with any breach of a representation, warranty or covenant made in such Pooling
Agreement; (iii) incurred by reason of misfeasance, bad faith or gross
negligence in the performance of obligations or duties under such Pooling
Agreement, or by reason of reckless disregard of such obligations or duties; or
(iv) incurred in connection with any violation of any state or federal
securities law. In addition, each Pooling Agreement will provide that neither
the Master Servicer nor the Depositor will be under any obligation to appear in,
prosecute or defend any legal action that is not incidental to its respective
responsibilities under the Pooling Agreement and that in its opinion may involve
it in any expense or liability. However, each of the Master Servicer and the
Depositor will be permitted, in the exercise of its discretion, to undertake any
such action that it may deem necessary or desirable with respect to the
enforcement and/or protection of the rights and duties of the parties to the
Pooling Agreement and the interests of the related series of Certificateholders
thereunder. In such event, the legal expenses and costs of such action, and any
liability resulting therefrom, will be expenses, costs and liabilities of the
related series of Certificateholders, and the Master Servicer or the Depositor,
as the case may be, will be entitled to charge the related Certificate Account
therefor.
Any person into which the Master Servicer or the Depositor may be
merged or consolidated, or any person resulting from any merger or consolidation
to which the Master Servicer or the Depositor is a party, or any person
succeeding to the business of the Master Servicer or the Depositor, will be the
successor of the Master Servicer or the Depositor, as the case may be, under the
related Pooling Agreement.
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Events of Default
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, "Events of Default" under the related Pooling Agreement will
include (i) any failure by the Master Servicer to distribute or cause to be
distributed to the Certificateholders of such series, or to remit to the Trustee
for distribution to such Certificateholders, any amount required to be so
distributed or remitted, which failure continues unremedied for five days after
written notice thereof has been given to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by
Certificateholders entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series; (ii) any failure by the Master Servicer duly to observe or perform in
any material respect any of its other covenants or obligations under the related
Pooling Agreement, which failure continues unremedied for sixty days after
written notice thereof has been given to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by
Certificateholders entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series; and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings in respect of or
relating to the Master Servicer and certain actions by or on behalf of the
Master Servicer indicating its insolvency or inability to pay its obligations.
Material variations to the foregoing Events of Default (other than to add
thereto or shorten cure periods or eliminate notice requirements) will be
specified in the related Prospectus Supplement.
Rights Upon Event of Default
If an Event of Default occurs with respect to the Master Servicer under
a Pooling Agreement, then, in each and every such case, so long as the Event of
Default remains unremedied, the Depositor or the Trustee will be authorized, and
at the direction of Certificateholders of the related series entitled to not
less than 51% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for such series, the Trustee will be required,
to terminate all of the rights and obligations of the Master Servicer as master
servicer under the Pooling Agreement, whereupon the Trustee will succeed to all
of the responsibilities, duties and liabilities of the Master Servicer under the
Pooling Agreement (except that if the Master Servicer is required to make
advances thereunder regarding delinquent Mortgage Loans, but the Trustee is
prohibited by law from obligating itself to do so, or if the related Prospectus
Supplement so specifies, the Trustee will not be obligated to make such
advances) and will be entitled to similar compensation arrangements. Unless
otherwise specified in the related Prospectus Supplement, if the Trustee is
unwilling or unable so to act, it may (or, at the written request of
Certificateholders of the related series entitled to not less than 51% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series, it will be required to) appoint, or petition a court of
competent jurisdiction to appoint, a loan servicing institution that (unless
otherwise provided in the related Prospectus Supplement) is acceptable to each
applicable Rating Agency to act as successor to the Master Servicer under the
Pooling Agreement. Pending such appointment, the Trustee will be obligated to
act in such capacity.
No Certificateholder will have the right under any Pooling Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of default and unless Certificateholders of
the same series entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series shall have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and shall have offered to the
Trustee reasonable indemnity, and the Trustee for sixty days (or such other
period specified in the related Prospectus Supplement) shall have neglected or
refused to institute any such proceeding. The Trustee, however, will be under no
obligation to exercise any of the trusts or powers vested in it by any Pooling
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of Certificates of the
related series, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
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Amendment
Each Pooling Agreement may be amended by the respective parties
thereto, without the consent of any of the holders of the related series of
Certificates, (i) to cure any ambiguity, (ii) to correct a defective provision
therein or to correct, modify or supplement any provision therein that may be
inconsistent with any other provision therein, (iii) to add any other provisions
with respect to matters or questions arising under the Pooling Agreement that
are not inconsistent with the provisions thereof, (iv) to comply with any
requirements imposed by the Code, or (v) for any other purpose; provided that
such amendment (other than an amendment for the specific purpose referred to in
clause (iv) above) may not (as evidenced by an opinion of counsel to such effect
satisfactory to the Trustee) adversely affect in any material respect the
interests of any such holder; and provided further that such amendment (other
than an amendment for one of the specific purposes referred to in clauses (i)
through (iv) above) must be acceptable to each applicable Rating Agency. Unless
otherwise specified in the related Prospectus Supplement, each Pooling Agreement
may also be amended by the respective parties thereto, with the consent of the
holders of the related series of Certificates entitled to not less than 51% (or
such other percentage specified in the related Prospectus Supplement) of the
Voting Rights for such series allocated to the affected classes, for any
purpose; provided that, unless otherwise specified in the related Prospectus
Supplement, no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, payments received or advanced on Mortgage Loans that are
required to be distributed in respect of any Certificate without the consent of
the holder of such Certificate, (ii) adversely affect in any material respect
the interests of the holders of any class of Certificates, in a manner other
than as described in clause (i), without the consent of the holders of all
Certificates of such class or (iii) modify the provisions of the Pooling
Agreement described in this paragraph without the consent of the holders of all
Certificates of the related series. However, unless otherwise specified in the
related Prospectus Supplement, the Trustee will be prohibited from consenting to
any amendment of a Pooling Agreement pursuant to which one or more REMIC
elections are to be or have been made unless the Trustee shall first have
received an opinion of counsel to the effect that such amendment will not result
in the imposition of a tax on the related Trust Fund or cause the related Trust
Fund (or designated portion thereof) to fail to qualify as a REMIC at any time
that the related Certificates are outstanding.
List of Certificateholders
Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for purposes
of communicating with other holders of Certificates of the same series with
respect to their rights under the related Pooling Agreement, the Trustee or
other specified person will afford such Certificateholders access during normal
business hours to the most recent list of Certificateholders of that series held
by such person. If such list is of a date more than 90 days prior to the date of
receipt of such Certificateholders' request, then such person, if not the
registrar for such series of Certificates, will be required to request from such
registrar a current list and to afford such requesting Certificateholders access
thereto promptly upon receipt.
The Trustee
The Trustee under each Pooling Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company that serves as Trustee may have typical
banking relationships with the Depositor and its affiliates and with any Master
Servicer or Special Servicer and its affiliates.
Duties of the Trustee
The Trustee for each series of Certificates will make no representation
as to the validity or sufficiency of the related Pooling Agreement, the
Certificates or any underlying Mortgage Loan or related document and will not be
accountable for the use or application by or on behalf of the Master Servicer
for such series of any funds paid to the Master Servicer or any Special Servicer
in respect of the Certificates or the underlying Mortgage Loans, or any funds
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deposited into or withdrawn from the Certificate Account or any other account
for such series by or on behalf of the Master Servicer or any Special Servicer.
If no Event of Default has occurred and is continuing, the Trustee for each
series of Certificates will be required to perform only those duties
specifically required under the related Pooling Agreement. However, upon receipt
of any of the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling Agreement, a Trustee will be
required to examine such documents and to determine whether they conform to the
requirements of such agreement.
Certain Matters Regarding the Trustee
As and to the extent described in the related Prospectus Supplement,
the fees and normal disbursements of any Trustee may be the expense of the
related Master Servicer or other specified person or may be required to be borne
by the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling Agreement;
provided, however, that such indemnification will not extend to any loss,
liability or expense that constitutes a specific liability imposed on the
Trustee pursuant to the related Pooling Agreement, or to any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
on the part of the Trustee in the performance of its obligations and duties
thereunder, or by reason of its reckless disregard of such obligations or
duties, or as may arise from a breach of any representation, warranty or
covenant of the Trustee made therein.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling Agreement or perform any of its
duties thereunder either directly or by or through agents or attorneys, and the
Trustee will not be responsible for any willful misconduct or gross negligence
on the part of any such agent or attorney appointed by it with due care.
Resignation and Removal of the Trustee
A Trustee will be permitted at any time to resign from its obligations
and duties under the related Pooling Agreement by giving written notice thereof
to the Depositor. Upon receiving such notice of resignation, the Depositor (or
such other person as may be specified in the related Prospectus Supplement) will
be required to use its best efforts to promptly appoint a successor trustee. If
no successor trustee shall have accepted an appointment within a specified
period after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction to appoint a successor trustee.
If at any time a Trustee ceases to be eligible to continue as such
under the related Pooling Agreement, or if at any time the Trustee becomes
incapable of acting, or if certain events of (or proceedings in respect of)
bankruptcy or insolvency occur with respect to the Trustee, the Depositor will
be authorized to remove the Trustee and appoint a successor trustee. In
addition, holders of the Certificates of any series entitled to at least 51% (or
such other percentage specified in the related Prospectus Supplement) of the
Voting Rights for such series may at any time (with or without cause) remove the
Trustee under the related Pooling Agreement and appoint a successor trustee.
Any resignation or removal of a Trustee and appointment of a successor
trustee will not become effective until acceptance of appointment by the
successor trustee.
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DESCRIPTION OF CREDIT SUPPORT
General
Credit Support may be provided with respect to one or more classes of
the Certificates of any series, or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more classes of Certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds or another
method of Credit Support described in the related Prospectus Supplement, or any
combination of the foregoing. If so provided in the related Prospectus
Supplement, any form of Credit Support may provide credit enhancement for more
than one series of Certificates to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee payment to Certificateholders of all
amounts to which they are entitled under the related Pooling Agreement. If
losses or shortfalls occur that exceed the amount covered by the related Credit
Support or that are not covered by such Credit Support, Certificateholders will
bear their allocable share of deficiencies. Moreover, if a form of Credit
Support covers more than one series of Certificates, holders of Certificates of
one series will be subject to the risk that such Credit Support will be
exhausted by the claims of the holders of Certificates of one or more other
series before the former receive their intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and under
which such Credit Support may be terminated or replaced and (iv) the material
provisions relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor under
any instrument of Credit Support, including (i) a brief description of its
principal business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to do
business, (iii) if applicable, the identity of regulatory agencies that exercise
primary jurisdiction over the conduct of its business and (iv) its total assets,
and its stockholders' equity or policyholders' surplus, if applicable, as of a
date that will be specified in the Prospectus Supplement. See "Risk
Factors--Credit Support Limitations".
Subordinate Certificates
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the holders
of Subordinate Certificates to receive distributions from the Certificate
Account on any Distribution Date will be subordinated to the corresponding
rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the subordination of a class may apply only in the event
of (or may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the method and
amount of subordination provided by a class or classes of Subordinate
Certificates in a series and the circumstances under which such subordination
will be available.
Cross-Support Provisions
If the Mortgage Assets in any Trust Fund are divided into separate
groups, each supporting a separate class or classes of Certificates of the
related series, Credit Support may be provided by cross-support provisions
requiring that distributions be made on Senior Certificates evidencing interests
in one group of Mortgage Assets prior to distributions on Subordinate
Certificates evidencing interests in a different group of Mortgage Assets within
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the Trust Fund. The Prospectus Supplement for a series that includes a
cross-support provision will describe the manner and conditions for applying
such provisions.
Insurance or Guarantees with Respect to Mortgage Loans
If so provided in the Prospectus Supplement for a series of
Certificates, Mortgage Loans included in the related Trust Fund will be covered
for certain default risks by insurance policies or guarantees. To the extent
deemed by the Depositor to be material, a copy of each such instrument will
accompany the Current Report on Form 8-K to be filed with the Commission within
15 days of issuance of the Certificates of the related series.
Letter of Credit
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit, issued
by a bank or financial institution specified in such Prospectus Supplement (the
"L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to honor
draws thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder, generally equal to a percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Assets
on the related Cut-off Date or of the initial aggregate Certificate Balance of
one or more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws only in the event of certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit will accompany the Current Report on Form 8-K to be
filed with the Commission within 15 days of issuance of the Certificates of the
related series.
Certificate Insurance and Surety Bonds
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies and/or surety
bonds provided by one or more insurance companies or sureties. Such instruments
may cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the related Prospectus Supplement. The related
Prospectus Supplement will describe any limitations on the draws that may be
made under any such instrument. A copy of any such instrument will accompany the
Current Report on Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related series.
Reserve Funds
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered (to the extent of available funds) by
one or more reserve funds in which cash, a letter of credit, Permitted
Investments, a demand note or a combination thereof will be deposited, in the
amounts specified in such Prospectus Supplement. If so specified in the related
Prospectus Supplement, the reserve fund for a series may also be funded over
time by a specified amount of the collections received on the related Mortgage
Assets.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, reserve funds may be established
to provide protection only against certain types of losses and shortfalls.
Following each Distribution Date, amounts in a reserve fund in excess of any
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amount required to be maintained therein may be released from the reserve fund
under the conditions and to the extent specified in the related Prospectus
Supplement.
If so specified in the related Prospectus Supplement, amounts deposited
in any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related Master Servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a series will not be a part of the Trust Fund unless
otherwise specified in the related Prospectus Supplement.
Credit Support with respect to MBS
If so provided in the Prospectus Supplement for a series of
Certificates, any MBS included in the related Trust Fund and/or the related
underlying mortgage loans may be covered by one or more of the types of Credit
Support described herein. The related Prospectus Supplement will specify, as to
each such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties.
Because such legal aspects are governed by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete, to reflect
the laws of any particular state, or to encompass the laws of all states in
which the security for the Mortgage Loans (or mortgage loans underlying any MBS)
is situated. Accordingly, the summaries are qualified in their entirety by
reference to the applicable laws of those states. See "Description of the Trust
Funds--Mortgage Loans". For purposes of the following discussion, "Mortgage
Loan" includes a mortgage loan underlying an MBS.
General
Each Mortgage Loan will be evidenced by a note or bond and secured by
an instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
Types of Mortgage Instruments
There are two parties to a mortgage: a mortgagor (the borrower and
usually the owner of the subject property) and a mortgagee (the lender). In
contrast, a deed of trust is a three-party instrument, among a trustor (the
equivalent of a borrower), a trustee to whom the real property is conveyed, and
a beneficiary (the lender) for whose benefit the conveyance is made. Under a
deed of trust, the trustor grants the property, irrevocably until the debt is
paid, in trust and generally with a power of sale, to the trustee to secure
repayment of the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. The grantor (the borrower) conveys title to the
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real property to the grantee (the lender) generally with a power of sale, until
such time as the debt is repaid. In a case where the borrower is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the borrower.
At origination of a mortgage loan involving a land trust, the borrower executes
a separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a deed to secure debt are governed by the express
provisions of the related instrument, the law of the state in which the real
property is located, certain federal laws (including, without limitation, the
Soldiers' and Sailors' Civil Relief Act of 1940) and, in some deed of trust
transactions, the directions of the beneficiary.
Leases and Rents
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the rates and must file
continuation statements, generally every five years, to maintain perfection of
such security interest. Even if the lender's security interest in room rates is
perfected under the UCC, it may be required to commence a foreclosure action or
otherwise take possession of the property in order to collect the room rates
following a default. See "--Bankruptcy Laws".
Personalty
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection.
Foreclosure
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes requires several years to complete. Moreover, as discussed below, even
a non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
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the borrower was insolvent and within a specified period prior to the borrower's
filing for bankruptcy protection.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in
a court having jurisdiction over the mortgaged property. Generally, the action
is initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions. United
States courts have traditionally imposed general equitable principles to limit
the remedies available to lenders in foreclosure actions. These principles are
generally designed to relieve borrowers from the effects of mortgage defaults
perceived as harsh or unfair. Relying on such principles, a court may alter the
specific terms of a loan to the extent it considers necessary to prevent or
remedy an injustice, undue oppression or overreaching, or may require the lender
to undertake affirmative actions to determine the cause of the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from a temporary financial disability.
In other cases, courts have limited the right of the lender to foreclose in the
case of a non-monetary default, such as a failure to adequately maintain the
mortgaged property or an impermissible further encumbrance of the mortgaged
property. Finally, some courts have addressed the issue of whether federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that a borrower receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to trigger constitutional protections.
Non-Judicial Foreclosure/Power of Sale. Foreclosure of a deed of trust
is generally accomplished by a non-judicial trustee's sale pursuant to a power
of sale typically granted in the deed of trust. A power of sale may also be
contained in any other type of mortgage instrument if applicable law so permits.
A power of sale under a deed of trust allows a non-judicial public sale to be
conducted generally following a request from the beneficiary/lender to the
trustee to sell the property upon default by the borrower and after notice of
sale is given in accordance with the terms of the mortgage and applicable state
law. In some states, prior to such sale, the trustee under the deed of trust
must record a notice of default and notice of sale and send a copy to the
borrower and to any other party who has recorded a request for a copy of a
notice of default and notice of sale. In addition, in some states the trustee
must provide notice to any other party having an interest of record in the real
property, including junior lienholders. A notice of sale must be posted in a
public place and, in most states, published for a specified period of time in
one or more newspapers. The borrower or junior lienholder may then have the
right, during a reinstatement period required in some states, to cure the
default by paying the entire actual amount in arrears (without regard to the
acceleration of the indebtedness), plus the lender's expenses incurred in
enforcing the obligation. In other states, the borrower or the junior lienholder
is not provided a period to reinstate the loan, but has only the right to pay
off the entire debt to prevent the foreclosure sale. Generally, state law
governs the procedure for public sale, the parties entitled to notice, the
method of giving notice and the applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the value of
such property at the time of sale, due to, among other things, redemption rights
which may exist and the possibility of physical deterioration of the property
during the foreclosure proceedings. Potential buyers may be reluctant to
purchase property at a foreclosure sale as a result of the 1980 decision of the
United States Court of Appeals for the Fifth Circuit in Durrett v. Washington
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National Insurance Company and other decisions that have followed its reasoning.
The court in Durrett held that even a non-collusive, regularly conducted
foreclosure sale was a fraudulent transfer under the federal Bankruptcy Code, as
amended from time to time (11 U.S.C.) and, therefore, could be rescinded in
favor of the bankrupt's estate, if (i) the foreclosure sale was held while the
debtor was insolvent and not more than one year prior to the filing of the
bankruptcy petition and (ii) the price paid for the foreclosed property did not
represent "fair consideration" ("reasonably equivalent value" under the
Bankruptcy Code). Although the reasoning and result of Durrett in respect of the
Bankruptcy Code was rejected by the United States Supreme Court in May 1994, the
case could nonetheless be persuasive to a court applying a state fraudulent
conveyance law which has provisions similar to those construed in Durrett. For
these reasons, it is common for the lender to purchase the mortgaged property
for an amount equal to the lesser of fair market value and the underlying debt
and accrued and unpaid interest plus the expenses of foreclosure. Generally,
state law controls the amount of foreclosure costs and expenses which may be
recovered by a lender. Thereafter, subject to the mortgagor's right in some
states to remain in possession during a redemption period, if applicable, the
lender will become the owner of the property and have both the benefits and
burdens of ownership of the mortgaged property. For example, the lender will
have the obligation to pay debt service on any senior mortgages, to pay taxes,
obtain casualty insurance and to make such repairs at its own expense as are
necessary to render the property suitable for sale. Frequently, the lender
employs a third party management company to manage and operate the property. The
costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The costs of management and operation of those mortgaged properties
which are hotels, motels or restaurants or 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
amount of the mortgage against 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. Furthermore, a few states
require that any environmental contamination at certain types of properties be
cleaned up 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".
Generally state law controls the amount of foreclosure expenses and costs,
including attorneys' fees, that may be recovered by a lender.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to
enable the lender to realize upon its security and to bar the borrower, and all
persons who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
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permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot obtain a deficiency judgment against the borrower following foreclosure
or sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes may require the lender to exhaust the security afforded
under a mortgage before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
Leasehold Risks. Mortgage Loans may be secured by a mortgage on the
borrower's leasehold interest in a ground lease. Leasehold mortgage loans are
subject to certain risks not associated with mortgage loans secured by a lien on
the fee estate of the borrower. The most significant of these risks is that if
the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure
sale, and contains certain other protective provisions typically included in a
"mortgageable" ground lease.
Cooperative Shares. Mortgage Loans may be secured by a security
interest on the borrower's ownership interest in shares, and the proprietary
leases appurtenant thereto, allocable to cooperative dwelling units that may be
vacant or occupied by non-owner tenants. Such loans are subject to certain risks
not associated with mortgage loans secured by a lien on the fee estate of a
borrower in real property. Such a loan typically is subordinate to the mortgage,
if any, on the Cooperative's building which, if foreclosed, could extinguish the
equity in the building and the proprietary leases of the dwelling units derived
from ownership of the shares of the Cooperative. Further, transfer of shares in
a Cooperative are subject to various regulations as well as to restrictions
under the governing documents of the Cooperative, and the shares may be
cancelled in the event that associated maintenance charges due under the related
proprietary leases are not paid. Typically, a recognition agreement between the
lender and the Cooperative provides, among other things, the lender with an
opportunity to cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be dependent upon, among other things, the notice given the debtor and
the method, manner, time, place and terms of the sale. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. A recognition agreement, however, generally provides
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that the lender's right to reimbursement is subject to the right of the
Cooperative to receive sums due under the proprietary leases.
Bankruptcy Laws
Operation of the Bankruptcy Code and related state laws may interfere
with or affect the ability of a secured lender to realize upon collateral and/or
to enforce a deficiency judgment. For example, under the Bankruptcy Code,
virtually all actions (including foreclosure actions and deficiency judgment
proceedings) to collect a debt are automatically stayed upon the filing of the
bankruptcy petition and, often, no interest or principal payments are made
during the course of the bankruptcy case. The delay and the consequences thereof
caused by such automatic stay can be significant. Also, under the Bankruptcy
Code, the filing of a petition in bankruptcy by or on behalf of a junior lienor
may stay the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified. For example,
the lender's lien may be transferred to other collateral and/or the outstanding
amount of the secured loan may be reduced to the then-current value of the
property (with a corresponding partial reduction of the amount of lender's
security interest) pursuant to a confirmed plan or lien avoidance proceeding,
thus leaving the lender a general unsecured creditor for the difference between
such value and the outstanding balance of the loan. Other modifications may
include the reduction in the amount of each scheduled payment, by means of a
reduction in the rate of interest and/or an alteration of the repayment schedule
(with or without affecting the unpaid principal balance of the loan), and/or by
an extension (or shortening) of the term to maturity. The priority of a mortgage
loan may also be subordinated to bankruptcy court-approved financing. Some
bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
The bankruptcy court can also reinstate accelerated indebtedness and
also, in effect, invalidate due-on-sale clauses through confirmed Chapter 11
plans of reorganization. Under Section 363(b) and (f) of the Bankruptcy Code, 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 then attach to the
proceeds of such sale.
The Bankruptcy Code provides that a lender's perfected pre-petition
security interest in leases, rents and hotel revenues continues in the
post-petition leases, rents and hotel revenues, unless a bankruptcy court orders
to the contrary "based on the equities of the case." Thus, unless a court orders
otherwise, revenues from a Mortgaged Property generated after the date the
bankruptcy petition is filed will constitute "cash collateral" under the
Bankruptcy Code. Debtors may only use cash collateral upon obtaining the
lender's consent or a prior court order finding that the lender's interest in
the Mortgaged Properties and the cash collateral is "adequately protected" and
such term is defined and interpreted under the Bankruptcy Code. It should be
noted, however, that the court may find that the lender has no security interest
in either pre-petition or post-petition revenues if the court finds that the
loan documents do not contain language covering accounts, room rents, or other
forms of personalty necessary for a security interest to attach to hotel
revenues.
Lessee bankruptcies at the Mortgaged Properties could have an adverse
impact on the Mortgagors' ability to meet their obligations. For example,
Section 365(e) of the Bankruptcy Code provides generally that rights and
obligations under an unexpired lease 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. 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
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delay the Trustee's exercise of such remedies in the event that a lessee becomes
the subject of a proceeding under the Bankruptcy Code.
Section 365(a) of the Bankruptcy Code generally provides that a trustee
or a debtor-in-possession in a case under the Bankruptcy Code 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 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 lessor or 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(f) of the Bankruptcy Code, if a trustee or
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
that the trustee or debtor-in-possession provides "adequate assurance of future
performance" by the assignee. The Bankruptcy Code specifically provides,
however, that adequate assurance of future performance for purposes of a lease
of real property in a shopping center includes adequate assurance of the source
of rent and other consideration due under such lease, and in the case of an
assignment, that the financial condition and operating performance of the
proposed assignee and its guarantors, if any, shall be similar to the financial
condition and operating performance of the debtor and its guarantors, if any, as
of the time the debtor became the lessee under the lease, that any percentage
rent due under such lease will not decline substantially, that the assumption
and assignment of the lease is subject to all the provisions thereof, including
(but not limited to) provisions such as a radius location, use or exclusivity
provision, and will not breach any such provision contained in any other lease,
financing agreement, or master agreement relating to such shopping center, and
that the assumption or assignment of such lease will not disrupt the tenant mix
or balance in such shopping center. 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.
Under Section 365(h) of the Bankruptcy Code, if a trustee for 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, may remain in possession of the leasehold 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, any damages occurring after such date caused by the nonperformance of
any obligation of the lessor under the lease after such date.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor under
the 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.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may have
the power to grant liens senior to the lien of a mortgage, and analogous state
statutes and general principles of equity may also provide a mortgagor with
means to halt a foreclosure proceeding or sale and to force a restructuring of a
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mortgage loan on terms a lender would not otherwise accept. Moreover, the laws
of certain states also give priority to certain tax liens over the lien of a
mortgage or deed of trust. Under the Bankruptcy Code, if the court finds that
actions of the mortgagee have been unreasonable, the lien of the related
mortgage may be subordinated to the claims of unsecured creditors.
Environmental Risks
A lender may be subject to unforeseen environmental risks with respect
to loans secured by real or personal property, such as the Mortgage Loans. Under
the laws of many states, contamination on a property may give rise to a lien on
the property for cleanup costs. In several states, such a lien has priority over
all existing liens (a "superlien"), including those of existing mortgages; in
these states, the lien of the mortgage for any Mortgage Loan may lose its
priority to such a superlien.
Under the federal Comprehensive Response Compensation and Liability Act
("CERCLA"), a lender may be liable either to the government or to private
parties for cleanup costs on a property securing a loan, even if the lender does
not cause or contribute to the contamination. CERCLA imposes strict, as well as
joint and several, liability on several classes of potentially responsible
parties ("PRPs"), including current owners and operators of the property who did
not cause or contribute to the contamination. Many states have laws similar to
CERCLA.
Lenders may be held liable under CERCLA as owners or operators unless
they qualify for the secured creditor exemption to CERCLA. On April 29, 1992,
the United States Environmental Protection Agency ("EPA") issued a final rule
intended to protect lenders from liability under CERCLA. This rule was in
response to a 1990 decision of the United States Court of Appeals for the
Eleventh Circuit, United States v. Fleet Factors Corp., which narrowly construed
the security interest exemption under CERCLA to hold lenders liable if they had
the capacity to influence their borrower's management of hazardous waste. On
February 4, 1994, the United States Court of Appeals for the District of
Columbia Circuit in Kelley v. Environmental Protection Agency invalidated this
EPA rule. As a result of the Kelley case, the state of the law with respect to
the secured creditor exemption and the scope of permissible activities in which
a lender may engage to protect its security interest remain uncertain. EPA and
the Department of Justice ("DOJ"), however, issued a joint policy memorandum in
which these agencies announced that they would continue to follow the "Lender
Liability Rule" vacated by the Kelley case. These agencies indicated that prior
to its invalidation, several courts adhered to the terms of the "Lender
Liability Rule" or interpreted CERCLA in a manner consistent with the "Lender
Liability Rule." EPA and DOJ indicated in the September 22, 1995 memorandum that
they intend to follow this line of cases. This EPA/DOJ policy, however, would
not necessarily affect the potential for lender liability in actions by parties
other than EPA or under laws or legal theories other than CERCLA. If a lender is
or becomes liable, it can bring an action for contribution against the owner or
operator who created the environmental hazard, but that person or entity may be
bankrupt or otherwise judgment proof.
Environment clean-up costs may be substantial. It is possible that such
costs could become a liability of the Trust and occasion a loss to
Certificateholders if such remedial costs were incurred.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. It is possible that a property
securing a Mortgage Loan could be subject to such transfer restrictions. In such
a case, if the lender becomes the owner upon foreclosure, it may be required to
clean up the contamination before selling the property.
The cost of remediating hazardous substance contamination at a property
can be substantial. If a lender is or becomes liable, it can bring an action for
contribution against the owner or operator that created the environmental
hazard, but that person or entity may be without substantial assets.
Accordingly, it is possible that such costs could become a liability of a Trust
Fund and occasion a loss to Certificateholders of the related series.
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To reduce the likelihood of such a loss, and unless otherwise provided
in the related Prospectus Supplement, the related Pooling Agreement will provide
that the Master Servicer may, on behalf of the Trust Fund, acquire title to a
Mortgaged Property or take over its operation unless the Master Servicer, based
on a report prepared by a person who regularly conducts environmental site
assessments, has made the determination that it is appropriate to do so, as
described under "Description of the Pooling Agreements--Realization Upon
Defaulted Mortgage Loans".
Even when a lender is not directly liable for cleanup costs on property
securing loans, if a property securing a loan is contaminated, the value of the
security is likely to be affected. In addition, a lender bears the risk that
unanticipated cleanup costs may jeopardize the borrower's repayment. Neither of
these two issues is likely to pose risks exceeding the amount of unpaid
principal and interest of a particular loan secured by a contaminated property,
particularly if the lender declines to foreclose on a mortgage secured by the
property.
If a lender forecloses on a mortgage secured by a property the
operations of which are subject to environmental laws and regulations, the
lender will be required to operate the property in accordance with those laws
and regulations. Compliance may entail some expense.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property and thereby lessen the ability of the lender to
recover its investment in a loan upon foreclosure.
Due-on-Sale and Due-on-Encumbrance
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. By virtue, however, of the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982 (which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing among other matters, that "due-on-sale" clauses in certain
loans made after the effective date of the Garn Act are enforceable, within
certain limitations as set forth in the Garn Act and the regulations promulgated
thereunder), a Master Servicer may nevertheless have the right to accelerate the
maturity of a Mortgage Loan that contains a "due-on-sale" provision upon
transfer of an interest in the property, regardless of the Master Servicer's
ability to demonstrate that a sale threatens its legitimate security interest.
Subordinate Financing
Certain of the Mortgage Loans may not restrict the ability of the
borrower to use the Mortgaged Property as security for one or more additional
loans. Where a borrower encumbers a mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. Moreover, if the
subordinate financing permits recourse to the borrower (as is frequently the
case) and the senior loan does not, a borrower may have more incentive to repay
sums due on the subordinate loan. Second, acts of the senior lender that
prejudice the junior lender or impair the junior lender's security may create a
superior equity in favor of the junior lender. For example, if the borrower and
the senior lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the borrower is
additionally burdened. Third, if the borrower defaults on the senior loan and/or
any junior loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
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Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 ("Title V") provides that state usury limitations shall not
apply to certain types of residential (including multifamily) first mortgage
loans originated by certain lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a law
or constitutional provision that expressly rejects application of the federal
law. In addition, even where Title V is not so rejected, any state is authorized
by the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
No Mortgage Loan originated in any state in which application of Title
V has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of any servicer to
collect full amounts of interest on certain of the Mortgage Loans. Any
shortfalls in interest collections resulting from the application of the Relief
Act would result in a reduction of the amounts distributable to the holders of
the related series of Certificates, and would not be covered by advances or,
unless otherwise specified in the related Prospectus Supplement, any form of
Credit Support provided in connection with such Certificates. In addition, the
Relief Act imposes limitations that would impair the ability of the servicer to
foreclose on an affected Mortgage Loan during the borrower's period of active
duty status, and, under certain circumstances, during an additional three month
period thereafter.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
Certificates. The discussion below does not purport to address all federal
income tax consequences that may be applicable to particular categories of
investors, some of which may be subject to special rules. The authorities on
which this discussion is based are subject to change or differing
interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as regulations
(the "REMIC Regulations") promulgated by the U.S. Department of Treasury (the
"Treasury") on December 23, 1992. 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 discussion, (i) references to the Mortgage Loans
include references to the mortgage loans underlying MBS included in the Mortgage
Assets and (ii) where the applicable Prospectus Supplement provides for a fixed
retained yield with respect to the Mortgage Loans underlying a series of
Certificates, references to the Mortgage Loans will be deemed to refer to that
portion of the Mortgage Loans held by the Trust Fund which does not include the
Retained Interest. References to a "holder" or "Certificateholder" in this
discussion generally mean the beneficial owner of a Certificate.
Federal Income Tax Consequences for REMIC Certificates
General
With respect to a particular series of Certificates, an election may be
made to treat the Trust Fund or one or more segregated pools of assets therein
as one or more REMICs within the meaning of Code Section 860D. A Trust Fund or a
portion thereof as to which a REMIC election will be made will be referred to as
a "REMIC Pool". For purposes of this discussion, Certificates of a series as to
which one or more REMIC elections are made are referred to as "REMIC
Certificates" and will consist of one or more Classes of "Regular Certificates"
and one Class of "Residual Certificates" in the case of each REMIC Pool.
Qualification as a REMIC requires ongoing compliance with certain conditions.
With respect to each series of REMIC Certificates, Cadwalader, Wickersham &
Taft, counsel to the Depositor, has advised the Depositor that in the firm's
opinion, assuming (i) the making of such an election, (ii) compliance with the
Pooling Agreement and (iii) compliance with any changes in the law, including
any amendments to the Code or applicable Treasury regulations thereunder, each
REMIC Pool will qualify as a REMIC. In such case, the Regular Certificates will
be considered to be "regular interests" in the REMIC Pool and generally will be
treated for federal income tax purposes as if they were newly originated debt
instruments, and the Residual Certificates will be considered to be "residual
interests" in the REMIC Pool. The Prospectus Supplement for each series of
Certificates will indicate whether one or more REMIC elections with respect to
the related Trust Fund will be made, in which event references to "REMIC" or
"REMIC Pool" herein shall be deemed to refer to each such REMIC Pool. If so
specified in the applicable Prospectus Supplement, the portion of a Trust Fund
as to which a REMIC election is not made may be treated as a grantor trust for
federal income tax purposes. See "--Federal Income Tax Consequences for
Certificates as to Which No REMIC Election Is Made".
Status of REMIC Certificates
REMIC Certificates held by a mutual savings bank or a domestic building
and loan association will constitute "qualifying real property loans" within the
meaning of Code Section 593(d)(1) in the same proportion that the assets of the
REMIC Pool would be so treated. REMIC Certificates held by a domestic building
and loan association will constitute "a regular or residual interest in a REMIC"
within the meaning of Code Section 7701(a)(19)(C)(xi), but only in the same
proportion that the assets of the REMIC Pool would be treated as "loans . . .
secured by an interest in real property which is . . . residential real
property" (such as single family or multifamily properties, but not commercial
properties) within the meaning of Code Section 7701(a)(19)(C)(v) or as other
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assets described in Code Section 7701(a)(19)(C), and otherwise will not qualify
for such treatment. REMIC Certificates held by a real estate investment trust
will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest on the Regular Certificates and income with respect
to Residual Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B) in the same proportion that, for both purposes, the
assets of the REMIC Pool would be so treated. If at all times 95% or more of the
assets of the REMIC Pool qualify for each of the foregoing respective
treatments, the REMIC Certificates will qualify for the corresponding status in
their entirety. For purposes of Code Sections 593(d)(1) and 856(c)(5)(A),
payments of principal and interest on the Mortgage Loans that are reinvested
pending distribution to holders of REMIC Certificates qualify for such
treatment. Where two REMIC Pools are a part of a tiered structure they will be
treated as one REMIC for purposes of the tests described above respecting asset
ownership of more or less than 95%. In addition, if the assets of the REMIC
include Buy-Down Mortgage Loans, it is possible that the percentage of such
assets constituting "qualifying real property loans" or "loans . . . secured by
an interest in real property" for purposes of Code Sections 593(d)(1) and
7701(a)(19)(C)(v), respectively, may be required to be reduced by the amount of
the related Buy-Down Funds. REMIC Certificates held by a regulated investment
company will not constitute "Government securities" within the meaning of Code
Section 851(b)(4)(A)(i). REMIC Certificates held by certain financial
institutions will constitute an "evidence of indebtedness" within the meaning of
Code Section 582(c)(1).
Qualification as a REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be
ongoing compliance on the part of the REMIC Pool with the requirements set forth
in the Code. The REMIC Pool must fulfill an asset test, which requires that no
more than a de minimis portion of the assets of the REMIC Pool, as of the close
of the third calendar month beginning after the "Startup Day" (which for
purposes of this discussion is the date of issuance of the REMIC Certificates)
and at all times thereafter, may consist of assets other than "qualified
mortgages" and "permitted investments". The REMIC Regulations provide a safe
harbor pursuant to which the de minimis requirement is met if at all times the
aggregate adjusted basis of the nonqualified assets is less than 1% of the
aggregate adjusted basis of all the REMIC Pool's assets. An entity that fails to
meet the safe harbor may nevertheless demonstrate that it holds no more than a
de minimis amount of nonqualified assets. A REMIC also must provide "reasonable
arrangements" to prevent its residual interest from being held by "disqualified
organizations" and must furnish applicable tax information to transferors or
agents that violate this requirement. See "Taxation of Residual
Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations".
A qualified mortgage is any obligation that is principally secured by
an interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
certificates of beneficial interest in a grantor trust that holds mortgage
loans, including certain of the MBS, regular interests in another REMIC, such as
MBS in a trust as to which a REMIC election has been made, loans secured by
timeshare interests and loans secured by shares held by a tenant stockholder in
a cooperative housing corporation, provided, in general, (i) the fair market
value of the real property security (including buildings and structural
components thereof) is at least 80% of the principal balance of the related
Mortgage Loan or mortgage loan underlying the Mortgage Certificate either at
origination or as of the Startup Day (an original loan-to-value ratio of not
more than 125% with respect to the real property security) or (ii) substantially
all the proceeds of the Mortgage Loan or the underlying mortgage loan were used
to acquire, improve or protect an interest in real property that, at the
origination date, was the only security for the Mortgage Loan or underlying
mortgage loan. If the Mortgage Loan has been substantially modified other than
in connection with a default or reasonably foreseeable default, it must meet the
loan-to-value test in (i) of the preceding sentence as of the date of the last
such modification or at closing. A qualified mortgage includes a qualified
replacement mortgage, which is any property that would have been treated as a
qualified mortgage if it were transferred to the REMIC Pool on the Startup Day
and that is received either (i) in exchange for any qualified mortgage within a
three-month period thereafter or (ii) in exchange for a "defective obligation"
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within a two-year period thereafter. A "defective obligation" includes (i) a
mortgage in default or as to which default is reasonably foreseeable, (ii) a
mortgage as to which a customary representation or warranty made at the time of
transfer to the REMIC Pool has been breached, (iii) a mortgage that was
fraudulently procured by the mortgagor, and (iv) a mortgage that was not in fact
principally secured by real property (but only if such mortgage is disposed of
within 90 days of discovery). A Mortgage Loan that is "defective" as described
in clause (iv) that is not sold or, if within two years of the Startup Day,
exchanged, within 90 days of discovery, ceases to be a qualified mortgage after
such 90-day period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC Pool.
A qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC Pool to provide
for payments of expenses of the REMIC Pool or amounts due on the regular or
residual interests in the event of defaults (including delinquencies) on the
qualified mortgages, lower than expected reinvestment returns, prepayment
interest shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross income from the assets in such fund
for the year is derived from the sale or other disposition of property held for
less than three months, unless required to prevent a default on the regular
interests caused by a default on one or more qualified mortgages. A reserve fund
must be reduced "promptly and appropriately" as payments on the Mortgage Loans
are received. Foreclosure property is real property acquired by the REMIC Pool
in connection with the default or imminent default of a qualified mortgage and
generally held for not more than two years, with extensions granted by the
Internal Revenue Service (the "Service").
In addition to the foregoing requirements, the various interests in a
REMIC Pool also must meet certain requirements. All of the interests in a REMIC
Pool must be either of the following: (i) one or more classes of regular
interests or (ii) a single class of residual interests on which distributions,
if any, are made pro rata. A regular interest is an interest in a REMIC Pool
that is issued on the Startup Day with fixed terms, is designated as a regular
interest, and unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and provides that interest payments
(or other similar amounts), if any, at or before maturity either are payable
based on a fixed rate or a qualified variable rate, or consist of a specified,
nonvarying portion of the interest payments on qualified mortgages. Such a
specified portion may consist of a fixed number of basis points, a fixed
percentage of the total interest, or a fixed or qualified variable or inverse
variable rate on some or all of the qualified mortgages minus a different fixed
or qualified variable rate. The specified principal amount of a regular interest
that provides for interest payments consisting of a specified, nonvarying
portion of interest payments on qualified mortgages may be zero. A residual
interest is an interest in a REMIC Pool other than a regular interest that is
issued on the Startup Day and that is designated as a residual interest. An
interest in a REMIC Pool may be treated as a regular interest even if payments
of principal with respect to such interest are subordinated to payments on other
regular interests or the residual interest in the REMIC Pool, and are dependent
on the absence of defaults or delinquencies on qualified mortgages or permitted
investments, lower than reasonably expected returns on permitted investments,
unanticipated expenses incurred by the REMIC Pool or prepayment interest
shortfalls. Accordingly, the Regular Certificates of a series will constitute
one or more classes of regular interests, and the Residual Certificates with
respect to that series will constitute a single class of residual interests on
which distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more
of the ongoing requirements of the Code for REMIC status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests therein. The Code, however, authorizes the Treasury Department
to issue regulations that address situations where failure to meet one or more
of the requirements for REMIC status occurs inadvertently and in good faith, and
disqualification of the REMIC Pool would occur absent regulatory relief.
Investors should be aware, however, that the Conference Committee Report to the
Tax Reform Act of 1986 (the "1986 Act") indicates that the relief may be
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accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the REMIC Pool's income for the period of time in which the
requirements for REMIC status are not satisfied.
Taxation of Regular Certificates
General
In general, interest, original issue discount and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "Regular Certificateholder") as they accrue, and
principal payments on a Regular Certificate will be treated as a return of
capital to the extent of the Regular Certificateholder's basis in the Regular
Certificate allocable thereto. Regular Certificateholders must use the accrual
method of accounting with regard to Regular Certificates, regardless of the
method of accounting otherwise used by such Regular Certificateholders.
Original Issue Discount
Accrual Certificates and principal-only Certificates will be, and other
Classes of Regular Certificates may be, issued with "original issue discount"
within the meaning of Code Section 1273(a). Holders of any Class of Regular
Certificates having original issue discount generally must include original
issue discount in ordinary income for federal income tax purposes as it accrues,
in accordance with the constant yield method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to such
income. The following discussion is based in part on temporary and final
Treasury regulations issued on February 2, 1994 (the "OID Regulations") and
proposed Treasury regulations issued on December 16, 1994 (the "Proposed OID
Regulations") under Code Sections 1271 through 1273 and 1275 and in part on the
provisions of the 1986 Act. Regular Certificateholders should be aware, however,
that the OID Regulations and the Proposed OID Regulations do not adequately
address certain issues relevant to prepayable securities, such as the Regular
Certificates. To the extent such issues are not addressed in such regulations,
the Depositor intends to apply the methodology described in the Conference
Committee Report to the 1986 Act. No assurance can be provided that the Service
will not take a different position as to those matters not currently addressed
by the OID Regulations and the Proposed OID Regulations. Moreover, the OID
Regulations include an anti-abuse rule allowing the Service to apply or depart
from the OID Regulations where necessary or appropriate to ensure a reasonable
tax result in light of the applicable statutory provisions. A tax result will
not be considered unreasonable under the anti-abuse rule in the absence of a
substantial effect on the present value of a taxpayer's tax liability. Investors
are advised to consult their own tax advisors as to the discussion herein and
the appropriate method for reporting interest and original issue discount with
respect to the Regular Certificates.
Each Regular Certificate (except to the extent described below with
respect to a Regular Certificate on which principal is distributed by random lot
("Random Lot Certificates")) will be treated as a single installment obligation
for purposes of determining the original issue discount includible in a Regular
Certificateholder's income. The total amount of original issue discount on a
Regular Certificate is the excess of the "stated redemption price at maturity"
of the Regular Certificate over its "issue price". The issue price of a Class of
Regular Certificates offered pursuant to this Prospectus generally is the first
price at which a substantial amount of Regular Certificates of that Class is
sold to the public (excluding bond houses, brokers and underwriters). Although
unclear under the OID Regulations, the Depositor intends to treat the issue
price of a Class as to which there is no substantial sale as of the issue date
or that is retained by the Depositor as the fair market value of that Class as
of the issue date. The issue price of a Regular Certificate also includes the
amount paid by an initial Regular Certificateholder for accrued interest that
relates to a period prior to the issue date of the Regular Certificate, unless
the Regular Certificateholder elects on its federal income tax return to exclude
such amount from the issue price and to recover it on the first Distribution
Date. The stated redemption price at maturity of a Regular Certificate always
includes the original principal amount of the Regular Certificate, but generally
will not include distributions of stated interest if such interest distributions
constitute "qualified stated interest". Under the OID Regulations, qualified
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stated interest generally means interest payable at a single fixed rate or a
qualified variable rate (as described below) provided that such interest
payments are unconditionally payable at intervals of one year or less during the
entire term of the Regular Certificate. Distributions of interest on an Accrual
Certificate, or on other Regular Certificates with respect to which deferred
interest will accrue, will not constitute qualified stated interest, in which
case the stated redemption price at maturity of such Regular Certificates
includes all distributions of interest as well as principal thereon. Likewise,
the Depositor intends to treat an "interest only" class, or a class on which
interest is substantially disproportionate to its principal amount (a so-called
"super-premium" class) as having no qualified stated interest. Where the
interval between the issue date and the first Distribution Date on a Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
the interest attributable to the additional days will be included in the stated
redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular
Certificate will be considered to be zero if such original issue discount is
less than 0.25% of the stated redemption price at maturity of the Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate. For this purpose, the weighted average maturity of the Regular
Certificate is computed as the sum of the amounts determined by multiplying the
number of full years (i.e., rounding down partial years) from the issue date
until each distribution is scheduled to be made by a fraction, the numerator of
which is the amount of each distribution included in the stated redemption price
at maturity of the Regular Certificate and the denominator of which is the
stated redemption price at maturity of the Regular Certificate. The Conference
Committee Report to the 1986 Act provides that the schedule of such
distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Loans (the "Prepayment Assumption") and the
anticipated reinvestment rate, if any, relating to the Regular Certificates. The
Prepayment Assumption with respect to a Series of Regular Certificates will be
set forth in the related Prospectus Supplement. Holders generally must report de
minimis OID pro rata as principal payments are received, and such income will be
capital gain if the Regular Certificate is held as a capital asset. However,
under the OID Regulations, Regular Certificateholders may elect to accrue all de
minimis original issue discount as well as market discount and market premium
under the constant yield method. See "Election to Treat All Interest Under the
Constant Yield Method".
A Regular Certificateholder generally must include in gross income for
any taxable year the sum of the "daily portions," as defined below, of the
original issue discount on the Regular Certificate accrued during an accrual
period for each day on which it holds the Regular Certificate, including the
date of purchase but excluding the date of disposition. The Depositor will treat
the monthly period ending on the day before each Distribution Date as the
accrual period. With respect to each Regular Certificate, a calculation will be
made of the original issue discount that accrues during each successive full
accrual period (or shorter period from the date of original issue) that ends on
the day before the related Distribution Date on the Regular Certificate. The
Conference Committee Report to the 1986 Act states that the rate of accrual of
original issue discount is intended to be based on the Prepayment Assumption.
Other than as discussed below with respect to a Random Lot Certificate, the
original issue discount accruing in a full accrual period would be the excess,
if any, of (i) the sum of (a) the present value of all of the remaining
distributions to be made on the Regular Certificate as of the end of that
accrual period that are included in the Regular Certificate's stated redemption
price at maturity and (b) the distributions made on the Regular Certificate
during the accrual period that are included in the Regular Certificate's stated
redemption price at maturity, over (ii) the adjusted issue price of the Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence is calculated
based on (i) the yield to maturity of the Regular Certificate at the issue date,
(ii) events (including actual prepayments) that have occurred prior to the end
of the accrual period and (iii) the Prepayment Assumption. For these purposes,
the adjusted issue price of a Regular Certificate at the beginning of any
accrual period equals the issue price of the Regular Certificate, increased by
the aggregate amount of original issue discount with respect to the Regular
Certificate that accrued in all prior accrual periods and reduced by the amount
of distributions included in the Regular Certificate's stated redemption price
at maturity that were made on the Regular Certificate in such prior periods. The
original issue discount accruing during any accrual period (as determined in
this paragraph) will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
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period. With respect to an initial accrual period shorter than a full accrual
period, the daily portions of original issue discount must be determined
according to an appropriate allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Random Lot Certificate, the Depositor intends to
determine the yield to maturity of such Certificate based upon the anticipated
payment characteristics of the Class as a whole under the Prepayment Assumption.
In general, the original issue discount accruing on each Random Lot Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of the
entire unpaid principal balance of any Random Lot Certificate (or portion of
such unpaid principal balance), (a) the remaining unaccrued original issue
discount allocable to such Certificate (or to such portion) will accrue at the
time of such distribution, and (b) the accrual of original issue discount
allocable to each remaining Certificate of such Class (or the remaining unpaid
principal balance of a partially redeemed Random Lot Certificate after a
distribution of principal has been received) will be adjusted by reducing the
present value of the remaining payments on such Class and the adjusted issue
price of such Class to the extent attributable to the portion of the unpaid
principal balance thereof that was distributed. The Depositor believes that the
foregoing treatment is consistent with the "pro rata prepayment" rules of the
OID Regulations, but with the rate of accrual of original issue discount
determined based on the Prepayment Assumption for the Class as a whole.
Investors are advised to consult their tax advisors as to this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its
adjusted issue price but less than its stated redemption price at maturity will
be required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted issue
price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively, such
a subsequent purchaser may elect to treat all such acquisition premium under the
constant yield method, as described below under the heading "Election to Treat
All Interest Under the Constant Yield Method".
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate if,
generally, (i) the issue price does not exceed the original principal balance by
more than a specified amount and (ii) the interest compounds or is payable at
least annually at current values of (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 floating rate is a qualified floating
rate if variations in the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds, where such rate
is subject to a multiple of not less than zero nor more than 1.35. Such rate may
also be increased or decreased by a fixed spread or subject to a fixed cap or
floor, or a cap or floor that is not reasonably expected as of the issue date to
affect the yield of the instrument significantly. An objective rate includes a
rate determined using a single fixed formula and that is based on one or more
qualified floating rates or the yield or changes in the price of actively traded
personal property. The Proposed OID Regulations would expand the definition of
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objective rate to include any rate (other than a qualified floating rate) that
is determined using a single fixed formula and that is based on objective
financial or economic information, provided that such information is not (i)
within the control of the issuer or a related party or (ii) unique to the
circumstances of the issuer or a related party. A qualified inverse floating
rate is a rate equal to a fixed rate minus a qualified floating rate that
inversely reflects contemporaneous variations in the cost of newly borrowed
funds; an inverse floating rate that is not a qualified floating rate may
nevertheless be an objective rate. A Class of Regular Certificates may be issued
under this Prospectus that does not have a variable rate under the OID
regulations or, less likely, the Proposed OID Regulations, and it is possible
that such a Class may be considered to bear "contingent interest" within the
meaning of the OID Regulations and the Proposed OID Regulations. The Proposed
OID Regulations, as they relate to the treatment of contingent interest, are by
their terms not applicable to Regular Certificates. However, if future Treasury
regulations dealing with contingent interest with respect to Regular
Certificates apply the same principles as the Proposed OID Regulations, such
regulations may lead to different timing of income inclusion that would be the
case under the OID Regulations. Furthermore, application of such principles
could lead to the characterization of gain on the sale of contingent interest
Regular Certificates as ordinary income. Investors should consult their tax
advisors regarding the appropriate treatment of any Regular Certificate that
does not pay interest at a fixed rate or variable rate as described in this
paragraph. Moreover, under the REMIC Regulations, a Regular Certificate (i)
bearing a rate that qualifies as a variable rate under the OID Regulations that
is tied to current values of a variable rate (or the highest, lowest or average
of two or more variable rates), including a rate based on the average cost of
funds of one or more financial institutions, or a positive or negative multiple
of such a rate (plus or minus a specified number of basis points), or that
represents a weighted average of rates on some or all of the Mortgage Loans that
bear either a fixed rate or a variable rate, including such a rate that is
subject to one or more caps or floors, or (ii) bearing one or more such variable
rates for one or more periods or one or more fixed rates for one or more
periods, and a different variable rate or fixed rate for other periods qualifies
as a regular interest in a REMIC. Accordingly, unless otherwise indicated in the
applicable Prospectus Supplement, the Depositor intends to treat Regular
Certificates that qualify as regular interests under this rule in the same
manner as obligations bearing a variable rate for original issue discount
reporting purposes.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "Original Issue Discount" with the yield to maturity and
future payments on such Regular Certificate generally to be determined by
assuming that interest will be payable for the life of the Regular Certificate
based on the initial rate (or, if different, the value of the applicable
variable rate as of the pricing date) for the relevant Class. Unless otherwise
specified in the applicable Prospectus Supplement, the Depositor intends to
treat such variable interest as qualified stated interest, other than variable
interest on an interest-only or super-premium Class, which will be treated as
non-qualified stated interest includible in the stated redemption price at
maturity. Ordinary income reportable for any period will be adjusted based on
subsequent changes in the applicable interest rate index.
Although unclear under the OID Regulations, the Depositor intends to
treat Regular Certificates bearing an interest rate that is a weighted average
of the net interest rates on Mortgage Loans or Mortgage Certificates having
fixed or adjustable rates, as having qualified stated interest. In the case of
adjustable rate Mortgage Loans, the applicable index used to compute interest on
the Mortgage Loans in effect on the pricing date (or possibly the issue date)
will be deemed to be in effect beginning with the period in which the first
weighted average adjustment date occurring after the issue date occurs.
Adjustments will be made in each accrual period either increasing or decreasing
the amount of ordinary income reportable to reflect the actual Pass-Through Rate
on the Regular Certificates.
Deferred Interest
Under the OID Regulations, all interest on a Regular Certificate as to
which there may be Deferred Interest is includible in the stated redemption
price at maturity thereof. Accordingly, any Deferred Interest that accrues with
respect to a Class of Regular Certificates may constitute income to the holders
of such Regular Certificates prior to the time distributions of cash with
respect to such Deferred Interest are made.
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Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Section 1276 through 1278. Under these Code sections and
the principles applied by the OID Regulations in the context of original issue
discount, "market discount" is the amount by which the purchaser's original
basis in the Regular Certificate (i) is exceeded by the then-current principal
amount of the Regular Certificate or (ii) in the case of a Regular Certificate
having original issue discount, is exceeded by the adjusted issue price of such
Regular Certificate at the time of purchase. Such purchaser generally will be
required to recognize ordinary income to the extent of accrued market discount
on such Regular Certificate as distributions includible in the stated redemption
price at maturity thereof are received, in an amount not exceeding any such
distribution. Such market discount would accrue in a manner to be provided in
Treasury regulations and should take into account the Prepayment Assumption. The
Conference Committee Report to the 1986 Act provides that until such regulations
are issued, such market discount would accrue either (i) on the basis of a
constant interest rate or (ii) in the ratio of stated interest allocable to the
relevant period to the sum of the interest for such period plus the remaining
interest as of the end of such period, or in the case of a Regular Certificate
issued with original issue discount, in the ratio of original issue discount
accrued for the relevant period to the sum of the original issue discount
accrued for such period plus the remaining original issue discount as of the end
of such period. Such purchaser also generally will be required to treat a
portion of any gain on a sale or exchange of the Regular Certificate as ordinary
income to the extent of the market discount accrued to the date of disposition
under one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial distributions in reduction of the stated
redemption price at maturity were received. Such purchaser will be required to
defer deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Certificate over the
interest distributable thereon. The deferred portion of such interest expense in
any taxable year generally will not exceed the accrued market discount on the
Regular Certificate for such year. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which the related
market discount income is recognized or the Regular Certificate is disposed of.
As an alternative to the inclusion of market discount in income on the foregoing
basis, the Regular Certificateholder may elect to include market discount in
income currently as it accrues on all market discount instruments acquired by
such Regular Certificateholder in that taxable year or thereafter, in which case
the interest deferral rule will not apply. See "Election to Treat All Interest
Under the Constant Yield Method" below regarding an alternative manner in which
such election may be deemed to be made.
Market discount with respect to a Regular Certificate will be
considered to be zero if such market discount is less than 0.25% of the
remaining stated redemption price at maturity of such Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate
(determined as described above in the third paragraph under "Original Issue
Discount") remaining after the date of purchase. It appears that de minimis
market discount would be reported in a manner similar to de minimis original
issue discount. See "Original Issue Discount" above. Treasury regulations
implementing the market discount rules have not yet been issued, and therefore
investors should consult their own tax advisors regarding the application of
these rules. Investors should also consult Revenue Procedure 92-67 concerning
the elections to include market discount in income currently and to accrue
market discount on the basis of the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Certificateholder holds such Regular Certificate as a
"capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. The Conference Committee Report to the 1986 Act
indicates a Congressional intent that the same rules that will apply to the
accrual of market discount on installment obligations will also apply to
amortizing bond premium under Code Section 171 on installment obligations such
as the Regular Certificates, although it is unclear whether the alternatives to
the constant yield method described above under "Market Discount" are available.
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Amortizable bond premium will be treated as an offset to interest income on a
Regular Certificate rather than as a separate deduction item. See "Election to
Treat All Interest Under the Constant Yield Method" below regarding an
alternative manner in which the Code Section 171 election may be deemed to be
made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect
to treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to such an election, (i) "interest" includes stated interest, original issue
discount, de minimis original issue discount, market discount and de minimis
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (ii) the debt instrument is treated as if the instrument were issued
on the holder's acquisition date in the amount of the holder's adjusted basis
immediately after acquisition. It is unclear whether, for this purpose, the
initial Prepayment Assumption would continue to apply or if a new prepayment
assumption as of the date of the holder's acquisition would apply. A holder
generally may make such an election on an instrument by instrument basis or for
a class or group of debt instruments. However, if the holder makes such an
election with respect to a debt instrument with amortizable bond premium or with
market discount, the holder is deemed to have made elections to amortize bond
premium or to report market discount income currently as it accrues under the
constant yield method, respectively, for all debt instruments acquired by the
holder in the same taxable year or thereafter. The election is made on the
holder's federal income tax return for the year in which the debt instrument is
acquired and is irrevocable except with the approval of the Service. Investors
should consult their own tax advisors regarding the advisability of making such
an election.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular
Certificate, the Regular Certificateholder will recognize gain or loss equal to
the difference, if any, between the amount received and its adjusted basis in
the Regular Certificate. The adjusted basis of a Regular Certificate generally
will equal the cost of the Regular Certificate to the seller, increased by any
original issue discount or market discount previously included in the seller's
gross income with respect to the Regular Certificate and reduced by amounts
included in the stated redemption price at maturity of the Regular Certificate
that were previously received by the seller, by any amortized premium and by
previously recognized losses..
Except as described above with respect to market discount, and except
as provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate as
a capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Certificate has been held for the long-term
capital gain holding period (currently more than one year). Such gain will be
treated as ordinary income (i) if a Regular Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount of
interest that would have accrued on the Regular Certificateholder's net
investment in the conversion transaction at 120% of the appropriate applicable
Federal rate under Code Section 1274(d) in effect at the time the taxpayer
entered into the transaction minus any amount previously treated as ordinary
income with respect to any prior distribution of property that was held as a
part of such transaction, (ii) in the case of a non-corporate taxpayer, to the
extent such taxpayer has made an election under Code Section 163(d)(4) to have
net capital gains taxed as investment income at ordinary rates, or (iii) to the
extent that such gain does not exceed the excess, if any, of (a) the amount that
would have been includible in the gross income of the holder if its yield on
such Regular Certificate were 110% of the applicable Federal rate as of the date
of purchase, over (b) the amount of income actually includible in the gross
income of such holder with respect to the Regular Certificate. In addition, gain
or loss recognized from the sale of a Regular Certificate by certain banks or
thrift institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c). Capital gains of certain non-corporate taxpayers are subject to
a lower maximum tax rate than ordinary income of such taxpayers. The maximum tax
rate for corporations is the same with respect to both ordinary income and
capital gains.
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Treatment of Losses
Holders of Regular Certificates will be required to report income with
respect to Regular Certificates on the accrual method of accounting, without
giving effect to delays or reductions in distributions attributable to defaults
or delinquencies on the Mortgage Loans allocable to a particular class of
Regular Certificates, except to the extent it can be established that such
losses are uncollectible. Accordingly, the holder of a Regular Certificate may
have income, or may incur a diminution in cash flow as a result of a default or
delinquency, but may not be able to take a deduction (subject to the discussion
below) for the corresponding loss until a subsequent taxable year. In this
regard, investors are cautioned that while they may generally cease to accrue
interest income if it reasonably appears that the interest will be
uncollectible, the Internal Revenue Service may take the position that original
issue discount must continue to be accrued in spite of its uncollectibility
until the debt instrument is disposed of in a taxable transaction or becomes
worthless in accordance with the rules of Code Section 166. To the extent the
rules of Code Section 166 regarding bad debts are applicable, it appears that
holders of Regular Certificates that are corporations or that otherwise hold the
Regular Certificates in connection with a trade or business should in general be
allowed to deduct as an ordinary loss any such loss sustained during the taxable
year on account of any such Regular Certificates becoming wholly or partially
worthless, and that, in general, holders of Regular Certificates that are not
corporations and do not hold the Regular Certificates in connection with a trade
or business will be allowed to deduct as a short-term capital loss any loss with
respect to principal sustained during the taxable year on account of a portion
of any class or subclass of such Regular Certificates becoming wholly worthless.
Although the matter is not free from doubt, non-corporate holders of Regular
Certificates should be allowed a bad debt deduction at such time as the
principal balance of any class or subclass of such Regular Certificates is
reduced to reflect losses resulting from any liquidated Mortgage Loans. The
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect such losses only after all Mortgage
Loans remaining in the Trust Fund have been liquidated or such class of Regular
Certificates has been otherwise retired. The Service could also assert that
losses on the Regular Certificates are deductible based on some other method
that may defer such deductions for all holders, such as reducing future cash
flow for purposes of computing original issue discount. This may have the effect
of creating "negative" original issue discount which would be deductible only
against future positive original issue discount or otherwise upon termination of
the Class. Holders of Regular Certificates are urged to consult their own tax
advisors regarding the appropriate timing, amount and character of any loss
sustained with respect to such Regular Certificates. While losses attributable
to interest previously reported as income should be deductible as ordinary
losses by both corporate and non-corporate holders, the Internal Revenue Service
may take the position that losses attributable to accrued original issue
discount may only be deducted as short-term capital losses by non-corporate
holders not engaged in a trade or business. Special loss rules are applicable to
banks and thrift institutions, including rules regarding reserves for bad debts.
Such taxpayers are advised to consult their tax advisors regarding the treatment
of losses on Regular Certificates.
Taxation of Residual Certificates
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss
will be includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Certificates ("Residual Certificateholders"), and
will not be taxed separately to the REMIC Pool. The daily portions of REMIC
taxable income or net loss of a Residual Certificateholder are determined by
allocating the REMIC Pool's taxable income or net loss for each calendar quarter
ratably to each day in such quarter and by allocating such daily portion among
the Residual Certificateholders in proportion to their respective holdings of
Residual Certificates in the REMIC Pool on such day. REMIC taxable income is
generally determined in the same manner as the taxable income of an individual
using the accrual method of accounting, except that (i) the limitations on
deductibility of investment interest expense and expenses for the production of
income do not apply, (ii) all bad loans will be deductible as business bad debts
and (iii) the limitation on the deductibility of interest and expenses related
to tax-exempt income will apply. The REMIC Pool's gross income includes
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interest, original issue discount income and market discount income, if any, on
the Mortgage Loans, reduced by amortization of any premium on the Mortgage
Loans, plus income from amortization of issue premium, if any, on the Regular
Certificates, plus income on reinvestment of cash flows and reserve assets, plus
any cancellation of indebtedness income upon allocation of realized losses to
the Regular Certificates. The REMIC Pool's deductions include interest and
original issue discount expense on the Regular Certificates, servicing fees on
the Mortgage Loans, other administrative expenses of the REMIC Pool and realized
losses on the Mortgage Loans. The requirement that Residual Certificateholders
report their pro rata share of taxable income or net loss of the REMIC Pool will
continue until there are no Certificates of any class of the related series
outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and original issue discount or market
discount income or amortization of premium with respect to the Mortgage Loans,
on the one hand, and the timing of deductions for interest (including original
issue discount) on the Regular Certificates or income from amortization of issue
premium on the Regular Certificates, on the other hand. In the event that an
interest in the Mortgage Loans is acquired by the REMIC Pool at a discount, and
one or more of such Mortgage Loans is prepaid, the Residual Certificateholder
may recognize taxable income without being entitled to receive a corresponding
amount of cash because (i) the prepayment may be used in whole or in part to
make distributions in reduction of principal on the Regular Certificates and
(ii) the discount on the Mortgage Loans which is includible in income may exceed
the deduction allowed upon such distributions on those Regular Certificates on
account of any unaccrued original issue discount relating to those Regular
Certificates. When there is more than one class of Regular Certificates that
distribute principal sequentially, this mismatching of income and deductions is
particularly likely to occur in the early years following issuance of the
Regular Certificates when distributions in reduction of principal are being made
in respect of earlier classes of Regular Certificates to the extent that such
classes are not issued with substantial discount. If taxable income attributable
to such a mismatching is realized, in general, losses would be allowed in later
years as distributions on the later classes of Regular Certificates are made.
Taxable income may also be greater in earlier years than in later years as a
result of the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of such a series of Regular Certificates,
may increase over time as distributions in reduction of principal are made on
the lower yielding classes of Regular Certificates, whereas to the extent that
the REMIC Pool includes fixed rate Mortgage Loans, interest income with respect
to any given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan. Consequently, Residual
Certificateholders must have sufficient other sources of cash to pay any
federal, state or local income taxes due as a result of such mismatching or
unrelated deductions against which to offset such income, subject to the
discussion of "excess inclusions" below under "Limitations on Offset or
Exemption of REMIC Income". The timing of such mismatching of income and
deductions described in this paragraph, if present with respect to a series of
Certificates, may have a significant adverse effect upon the Residual
Certificateholder's after-tax rate of return. In addition, a Residual
Certificateholder's taxable income during certain periods may exceed the income
reflected by such Residual Certificateholder for such periods in accordance with
generally accepted accounting principles. Investors should consult their own
accountants concerning the accounting treatment of their investment in Residual
Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into
account by the Residual Certificateholder is limited to the adjusted basis of
the Residual Certificate as of the close of the quarter (or time of disposition
of the Residual Certificate if earlier), determined without taking into account
the net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Certificate is the amount paid for such Residual Certificate. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
Pool reportable by the Residual Certificateholder and will be decreased (but not
below zero), first, by a cash distribution from the REMIC Pool and, second, by
the amount of loss of the REMIC Pool reportable by the Residual
Certificateholder. Any loss that is disallowed on account of this limitation may
be carried over indefinitely with respect to the Residual Certificateholder as
to whom such loss was disallowed and may be used by such Residual
Certificateholder only to offset any income generated by the same REMIC Pool.
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A Residual Certificateholder will not be permitted to amortize directly
the cost of its Residual Certificate as an offset to its share of the taxable
income of the related REMIC Pool. However, that taxable income will not include
cash received by the REMIC Pool that represents a recovery of the REMIC Pool's
basis in its assets. Such recovery of basis by the REMIC Pool will have the
effect of amortization of the issue price of the Residual Certificates over
their life. However, in view of the possible acceleration of the income of
Residual Certificateholders described above under "Taxation of REMIC Income",
the period of time over which such issue price is effectively amortized may be
longer than the economic life of the Residual Certificates.
A Residual Certificate may have a negative value if the net present
value of anticipated tax liabilities exceeds the present value of anticipated
cash flows. The REMIC Regulations appear to treat the issue price of such a
residual interest as zero rather than such negative amount for purposes of
determining the REMIC Pool's basis in its assets. The preamble to the REMIC
Regulations states that the Service may provide future guidance on the proper
tax treatment of payments made by a transferor of such a residual interest to
induce the transferee to acquire the interest, and Residual Certificateholders
should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate is
greater that the corresponding portion of the REMIC Pool's basis in the Mortgage
Loans, the Residual Certificateholder will not recover a portion of such basis
until termination of the REMIC Pool unless future Treasury regulations provide
for periodic adjustments to the REMIC income otherwise reportable by such
holder. The REMIC Regulations currently in effect do not so provide. See
"Treatment of Certain Items of REMIC Income and Expense--Market Discount" below
regarding the basis of Mortgage Loans to the REMIC Pool and "Sale or Exchange of
a Residual Certificate" below regarding possible treatment of a loss upon
termination of the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Depositor intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Depositor makes no representation as to the
specific method that it will use for reporting income with respect to the
Mortgage Loans and expenses with respect to the Regular Certificates, and
different methods could result in different timing of reporting of taxable
income or net loss to Residual Certificateholders or differences in capital gain
versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount and income from amortization of issue
premium will be determined in the same manner as original issue discount income
on Regular Certificates as described above under "Taxation of Regular
Certificates--Original Issue Discount" and "--Variable Rate Regular
Certificates", without regard to the de minimis rule described therein, and
"--Premium".
Deferred Interest. Any Deferred Interest that accrues with respect to
any adjustable rate Mortgage Loans held by the REMIC Pool will constitute income
to the REMIC Pool and will be treated in a manner similar to the Deferred
Interest that accrues with respect to Regular Certificates as described above
under "Taxation of Regular Certificates--Deferred Interest".
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool allocable
to such Mortgage Loans is exceeded by their unpaid principal balances. The REMIC
Pool's basis in such Mortgage Loans is generally the fair market value of the
Mortgage Loans immediately after the transfer thereof to the REMIC Pool. The
REMIC Regulations provide that such basis is equal in the aggregate to the issue
prices of all regular and residual interests in the REMIC Pool (or the fair
market value thereof at the Closing Date, in the case of a retained Class). In
respect of Mortgage Loans that have market discount to which Code Section 1276
applies, the accrued portion of such market discount would be recognized
currently as an item of ordinary income in a manner similar to original issue
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discount. Market discount income generally should accrue in the manner described
above under "Taxation of Regular Certificates--Market Discount".
Premium. Generally, if the basis of the REMIC Pool in the Mortgage
Loans exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the amount
of such excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the
fair market value of the Mortgage Loans, based on the aggregate of the issue
prices (or the fair market value of retained Classes) of the regular and
residual interests in the REMIC Pool immediately after the transfer thereof to
the REMIC Pool. In a manner analogous to the discussion above under "Taxation of
Regular Certificates--Premium", a REMIC Pool that holds a Mortgage Loan as a
capital asset under Code Section 1221 may elect under Code Section 171 to
amortize premium on whole mortgage loans or mortgage loans underlying MBS that
were originated after September 27, 1985 or MBS that are REMIC regular interests
under the constant yield method. Amortizable bond premium will be treated as an
offset to interest income on the Mortgage Loans, rather than as a separate
deduction item. To the extent that the mortgagors with respect to the Mortgage
Loans are individuals, Code Section 171 will not be available for premium on
Mortgage Loans (including underlying mortgage loans) originated on or prior to
September 27, 1985. Premium with respect to such Mortgage Loans may be
deductible in accordance with a reasonable method regularly employed by the
holder thereof. The allocation of such premium pro rata among principal payments
should be considered a reasonable method; however, the Service may argue that
such premium should be allocated in a different manner, such as allocating such
premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
Except in the case of certain thrift institutions, a portion or all of
the REMIC taxable income includible in determining the federal income tax
liability of a Residual Certificateholder will be subject to special treatment.
That portion, referred to as the "excess inclusion", is equal to the excess of
REMIC taxable income for the calendar quarter allocable to a Residual
Certificate over the daily accruals for such quarterly period of (i) 120% of the
long-term applicable Federal rate that would have applied to the Residual
Certificate (if it were a debt instrument) on the Startup Day under Code Section
1274(d), multiplied by (ii) the adjusted issue price of such Residual
Certificate at the beginning of such quarterly period. For this purpose, the
adjusted issue price of a Residual Certificate at the beginning of a quarter is
the issue price of the Residual Certificate, plus the amount of such daily
accruals of REMIC income described in this paragraph for all prior quarters,
decreased by any distributions made with respect to such Residual Certificate
prior to the beginning of such quarterly period. Accordingly, the portion of the
REMIC Pool's taxable income that will be treated as excess inclusions will be a
larger portion of such income as the adjusted issue price of the Residual
Certificates diminishes.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the excess inclusions generally may not be offset by other
deductions, including net operating loss carryforwards, on such Residual
Certificateholder's return. Further, if the Residual Certificateholder is an
organization subject to the tax on unrelated business income imposed by Code
Section 511, the Residual Certificateholder's excess inclusions will be treated
as unrelated business taxable income of such Residual Certificateholder for
purposes of Code Section 511. In addition, REMIC taxable income is subject to
30% withholding tax with respect to certain persons who are not U.S. Persons (as
defined below under "Tax-Related Restrictions on Transfer of Residual
Certificates--Foreign Investors"), and the portion thereof attributable to
excess inclusions is not eligible for any reduction in the rate of withholding
tax (by treaty or otherwise). See "Taxation of Certain Foreign
Investors--Residual Certificates" below. Finally, if a real estate investment
trust or a regulated investment company owns a Residual Certificate, a portion
(allocated under Treasury regulations yet to be issued) of dividends paid by the
real estate investment trust or a regulated investment company could not be
offset by net operating losses of its shareholders, would constitute unrelated
business taxable income for tax-exempt shareholders, and would be ineligible for
reduction of withholding to certain persons who are not U.S. Persons.
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An exception to the inability of a Residual Certificateholder to offset
excess inclusions with unrelated deductions and net operating losses applies to
Code Section 593 institutions ("thrift institutions"). For purposes of applying
this rule, all members of an affiliated group filing a consolidated return are
treated as one taxpayer, except that thrift institutions to which Code Section
593 applies, together with their subsidiaries formed to issue REMICs, are
treated as separate corporations. Furthermore, the Code provides that
regulations may disallow the ability of a thrift institution to use deductions
to offset excess inclusions if necessary or appropriate to prevent the avoidance
of tax. A thrift institution may not so offset its excess inclusions unless the
Residual Certificates have "significant value", which requires that (i) the
Residual Certificates have an issue price that is at least equal to 2% of the
aggregate of the issue prices of all Residual Certificates and Regular
Certificates with respect to the REMIC Pool and (ii) the anticipated weighted
average life of the Residual Certificates is at least 20% of the anticipated
weighted average life of the REMIC Pool. The anticipated weighted average life
of the Residual Certificates is based on all distributions anticipated to be
received with respect thereto (using the Prepayment Assumption). The anticipated
weighted average life of the REMIC Pool is the aggregate weighted average life
of all classes of interests therein (computed using all anticipated
distributions on a regular interest with nominal or no principal). Finally, an
ordering rule under the REMIC Regulations provides that a thrift institution may
only offset its excess inclusion income with deductions after it has first
applied its deductions against income that is not excess inclusion income. If
applicable, the Prospectus Supplement with respect to a Series will set forth
whether the Residual Certificates are expected to have "significant value"
within the meaning of the REMIC Regulations.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
Federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such a tax generally would be imposed on the transferor of
the Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a Disqualified Organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. The tax also may be waived by the Treasury Department if the
Disqualified Organization promptly disposes of the residual interest and the
transferor pays income tax at the highest corporate rate on the excess
inclusions for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
corporate income tax rate. Such tax would be deductible from the ordinary gross
income of the Pass-Through Entity for the taxable year. The Pass-Through Entity
would not be liable for such tax if it has received an affidavit from such
record holder that it is not a Disqualified Organization or stating such
holder's taxpayer identification number and, during the period such person is
the record holder of the Residual Certificate, the Pass-Through Entity does not
have actual knowledge that such affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors is
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not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, and (ii) "Pass-Through
Entity" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations, any person holding an interest in a Pass-Through Entity as a
nominee for another will, with respect to such interest, be treated as a
Pass-Through Entity.
The Pooling Agreement with respect to a series of Certificates will
provide that no legal or beneficial interest in a Residual Certificate may be
transferred unless (i) the proposed transferee provides to the transferor and
the Trustee an affidavit providing its taxpayer identification number and
stating that such transferee is the beneficial owner of the Residual
Certificate, is not a Disqualified Organization and is not purchasing such
Residual Certificates on behalf of a Disqualified Organization (i.e., as a
broker, nominee or middleman thereof), and (ii) the transferor provides a
statement in writing to the Depositor and the Trustee that it has no actual
knowledge that such affidavit is false. Moreover, the Pooling Agreement will
provide that any attempted or purported transfer in violation of these transfer
restrictions will be null and void and will vest no rights in any purported
transferee. Each Residual Certificate with respect to a series will bear a
legend referring to such restrictions on transfer, and each Residual
Certificateholder will be deemed to have agreed, as a condition of ownership
thereof, to any amendments to the related Pooling Agreement required under the
Code or applicable Treasury regulations to effectuate the foregoing
restrictions. Information necessary to compute an applicable excise tax must be
furnished to the Service and to the requesting party within 60 days of the
request, and the Depositor or the Trustee may charge a fee for computing and
providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Certificateholder (other than a
Residual Certificateholder who is not a U.S. Person, as defined below under
"Foreign Investors") is disregarded for all federal income tax purposes if a
significant purpose of the transferor is to impede the assessment or collection
of tax. A residual interest in a REMIC (including a residual interest with a
positive value at issuance) is a "noneconomic residual interest" unless, at the
time of the transfer, (i) the present value of the expected future distributions
on the residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the REMIC
at or after the time at which taxes accrue on the anticipated excess inclusions
in an amount sufficient to satisfy the accrued taxes. The anticipated excess
inclusions and the present value rate are determined in the same manner as set
forth above under "Disqualified Organizations". The REMIC Regulations explain
that a significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation of
the financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts as
they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the noneconomic residual
interest, the transferee may incur tax liabilities in excess of cash flows
generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The Pooling
Agreement with respect to each series of Certificates will require the
transferee of a Residual Certificate to certify to the matters in the preceding
sentence as part of the affidavit described above under the heading
"Disqualified Organizations". The transferor must have no actual knowledge or
reason to know that such statements are false.
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Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC Pool at or after
the time at which the excess inclusions accrue and prior to the end of the next
succeeding taxable year for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Certificate back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The Prospectus Supplement relating to a series of Certificates may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust that is
subject to U.S.
federal income tax regardless of the source of its income.
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual
Certificateholder will recognize gain or loss equal to the excess, if any, of
the amount realized over the adjusted basis (as described above under "Taxation
of Residual Certificates--Basis and Losses") of such Residual Certificateholder
in such Residual Certificate at the time of the sale or exchange. In addition to
reporting the taxable income of the REMIC Pool, a Residual Certificateholder
will have taxable income to the extent that any cash distribution to it from the
REMIC Pool exceeds such adjusted basis on that Distribution Date. Such income
will be treated as gain from the sale or exchange of the Residual Certificate.
It is possible that the termination of the REMIC Pool may be treated as a sale
or exchange of a Residual Certificateholder's Residual Certificate, in which
case, if the Residual Certificateholder has an adjusted basis in such Residual
Certificateholder's Residual Certificate remaining when its interest in the
REMIC Pool terminates, and if such Residual Certificateholder holds such
Residual Certificate as a capital asset under Code Section 1221, then such
Residual Certificateholder will recognize a capital loss at that time in the
amount of such remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as
ordinary income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as a part of such transaction or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. In addition, gain or loss recognized from the sale of a
Residual Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except
as provided in Treasury regulations yet to be issued, the wash sale rules of
Code Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Section 1091) any residual interest in any
REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC owner
trust) that is economically comparable to a Residual Certificate.
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Mark to Market Regulations
Prospective purchasers of the Residual Certificates should also be
aware that on January 3, 1995, the Service released proposed regulations (the
"Proposed Mark to Market Regulations") under Code Section 475 relating to the
requirement that a securities dealer mark to market securities held for sale to
customers. This mark-to-market requirement applies to all securities of a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Proposed Mark to Market Regulations provide
that, for purposes of this mark-to-market requirement, a Residual Certificate is
not treated as a security and thus may not be marked to market. The Proposed
Mark to Market Regulations would apply to all Residual Certificates acquired on
or after January 4, 1995.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Certificateholders, but rather
will be taxed directly to the REMIC Pool at a 100% rate. Prohibited transactions
generally include (i) the disposition of a qualified mortgage other than for (a)
substitution within two years of the Startup Day for a defective (including a
defaulted) obligation (or repurchase in lieu of substitution of a defective
(including a defaulted) obligation at any time) or for any qualified mortgage
within three months of the Startup Day, (b) foreclosure, default or imminent
default of a qualified mortgage, (c) bankruptcy or insolvency of the REMIC Pool
or (d) a qualified (complete) liquidation, (ii) the receipt of income from
assets that are not the type of mortgages or investments that the REMIC Pool is
permitted to hold, (iii) the receipt of compensation for services or (iv) the
receipt of gain from disposition of cash flow investments other than pursuant to
a qualified liquidation. Notwithstanding (i) and (iv), it is not a prohibited
transaction to sell REMIC Pool property to prevent a default on Regular
Certificates as a result of a default on qualified mortgages or to facilitate a
clean-up call (generally, an optional termination to save administrative costs
when no more than a small percentage of the Certificates is outstanding). The
REMIC Regulations indicate that the modification of a Mortgage Loan generally
will not be treated as a disposition if it is occasioned by a default or
reasonably foreseeable default, an assumption of the Mortgage Loan, the waiver
of a due-on-sale or due-on-encumbrance clause or the conversion of an interest
rate by a mortgagor pursuant to the terms of a convertible adjustable rate
Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on
the value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during the
three months following the Startup Day, (ii) made to a qualified reserve fund by
a Residual Certificateholder, (iii) in the nature of a guarantee, (iv) made to
facilitate a qualified liquidation or clean-up call and (v) as otherwise
permitted in Treasury regulations yet to be issued.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property", determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period of two years, with possible extensions. Net
income from foreclosure property generally means gain from the sale of a
foreclosure property that is inventory property and gross income from
foreclosure property other than qualifying rents and other qualifying income for
a real estate investment trust.
It is not anticipated that the REMIC Pool will receive income or
contributions subject to tax under the preceding three paragraphs, except as
described in the applicable Prospectus Supplement with respect to net income
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from foreclosure property on a commercial or multifamily residential property
that secured a Mortgage Loan. In addition, unless otherwise disclosed in the
applicable Prospectus Supplement, it is not anticipated that any material state
income or franchise tax will be imposed on a REMIC Pool.
Liquidation of the REMIC Pool
If a REMIC Pool adopts a plan of complete liquidation, within the
meaning of Code Section 860F(a)(4)(A)(i), which may be accomplished by
designating in the REMIC Pool's final tax return a date on which such adoption
is deemed to occur, and sells all of its assets (other than cash) within a
90-day period beginning on the date of the adoption of the plan of liquidation,
the REMIC Pool will not be subject to the prohibited transaction rules on the
sale of its assets, provided that the REMIC Pool credits or distributes in
liquidation all of the sale proceeds plus its cash (other than amounts retained
to meet claims) to holders of Regular Certificates and Residual
Certificateholders within the 90-day period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar
year basis and to file federal income tax returns for federal income tax
purposes in a manner similar to a partnership. The form for such income tax
return is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return. The Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual
Certificateholder for an entire taxable year, the REMIC Pool will be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination by the Service of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction or credit in a unified
administrative proceeding. The Residual Certificateholder owning the largest
percentage interest in the Residual Certificates will be obligated to act as
"tax matters person", as defined in applicable Treasury regulations, with
respect to the REMIC Pool. Each Residual Certificateholder will be deemed, by
acceptance of such Residual Certificates, to have agreed (i) to the appointment
of the tax matters person as provided in the preceding sentence and (ii) to the
irrevocable designation of the Master Servicer as agent for performing the
functions of the tax matters person.
Limitations on Deduction of Certain Expenses
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not exceed
2% of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $100,000 ($50,000 in the case of a married
individual filing a separate return) (subject to adjustments for inflation) or
(ii) 80% of the amount of itemized deductions otherwise allowable for such year.
In the case of a REMIC Pool, such deductions may include deductions under Code
Section 212 for the servicing fee and all administrative and other expenses
relating to the REMIC Pool, or any similar expenses allocated to the REMIC Pool
with respect to a regular interest it holds in another REMIC. Such investors who
hold REMIC Certificates either directly or indirectly through certain
pass-through entities may have their pro rata share of such expenses allocated
to them as additional gross income, but may be subject to such limitation on
deductions. In addition, such expenses are not deductible at all for purposes of
computing the alternative minimum tax, and may cause such investors to be
subject to significant additional tax liability. Temporary Treasury regulations
provide that the additional gross income and corresponding amount of expenses
generally are to be allocated entirely to the holders of Residual Certificates
in the case of a REMIC Pool that would not qualify as a fixed investment trust
in the absence of a REMIC election. However, such additional gross income and
limitation on deductions will apply to the allocable portion of such expenses to
holders of Regular Certificates, as well as holders of Residual Certificates,
where such Regular Certificates are issued in a manner that is similar to
pass-through certificates in a fixed investment trust. In general, such
allocable portion will be determined based on the ratio that a REMIC
Certificateholder's income, determined on a daily basis, bears to the income of
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all holders of Regular Certificates and Residual Certificates with respect to a
REMIC Pool. As a result, individuals, estates or trusts holding REMIC
Certificates (either directly or indirectly through a grantor trust,
partnership, S corporation, REMIC, or certain other pass-through entities
described in the foregoing temporary Treasury regulations) may have taxable
income in excess of the interest income at the pass-through rate on Regular
Certificates that are issued in a single Class or otherwise consistently with
fixed investment trust status or in excess of cash distributions for the related
period on Residual Certificates. Unless otherwise indicated in the applicable
Prospectus Supplement, all such expenses will be allocable to the Residual
Certificates.
Taxation of Certain Foreign Investors
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) and (ii) provides the
Trustee, or the person who would otherwise be required to withhold tax from such
distributions under Code Section 1441 or 1442, with an appropriate statement,
signed under penalties of perjury, identifying the beneficial owner and stating,
among other things, that the beneficial owner of the Regular Certificate is a
Non-U.S. Person. If such statement, or any other required statement, is not
provided, 30% withholding will apply unless reduced or eliminated pursuant to an
applicable tax treaty or unless the interest on the Regular Certificate is
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Person. In the latter case, such Non-U.S. Person will be
subject to United States federal income tax at regular rates. Prepayment
Premiums distributable to Regular Certificateholders who are Non-U.S. Persons
may be subject to 30% United States withholding tax. Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a Regular Certificate. The term "Non-U.S. Person"
means any person who is not a U.S. Person.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts
paid to Residual Certificateholders who are Non-U.S. Persons are treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Certificateholders may qualify as "portfolio interest", subject to the
conditions described in "Regular Certificates" above, but only to the extent
that (i) the Mortgage Loans (including mortgage loans underlying MBS) were
issued after July 18, 1984 and (ii) the Trust Fund or segregated pool of assets
therein (as to which a separate REMIC election will be made), to which the
Residual Certificate relates, consists of obligations issued in "registered
form" within the meaning of Code Section 163(f)(1). Generally, whole mortgage
loans will not be, but MBS and regular interests in another REMIC Pool will be,
considered obligations issued in registered form. Furthermore, a Residual
Certificateholder will not be entitled to any exemption from the 30% withholding
tax (or lower treaty rate) to the extent of that portion of REMIC taxable income
that constitutes an "excess inclusion". See "Taxation of Residual
Certificates--Limitations on Offset or Exemption of REMIC Income". If the
amounts paid to Residual Certificateholders who are Non-U.S. Persons are
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Persons, 30% (or lower treaty rate) withholding will not
apply. Instead, the amounts paid to such Non-U.S. Persons will be subject to
United States federal income tax at regular rates. If 30% (or lower treaty rate)
withholding is applicable, such amounts generally will be taken into account for
purposes of withholding only when paid or otherwise distributed (or when the
Residual Certificate is disposed of) under rules similar to withholding upon
disposition of debt instruments that have original issue discount. See
"Tax-Related Restrictions on Transfer of Residual Certificates--Foreign
Investors" above concerning the disregard of certain transfers having "tax
avoidance potential". Investors who are Non-U.S. Persons should consult their
own tax advisors regarding the specific tax consequences to them of owning
Residual Certificates.
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Backup Withholding
Distributions made on the Regular Certificates, and proceeds from the
sale of the Regular Certificates to or through certain brokers, may be subject
to a "backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and, under
certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to the
Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from distribution
on the Regular Certificates would be refunded by the Service or allowed as a
credit against the Regular Certificateholder's federal income tax liability.
Reporting Requirements
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of any market discount on the Regular
Certificates will be made annually to the Service and to individuals, estates,
non-exempt and non-charitable trusts, and partnerships who are either holders of
record of Regular Certificates or beneficial owners who own Regular Certificates
through a broker or middleman as nominee. All brokers, nominees and all other
non-exempt holders of record of Regular Certificates (including corporations,
non-calendar year taxpayers, securities or commodities dealers, real estate
investment trusts, investment companies, common trust funds, thrift institutions
and charitable trusts) may request such information for any calendar quarter by
telephone or in writing by contacting the person designated in Service
Publication 938 with respect to a particular series of Regular Certificates.
Holders through nominees must request such information from the nominee.
The Service's Form 1066 has an accompanying Schedule Q, Quarterly
Notice to Residual Interest Holders of REMIC Taxable Income or Net Loss
Allocation. Treasury regulations require that Schedule Q be furnished by the
REMIC Pool to each Residual Certificateholder by the end of the month following
the close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable to
such holders. Furthermore, under such regulations, information must be furnished
quarterly to Residual Certificateholders, furnished annually to holders of
Regular Certificates, and filed annually with the Service concerning the
percentage of the REMIC Pool's assets meeting the qualified asset tests
described above under "Status of REMIC Certificates".
Federal Income Tax Consequences For Certificates as
to Which No Remic Election Is Made
Standard Certificates
General
In the event that no election is made to treat a Trust Fund (or a
segregated pool of assets therein) with respect to a series of Certificates that
are not designated as "Stripped Certificates", as described below, as a REMIC
(Certificates of such a series hereinafter referred to as "Standard
Certificates"), the Trust Fund will be classified as a grantor trust under
subpart E, Part 1 of subchapter J of the Code and not as an association taxable
as a corporation or a "taxable mortgage pool" within the meaning of Code Section
7701(i). Where there is no fixed retained yield with respect to the Mortgage
Loans underlying the Standard Certificates, the holder of each such Standard
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Certificate (a "Standard Certificateholder") in such series will be treated as
the owner of a pro rata undivided interest in the ordinary income and corpus
portions of the Trust Fund represented by its Standard Certificate and will be
considered the beneficial owner of a pro rata undivided interest in each of the
Mortgage Loans, subject to the discussion below under "Recharacterization of
Servicing Fees". Accordingly, the holder of a Standard Certificate of a
particular series will be required to report on its federal income tax return
its pro rata share of the entire income from the Mortgage Loans represented by
its Standard Certificate, including interest at the coupon rate on such Mortgage
Loans, original issue discount (if any), prepayment fees, assumption fees, and
late payment charges received by the Master Servicer, in accordance with such
Standard Certificateholder's method of accounting. A Standard Certificateholder
generally will be able to deduct its share of the servicing fee and all
administrative and other expenses of the Trust Fund in accordance with its
method of accounting, provided that such amounts are reasonable compensation for
services rendered to that Trust Fund. However, investors who are individuals,
estates or trusts who own Standard Certificates, either directly or indirectly
through certain pass-through entities, will be subject to limitation with
respect to certain itemized deductions described in Code Section 67, including
deductions under Code Section 212 for the servicing fee and all such
administrative and other expenses of the Trust Fund, to the extent that such
deductions, in the aggregate, do not exceed two percent of an investor's
adjusted gross income. In addition, Code Section 68 provides that itemized
deductions otherwise allowable for a taxable year of an individual taxpayer will
be reduced by the lesser of (i) 3% of the excess, if any, of adjusted gross
income over $100,000 ($50,000 in the case of a married individual filing a
separate return) (subject to adjustments for inflation), or (ii) 80% of the
amount of itemized deductions otherwise allowable for such year. As a result,
such investors holding Standard Certificates, directly or indirectly through a
pass-through entity, may have aggregate taxable income in excess of the
aggregate amount of cash received on such Standard Certificates with respect to
interest at the pass-through rate on such Standard Certificates. In addition,
such expenses are not deductible at all for purposes of computing the
alternative minimum tax, and may cause such investors to be subject to
significant additional tax liability. Moreover, where there is fixed retained
yield with respect to the Mortgage Loans underlying a series of Standard
Certificates or where the servicing fee is in excess of reasonable servicing
compensation, the transaction will be subject to the application of the
"stripped bond" and "stripped coupon" rules of the Code, as described below
under "Stripped Certificates" and "Recharacterization of Servicing Fees",
respectively.
Tax Status
Standard Certificates will have the following status for federal income
tax purposes:
1. A Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be considered
to represent "loans secured by an interest in real property" within the meaning
of Code Section 7701(a)(19)(C)(v), provided that the real property securing the
Mortgage Loans represented by that Standard Certificate is of the type described
in such section of the Code.
2. A Standard Certificate owned by a financial institution described in
Code Section 593(a) will be considered to represent "qualifying real property
loans" within the meaning of Code Section 593(d)(1), provided that the real
property securing the Mortgage Loans represented by that Standard Certificate is
of the type described in such section of the Code.
3. A Standard Certificate owned by a real estate investment trust will
be considered to represent "real estate assets" within the meaning of Code
Section 856(c)(5)(A) to the extent that the assets of the related Trust Fund
consist of qualified assets, and interest income on such assets will be
considered "interest on obligations secured by mortgages on real property" to
such extent within the meaning of Code Section 856(c)(3)(B).
4. A Standard Certificate owned by a REMIC will be considered to
represent an "obligation. . . which is principally secured by an interest in
real property" within the meaning of Code Section 860G(a)(3)(A) to the extent
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that the assets of the related Trust Fund consist of "qualified mortgages"
within the meaning of Code Section 860G(a)(3).
Premium and Discount
Standard Certificateholders are advised to consult with their tax
advisors as to the federal income tax treatment of premium and discount arising
either upon initial acquisition of Standard Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a
Standard Certificate will be determined generally as described above under
"Certain Federal Income Tax Consequences for REMIC Certificates--Taxation of
Residual Certificates--Treatment of Certain Items of REMIC Income and
Expense--Premium".
Original Issue Discount. The original issue discount rules will be
applicable to a Standard Certificateholder's interest in those Mortgage Loans as
to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount income are applicable to
mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgages in an amount greater than a statutory de
minimis exception, including a payment of points currently deductible by the
borrower under applicable Code provisions or, under certain circumstances, by
the presence of "teaser rates" on the Mortgage Loans.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation that acquires the
obligation after its initial issuance at a price greater than the sum of the
original issue price and the previously accrued original issue discount, less
prior payments of principal. Accordingly, if such Mortgage Loans acquired by a
Standard Certificateholder are purchased at a price equal to the then unpaid
principal amount of such Mortgage Loans, no original issue discount attributable
to the difference between the issue price and the original principal amount of
such Mortgage Loans (i.e., points) will be includible by such holder.
Market Discount. Standard Certificateholders also will be subject to
the market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the Mortgage Loans will be determined
and will be reported as ordinary income generally in the manner described above
under "Certain Federal Income Tax Consequences for REMIC Certificates--Taxation
of Regular Certificates--Market Discount", except that the ratable accrual
methods described therein will not apply and it is unclear whether a Prepayment
Assumption would apply. Rather, the holder will accrue market discount pro rata
over the life of the Mortgage Loans, unless the constant yield method is
elected. Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual.
Recharacterization of Servicing Fees
If the servicing fee paid to the Master Servicer were deemed to exceed
reasonable servicing compensation, the amount of such excess would represent
neither income nor a deduction to Certificateholders. In this regard, there are
no authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether, in the case of the
Standard Certificate, the reasonableness of servicing compensation should be
determined on a weighted average or loan-by-loan basis. If a loan-by-loan basis
is appropriate, the likelihood that such amount would exceed reasonable
servicing compensation as to some of the Mortgage Loans would be increased.
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Service guidance indicates that a servicing fee in excess of reasonable
compensation ("excess servicing") will cause the Mortgage Loans to be treated
under the "stripped bond" rules. Such guidance provides safe harbors for
servicing deemed to be reasonable and requires taxpayers to demonstrate that the
value of servicing fees in excess of such amounts is not greater than the value
of the services provided.
Accordingly, if the Service's approach is upheld, a servicer who
receives a servicing fee in excess of such amounts would be viewed as retaining
an ownership interest in a portion of the interest payments on the Mortgage
Loans. Under the rules of Code Section 1286, the separation of ownership of the
right to receive some or all of the interest payments on an obligation from the
right to receive some or all of the principal payments on the obligation would
result in treatment of such Mortgage Loans as "stripped coupons" and "stripped
bonds". Subject to the de minimis rule discussed below under "--Stripped
Certificates", each stripped bond or stripped coupon could be considered for
this purpose as a non-interest bearing obligation issued on the date of issue of
the Standard Certificates, and the original issue discount rules of the Code
would apply to the holder thereof. While Standard Certificateholders would still
be treated as owners of beneficial interests in a grantor trust for federal
income tax purposes, the corpus of such trust could be viewed as excluding the
portion of the Mortgage Loans the ownership of which is attributed to the Master
Servicer, or as including such portion as a second class of equitable interest.
Applicable Treasury regulations treat such an arrangement as a fixed investment
trust, since the multiple classes of trust interests should be treated as merely
facilitating direct investments in the trust assets and the existence of
multiple classes of ownership interests is incidental to that purpose. In
general, such a recharacterization should not have any significant effect upon
the timing or amount of income reported by a Standard Certificateholder, except
that the income reported by a cash method holder may be slightly accelerated.
See "Stripped Certificates" below for a further description of the federal
income tax treatment of stripped bonds and stripped coupons.
Sale or Exchange of Standard Certificates
Upon sale or exchange of a Standard Certificate, a Standard
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its aggregate adjusted basis in the Mortgage
Loans and the other assets represented by the Standard Certificate. In general,
the aggregate adjusted basis will equal the Standard Certificateholder's cost
for the Standard Certificate, increased by the amount of any income previously
reported with respect to the Standard Certificate and decreased by the amount of
any losses previously reported with respect to the Standard Certificate and the
amount of any distributions received thereon. Except as provided above with
respect to market discount on any Mortgage Loans, and except for certain
financial institutions subject to the provisions of Code Section 582(c), any
such gain or loss would be capital gain or loss if the Standard Certificate was
held as a capital asset. However, gain on the sale of a Standard Certificate
will be treated as ordinary income (i) if a Standard Certificate is held as part
of a "conversion transaction" as defined in Code Section 1258(c), up to the
amount of interest that would have accrued on the Standard Certificateholder's
net investment in the conversion transaction at 120% of the appropriate
applicable Federal rate in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as a part of such transaction
or (ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. Capital gains of certain
non-corporate taxpayers are subject to a lower maximum tax rate than ordinary
income of such taxpayers. The maximum tax rate for corporations is the same with
respect to both ordinary income and capital gains.
Stripped Certificates
General
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
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Certificates". Stripped Certificates include "Stripped Interest Certificates"
and "Stripped Principal Certificates" (as defined in this Prospectus) as to
which no REMIC election is made.
The Certificates will be subject to those rules if (i) the Depositor or
any of its affiliates retains (for its own account or for purposes of resale),
in the form of fixed retained yield or otherwise, an ownership interest in a
portion of the payments on the Mortgage Loans, (ii) the Master Servicer is
treated as having an ownership interest in the Mortgage Loans to the extent it
is paid (or retains) servicing compensation in an amount greater than reasonable
consideration for servicing the Mortgage Loans (see "Standard
Certificates--Recharacterization of Servicing Fees" above) and (iii)
Certificates are issued in two or more classes or subclasses representing the
right to non-pro-rata percentages of the interest and principal payments on the
Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to
own "stripped bonds" with respect to its pro rata share of all or a portion of
the principal payments on each Mortgage Loan and/or "stripped coupons" with
respect to its pro rata share of all or a portion of the interest payments on
each Mortgage Loan, including the Stripped Certificate's allocable share of the
servicing fees paid to the Master Servicer, to the extent that such fees
represent reasonable compensation for services rendered. See discussion above
under "Standard Certificates--Recharacterization of Servicing Fees". Although
not free from doubt, for purposes of reporting to Stripped Certificateholders,
the servicing fees will be allocated to the Stripped Certificates in proportion
to the respective entitlements to distributions of each class (or subclass) of
Stripped Certificates for the related period or periods. The holder of a
Stripped Certificate generally will be entitled to a deduction each year in
respect of the servicing fees, as described above under "Standard
Certificates--General", subject to the limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued at an original issue discount on the date that such stripped
interest is purchased. Although the treatment of Stripped Certificates for
federal income tax purposes is not clear in certain respects at this time,
particularly where such Stripped Certificates are issued with respect to a
Mortgage Pool containing variable-rate Mortgage Loans, the Depositor has been
advised by counsel that (i) the Trust Fund will be treated as a grantor trust
under subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of Code
Section 7701(i), and (ii) each Stripped Certificate should be treated as a
single installment obligation for purposes of calculating original issue
discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and the
OID Regulations. While under Code Section 1286 computations with respect to
Stripped Certificates arguably should be made in one of the ways described below
under "Taxation of Stripped Certificates--Possible Alternative
Characterizations," the OID Regulations state, in general, that two or more debt
instruments issued by a single issuer to a single investor in a single
transaction should be treated as a single debt instrument for original issue
discount purposes. The Pooling Agreement requires that the Trustee make and
report all computations described below using this aggregate approach, unless
substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for
the treatment of a Stripped Certificate as a single debt instrument issued on
the date it is purchased for purposes of calculating any original issue
discount. In addition, under these regulations, a Stripped Certificate that
represents a right to payments of both interest and principal may be viewed
either as issued with original issue discount or market discount (as described
below), at a de minimis original issue discount, or, presumably, at a premium.
This treatment suggests that the interest component of such a Stripped
Certificate would be treated as qualified stated interest under the OID
Regulations. Further, these final regulations provide that the purchaser of such
a Stripped Certificate will be required to account for any discount as market
discount rather than original issue discount if either (i) the initial discount
with respect to the Stripped Certificate was treated as zero under the de
minimis rule, or (ii) no more than 100 basis points in excess of reasonable
servicing is stripped off the related Mortgage Loans. Any such market discount
would be reportable as described under "Certain Federal Income Tax Consequences
for REMIC Certificates--Taxation of Regular Certificates--Market Discount,"
without regard to the de minimis rule therein, assuming that a prepayment
assumption is employed in such computation.
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Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as that
of the Mortgage Loans. Although the issue is not free from doubt, counsel has
advised the Depositor that Stripped Certificates owned by applicable holders
should be considered to represent "qualifying real property loans" within the
meaning of Code Section 593(d)(1), "real estate assets" within the meaning of
Code Section 856(c)(5)(A), "obligation[s] principally secured by an interest in
real property" within the meaning of Code Section 860G(a)(3)(A), and "loans
secured by an interest in real property" within the meaning of Code Section
7701(a)(19)(C)(v), and interest (including original issue discount) income
attributable to Stripped Certificates should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), provided that in each case the Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "General",
each Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into account
the compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the 1986
Act, the amount of original issue discount required to be included in the income
of a holder of a Stripped Certificate (referred to in this discussion as a
"Stripped Certificateholder") in any taxable year likely will be computed
generally as described above under "Certain Federal Income Tax Consequences for
REMIC Certificates--Taxation of Regular Certificates--Original Issue Discount"
and "--Variable Rate Regular Certificates". However, with the apparent exception
of a Stripped Certificate issued with de minimis original issue discount as
described above under "General", the issue price of a Stripped Certificate will
be the purchase price paid by each holder thereof, and the stated redemption
price at maturity will include the aggregate amount of the payments to be made
on the Stripped Certificate to such Stripped Certificateholder, presumably under
the Prepayment Assumption.
If the Mortgage Loans prepay at a rate either faster or slower than
that under the Prepayment Assumption, a Stripped Certificateholder's recognition
of original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each Mortgage
Loan represented by such Stripped Certificateholder's Stripped Certificate.
While the matter is not free from doubt, the holder of a Stripped Certificate
should be entitled in the year that it becomes certain (assuming no further
prepayments) that the holder will not recover a portion of its adjusted basis in
such Stripped Certificate to recognize an ordinary loss equal to such portion of
unrecoverable basis.
As an alternative to the method described above, the fact that some or
all of the interest payments with respect to the Stripped Certificates will not
be made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations and the Proposed OID Regulations. The Proposed OID Regulations, as
they relate to the treatment of contingent interest, are by their terms not
applicable to prepayable securities such as the Stripped Certificates. However,
if future Treasury regulations dealing with contingent interest with respect to
the Stripped Certificates apply the same principles as the Proposed OID
Regulations, such regulations may lead to different timing of income inclusion
that would be the case under the OID Regulations. Furthermore, application of
such principles could lead to the characterization of gain on the sale of
contingent interest Stripped Certificates as ordinary income. Investors should
consult their tax advisors regarding the appropriate tax treatment of Stripped
Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a
Stripped Certificate prior to its maturity will result in gain or loss equal to
the difference, if any, between the amount received and the Stripped
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Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Certain Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Sale or Exchange of Regular
Certificates". To the extent that a subsequent purchaser's purchase price is
exceeded by the remaining payments on the Stripped Certificates, such subsequent
purchaser will be required for federal income tax purposes to accrue and report
such excess as if it were original issue discount in the manner described above.
It is not clear for this purpose whether the assumed prepayment rate that is to
be used in the case of a Stripped Certificateholder other than an original
Stripped Certificateholder should be the Prepayment Assumption or a new rate
based on the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is currently
unclear whether for federal income tax purposes such classes of Stripped
Certificates should be treated separately or aggregated for purposes of the
rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible interpretations
of the applicable Code provisions. For example, the Stripped Certificateholder
may be treated as the owner of (i) one installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to principal
on each Mortgage Loan and a second installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to interest
on each Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there
are scheduled payments of principal and/or interest on each Mortgage Loan or
(iii) a separate installment obligation for each Mortgage Loan, representing the
Stripped Certificate's pro rata share of payments of principal and/or interest
to be made with respect thereto. Alternatively, the holder of one or more
classes of Stripped Certificates may be treated as the owner of a pro rata
fractional undivided interest in each Mortgage Loan to the extent that such
Stripped Certificate, or classes of Stripped Certificates in the aggregate,
represent the same pro rata portion of principal and interest on each such
Mortgage Loan, and a stripped bond or stripped coupon (as the case may be),
treated as an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they are
premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for aggregating
stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
Reporting Requirements and Backup Withholding
The Trustee will furnish, within a reasonable time after the end of
each calendar year, to each Standard Certificateholder or Stripped
Certificateholder at any time during such year, such information (prepared on
the basis described above) as the Trustee deems to be necessary or desirable to
enable such Certificateholders to prepare their federal income tax returns. Such
information will include the amount of original issue discount accrued on
Certificates held by persons other than Certificateholders exempted from the
reporting requirements. The amounts required to be reported by the Trustee may
not be equal to the proper amount of original issue discount required to be
reported as taxable income by a Certificateholder, other than an original
Certificateholder that purchased at the issue price. In particular, in the case
of Stripped Certificates, unless provided otherwise in the applicable Prospectus
Supplement, such reporting will be based upon a representative initial offering
price of each class of Stripped Certificates. The Trustee will also file such
original issue discount information with the Service. If a Certificateholder
fails to supply an accurate taxpayer identification number or if the Secretary
of the Treasury determines that a Certificateholder has not reported all
interest and dividend income required to be shown on his federal income tax
return, 31% backup withholding may be required in respect of any reportable
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payments, as described above under "Certain Federal Income Tax Consequences for
REMIC Certificates--Backup Withholding".
Taxation of Certain Foreign Investors
To the extent that a Certificate evidences ownership in Mortgage Loans
that are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other Non-U.S. Persons generally
will be subject to 30% United States withholding tax, or such lower rate as may
be provided for interest by an applicable tax treaty. Accrued original issue
discount recognized by the Standard Certificateholder or Stripped
Certificateholder on original issue discount recognized by the Standard
Certificateholder or Stripped Certificateholders on the sale or exchange of such
a Certificate also will be subject to federal income tax at the same rate.
Treasury regulations provide that interest or original issue discount
paid by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements, described above under "Certain
Federal Income Tax Consequences for REMIC Certificates--Taxation of Certain
Foreign Investors--Regular Certificates".
STATE AND OTHER TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences", potential investors should consider
the state and local tax consequences of the acquisition, ownership, and
disposition of the Offered Certificates. State tax law may differ substantially
from the corresponding federal law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Offered
Certificates.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on employee benefit plans,
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans, collective investment funds,
insurance company and separate accounts and some insurance company general
accounts in which such plans, accounts or arrangements are invested that are
subject to the fiduciary responsibility provisions of ERISA and Section 4975 of
the Code (all of which are hereinafter referred to as "Plans"), and on persons
who are fiduciaries with respect to Plans, in connection with the investment of
Plan assets. Certain employee benefit plans, such as governmental plans (as
defined in ERISA Section 3(32)), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA) are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in Offered Certificates without regard to the ERISA considerations described
below, subject to the provisions of other applicable federal and state law. Any
such plan which is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, ERISA and the Code prohibit a broad range of
transactions involving assets of a Plan and persons ("Parties in Interest") who
have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code, unless a statutory or administrative
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exemption is available. These prohibited transactions generally are set forth in
Section 406 of ERISA and Section 4975 of the Code. Special caution should be
exercised before the assets of a Plan are used to purchase a Certificate if,
with respect to such assets, the Depositor, the Master Servicer or the Trustee
or an affiliate thereof, either: (a) has investment discretion with respect to
the investment of such assets of such Plan; or (b) has authority or
responsibility to give, or regularly gives investment advice with respect to
such assets for a fee and pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
such assets and that such advice will be based on the particular investment
needs of the Plan.
Before purchasing any Offered Certificates, a Plan fiduciary should
consult with its counsel and determine whether there exists any prohibition to
such purchase under the requirements of ERISA, whether any prohibited
transaction class-exemption or any individual administrative prohibited
transaction exemption (as described below) applies, including whether the
appropriate conditions set forth therein would be met, or whether any statutory
prohibited transaction exemption is applicable, and further should consult the
applicable Prospectus Supplement relating to such Series of Certificates.
Plan Asset Regulations
A Plan's investment in Certificates may cause the Trust Assets to be
deemed Plan assets. Section 2510.3-101 of the regulations of the United States
Department of Labor ("DOL") provides that when a Plan acquires an equity
interest in an entity, the Plan's assets include both such equity interest and
an undivided interest in each of the underlying assets of the entity, unless
certain exceptions not applicable to this discussion apply, or unless the equity
participation in the entity by "benefit plan investors" (that is, Plans and
certain employee benefit plans not subject to ERISA) is not "significant". For
this purpose, in general, equity participation in a Trust Fund will be
"significant" on any date if, immediately after the most recent acquisition of
any Certificate, 25% or more of any class of Certificates is held by benefit
plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Trust Assets constitute Plan assets, then any party exercising
management or discretionary control regarding those assets, such as a Master
Servicer, a Special Servicer or any Sub-Servicer, may be deemed to be a Plan
"fiduciary" with respect to the investing Plan, and thus subject to the
fiduciary responsibility provisions and prohibited transaction provisions of
ERISA and the Code. In addition, if the Trust Assets constitute Plan assets, the
purchase of Certificates by a Plan, as well as the operation of the Trust Fund,
may constitute or involve a prohibited transaction under ERISA and the Code.
Administrative Exemptions
Several underwriters of mortgage-backed securities have applied for and
obtained individual administrative ERISA prohibited transaction exemptions which
can only apply to the purchase and holding of mortgage-backed securities which,
among other conditions, are sold in an offering with respect to which such
underwriter serves as the sole or a managing underwriter, or as a selling or
placement agent. If such an exemption might be applicable to a Series of
Certificates, the related Prospectus Supplement will refer to such possibility,
as well as provide a summary of the conditions to the applicability.
Unrelated Business Taxable Income; Residual Certificates
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code Section
501(a), including most varieties of ERISA Plans, may give rise to "unrelated
business taxable income" as described in Code Sections 511-515 and 860E.
Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a "Disqualified
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Organization," which term as defined above includes certain tax-exempt entities
not subject to Code Section 511 including certain governmental plans, as
discussed above under the caption "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Residual Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations."
Due to the complexity of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is particularly important that
potential investors who are Plan fiduciaries consult with their counsel
regarding the consequences under ERISA of their acquisition and ownership of
Certificates.
The sale of Certificates to an employee benefit plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by plans generally
or by any particular plan, or that this investment is appropriate for plans
generally or for any particular plan.
LEGAL INVESTMENT
The Offered Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
only if so specified in the related Prospectus Supplement. Accordingly,
investors whose investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to what extent the
Offered Certificates constitute legal investments for them.
Generally, only classes of Offered Certificates that (i) are rated in
one of the two highest rating categories by one or more Rating Agencies and (ii)
are part of a series evidencing interests in a Trust Fund consisting of loans
secured by a single parcel of real estate upon which is located a dwelling or
mixed residential and commercial structure, such as certain Multifamily Loans,
and originated by types of Originators specified in SMMEA, will be "mortgage
related securities" for purposes of SMMEA. As "mortgage related securities,"
such classes will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, insurance companies and pension funds)
created pursuant to or existing under the laws of the United States or of any
state (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. Under SMMEA, a number of states enacted
legislation on or prior to the October 3, 1991 cut-off for such enactments
limiting 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
Offered Certificates qualifying as "mortgage related securities" 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 in
"mortgage related securities" without limitation as to the percentage of their
assets represented thereby, federal credit unions may invest in such securities,
and national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. Section 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 NCUA Letter to Credit
Unions No. 96, as modified by Letter to Credit Unions No. 108, which includes
guidelines to assist federal credit unions in making investment decisions for
mortgage related securities. The NCUA has adopted rules, codified as 12 C.F.R.
Section 703.5(f)-(k), which prohibit federal credit unions from investing in
certain mortgage related securities (including securities such as certain
classes of the Offered Certificates), except under limited circumstances.
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All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as revised April 15, 1994 (the "Policy
Statement") of the Federal Financial Institutions Examination Council. The
Policy Statement, which has been adopted by the Federal Reserve Board, the
Office of the Comptroller of the Currency, the FDIC and the OTS, and by the NCUA
(with certain modifications), prohibits depository institutions from investing
in certain "high-risk mortgage securities" (including securities such as certain
classes of the Offered Certificates), except under limited circumstances, and
sets forth certain investment practices deemed to be unsuitable for regulated
institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any class of the
Offered Certificates, as certain classes may be deemed unsuitable investments,
or may otherwise be restricted, under such rules, policies or guidelines (in
certain instances irrespective of SMMEA).
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, with regard to any class of the Offered
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain classes of Offered Certificates as
"mortgage related securities," no representations are made as to the proper
characterization of any class of Offered Certificates for legal investment
purposes, financial institution regulatory purposes, or other purposes, or as to
the ability of particular investors to purchase any class of Offered
Certificates under applicable legal investment restrictions. These uncertainties
(and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Offered Certificates)
may adversely affect the liquidity of any class of Offered Certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions.
METHOD OF DISTRIBUTION
The Offered Certificates offered hereby and by Prospectus Supplements
hereto will be offered in series through one or more of the methods described
below. The Prospectus Supplement prepared for each series will describe the
method of offering being utilized for that series and will state the net
proceeds to the Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of a
particular series of Certificates may be made through a combination of two or
more of these methods. Such methods are as follows:
1. by negotiated firm commitment underwriting and public
offering by one or more underwriters specified in the related
Prospectus Supplement;
2. by placements through one or more placement agents
specified in the related Prospectus Supplement primarily with
institutional investors and dealers; and
3. through direct offerings by the Depositor.
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If underwriters are used in a sale of any Offered Certificates (other
than in connection with an underwriting on a best efforts basis), such
Certificates will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of a particular series of Certificates will be set
forth in the cover of the Prospectus Supplement relating to such series and the
members of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Offered Certificates, underwriters
may receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with such Offered Certificates, and any
discounts or commissions received by them from the Depositor and any profit on
the resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended (the
"Securities Act").
It is anticipated that the underwriting agreement pertaining to the
sale of any series of Certificates will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all Offered Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that the Depositor will indemnify the several underwriters, and each
person, if any, who controls any such underwriter within the meaning of Section
15 of the Securities Act, against certain civil liabilities, including
liabilities under the Securities Act, or will contribute to payments required to
be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Depositor and
purchasers of Offered Certificates of such series.
The Depositor anticipates that the Offered Certificates offered hereby
will be sold primarily to institutional investors. Purchasers of Offered
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 in connection with reoffers and sales by them of Offered
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any unrated class may be initially retained by the Depositor, and may be sold by
the Depositor at any time to one or more institutional investors.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by Chase Securities Inc., an affiliate of the Depositor,
in connection with offers and sales related to market-making transactions in the
Offered Certificates previously offered hereunder in transactions in which Chase
Securities Inc. acts as principal. Chase Securities Inc. may also act as agent
in such transactions. Sales may be made at negotiated prices determined at the
time of sale.
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LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement,
certain legal matters in connection with the Certificates of each series,
including certain federal income tax consequences, will be passed upon for the
Depositor by Cadwalader, Wickersham & Taft, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, certificateholders might suffer a lower than anticipated yield,
and, in addition, holders of stripped interest certificates in extreme cases
might fail to recoup their initial investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
1986 Act..............................................73
Accrual Certificates..............................13, 37
Accrued Certificate Interest..........................37
ARM Loans.............................................27
Available Distribution Amount.........................36
Book-Entry Certificates...........................15, 36
call risk.........................................18, 33
Cash Flow Agreement............................1, 12, 29
CERCLA............................................22, 67
Certificate........................................9, 44
Certificate Account...........................11, 28, 47
Certificate Balance............................3, 13, 37
Certificate Owner.................................15, 42
Certificateholders.....................................2
Certificates...........................................1
Code..............................................16, 70
Commercial Properties.............................10, 24
Commission.............................................3
Companion Class...................................14, 38
Controlled Amortization Class.....................14, 38
Cooperatives..........................................24
CPR...................................................32
Credit Support.................................1, 11, 28
Cut-off Date..........................................14
Debt Service Coverage Ratio...........................25
Definitive Certificates...........................15, 36
Depositor..........................................9, 24
Determination Date................................29, 36
Direct Participants...................................42
Disqualified Organization.............................83
Distribution Date.....................................13
Distribution Date Statement...........................39
DOL...................................................97
DTC........................................3, 15, 36, 42
Due Dates.............................................26
Due Period............................................29
EPA...................................................67
Equity Participation..................................27
ERISA.............................................16, 96
Excess Funds..........................................34
Exchange Act...........................................4
extension risk....................................18, 33
Events of Default.....................................55
FAMC..................................................11
FHLMC.................................................11
FNMA..................................................11
Garn Act..............................................68
GNMA..................................................11
Indirect Participants.................................42
Insurance and Condemnation Proceeds...................47
L/C Bank..............................................59
Liquidation Proceeds..............................47, 48
Loan-to-Value Ratio...................................26
Lock-out Date.........................................26
Lock-out Period.......................................26
Master Servicer.....................................3, 9
MBS............................................1, 11, 24
MBS Agreement.........................................27
MBS Issuer............................................27
MBS Servicer..........................................27
MBS Trustee...........................................27
Mortgage..............................................24
Mortgage Asset Pool....................................1
Mortgage Asset Seller.................................24
Mortgage Assets....................................1, 24
Mortgage Loans..................................1, 9, 24
Mortgage Notes........................................24
Mortgage Rate.....................................10, 26
Mortgaged Properties..................................24
Multifamily Properties.............................9, 24
Net Leases............................................25
Nonrecoverable Advance................................39
Non-U.S. Person.......................................88
Notional Amount...................................13, 37
Offered Certificates...................................1
OID Regulations.......................................73
Originator............................................25
PAC...................................................32
Participants......................................23, 42
Parties in Interest...................................96
Pass-Through Entity...................................84
Pass-Through Rate..................................3, 13
Permitted Investments.................................47
Plans.................................................96
Policy Statement......................................99
Pooling Agreement.................................12, 43
Prepayment Assumption.................................74
Prepayment Interest Shortfall.........................29
Prepayment Period.....................................40
Prepayment Premium....................................26
Proposed OID Regulations..............................73
Prospectus Supplement..................................1
PRPs..................................................67
Rating Agency.........................................16
Record Date...........................................36
Regular Certificateholder.............................73
Regular Certificates..................................70
Related Proceeds......................................39
Relief Act............................................69
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REMIC..............................................2, 16
REMIC Certificates....................................70
REMIC Pool............................................70
REMIC Regulations.....................................70
REO Property..........................................46
Residual Certificateholders...........................79
Residual Certificates.................................70
Securities Act.......................................100
Senior Certificates...............................12, 35
Service...............................................72
Servicing Standard....................................46
SMMEA.................................................98
SPA...................................................32
Special Servicer................................3, 9, 46
Standard Certificateholder............................90
Standard Certificates.................................89
Startup Day...........................................71
Stripped Certificateholder............................94
Stripped Certificates.................................93
Stripped Interest Certificates....................12, 35
Stripped Principal Certificates...................12, 35
Subordinate Certificates..........................12, 35
Sub-Servicer..........................................46
Sub-Servicing Agreement...............................46
TAC...................................................32
Title V...............................................69
Treasury..............................................70
Trust Assets...........................................3
Trust Fund.............................................1
Trustee.............................................3, 9
UCC...................................................61
Value.................................................26
Voting Rights.........................................41
Warranting Party......................................45
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses expected to be incurred in connection with the issuance and
distribution of the Certificates being registered, other than underwriting
compensation, are set forth below.
SEC Registration Fee...................................... $241,380.00
Printing and Engraving Fees............................... 20,000.00*
Legal Fees and Expenses................................... 150,000.00*
Accounting Fees and Expenses.............................. 50,000.00*
Trustee Fees and Expenses................................. 20,000.00*
Rating Agency Fees........................................ 75,000.00*
Miscellaneous............................................. 15,000.00
------------
Total $571,380.00
============
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* Based on the offering of a single series of Certificates.
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 Depositor against certain liabilities, including
liabilities under the Securities Act of 1933.
Sections 722 and 723 of the Business Corporation Law of New York empower
the Depositor to indemnify, subject to the limitations and standards set forth
therein, any person made or threatened to be made a party to an action or
proceeding brought or threatened by reason of the fact that such person is or
was a director or officer of the Depositor. Section 726 of the Business
Corporation Law of New York provides that the Depositor may purchase insurance
on behalf of any such director or officer. Article XIII of the Depositor's
By-Laws provides in effect for the indemnification by the Depositor of each
director, officer, employee or agent of the Depositor to the full extent
permitted by the Business Corporation Law of New York.
The By-Laws of the Depositor provide, in effect, that to the extent
permitted under the Business Corporation Law of New York, the Depositor shall
indemnify and advance the expenses of any person who is or was made or
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Depositor to
procure a judgment in its favor and an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or any other entity which any director or
officer of the Depositor is serving, has served or has agreed to serve in any
capacity at the request of the Depositor, by reason of the fact that such person
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or such person's testator or intestate is or was or has agreed to become a
director or officer of the Depositor, or is or was serving or has agreed to
serve such other corporation, partnership, joint venture, trust, employee
benefit plan or other entity in any capacity, against judgments, fines, amounts
paid or to be paid in settlement, taxes or penalties, and costs, charges and
expenses, including attorneys' fees, incurred in connection with such action or
proceeding or any appeal therein.
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Depositor is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad faith
or gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreements will further
provide that, with the exceptions stated above, a director, officer, employee or
agent of the Depositor is entitled to be indemnified against any loss, liability
or expense incurred in connection with legal action relating to such Pooling and
Servicing Agreements and related Certificates other than such expenses related
to particular Mortgage Loans.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement (previously filed as Exhibit
1.1 to the Depositor's Registration Statement on Form S-3
(Registration No. 33-67742) filed under the Depositor's
former name, Chemical Commercial Mortgage Securities Corp.
(the "1994 Registration Statement"), and incorporated herein
by reference).
4.1 Form of Pooling and Servicing Agreement (previously filed as
Exhibit 4.1 to the 1994 Registration Statement and
incorporated herein by reference).
5.1 Opinion of Cadwalader, Wickersham & Taft as to legality of
the Certificates.
8.1 Opinion of Cadwalader, Wickersham & Taft as to certain tax
matters (included in Exhibit 5.1).
24.1 Consent of Cadwalader, Wickersham & Taft (included as part
of Exhibit 5.1).
25.1 Powers of Attorney.
Item 17. Undertakings.
A. Undertaking Pursuant to Rule 415.
The 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
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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
Registrant pursuant to Section 13 or Section 15(d) of the Securities Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
B. Undertaking in connection with incorporation by reference of certain
filings under the Securities Exchange Act of 1934.
The Registration hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in 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.
C. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has 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 its is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Chase Commercial Mortgage Securities Corp. certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form S-3
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State of
New York, on the 3rd day of June, 1996.
CHASE COMMERCIAL MORTGAGE
SECURITIES CORP.
By: /s/ Jacqueling R. Slater
--------------------------
Jacqueline R. Slater
Chairman
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jacqueline R. Slater, Andrea S. Balkan, Steve Z.
Schwartz and Geoffrey A. Souter his true and lawful attorneys-in-fact and
agents, each acting alone, with full powers of substitution and resubstitution,
for and in his name, place and stead, in any and all capacities to sign any or
all amendments (including post-effective amendments) to this Registration
Statement and any or all other documents in connection therewith, and to file
the same, with all exhibits thereto, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as might or could be done in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Jacqueline R. Slater Chairman and President June 3, 1996
- ------------------------ (Principal Executive Officer
Jacqueline R. Slater and Principal Financial
Officer) and Director
/s/ William T. Barry Treasurer (Principal June 3, 1996
- ------------------------ Accounting Officer)
William T. Barry
/s/ Joseph A. Deluca Director June 3, 1996
- ------------------------
Joseph A. DeLuca
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------ ----------- ----
1.1 Form of Underwriting Agreement (previously filed as
Exhibit 1.1 to the Depositor's Registration Statement on
Form S-3 (Registration No. 33-67742) filed under the
Depositor's former name, Chemical Commercial Mortgage
Securities Corp. (the "1994 Registration Statement"), and
incorporated herein by reference).
.
Form of Pooling and Servicing Agreement (previously filed as
4.1 Exhibit 4.1 to the 1994 Registration Statement and
incorporated herein by reference).
Opinion of Cadwalader, Wickersham & Taft as to legality of
5.1 the Certificates.
8.1 Opinion of Cadwalader, Wickersham & Taft as to certain tax
matters (included in Exhibit 5.1).
24.1 Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibit 5.1).
25.1 Powers of Attorney (included on page II-5).
<PAGE>
[Letterhead]
May 28, 1996
Chase Commercial Mortgage Securities Corp.
380 Madison Avenue
New York, New York 10017-2951
Re: Mortgage Pass-Through Certificates
Gentlemen:
We have acted as your counsel in connection the Registration Statement on
Form S-3 (the "Registration Statement"), which Registration Statement is being
filed with the Securities and Exchange Commission (the "Commission"), pursuant
to the Securities Act of 1933, as amended (the "Act"). The Prospectus describes
Mortgage Pass-Through Certificates ("Certificates") to be sold by Chase
Commercial Mortgage Securities Corp. (the "Depositor") in one of more series
(each, a "Series") of Certificates. Each Series of Certificates will be issued
under a separate pooling and servicing agreement (each a "Pooling and Servicing
Agreement") among the Depositor, a master servicer (a "Servicer"), a trustee (a
"Trustee") and such other parties to be identified in the Prospectus Supplement
for such Series. The form of Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement"), filed as an exhibit to Depositor's registration statement
on Form S-3 (Registration No. 33-67742) which was filed under Depositor's former
name, Chemical Commercial Mortgage Securities Corp., is incorporated by
reference as an exhibit to the Registration Statement. Capitalized terms used
and not otherwise defined herein have the respective meanings given to such
terms in the Registration Statement.
In rendering the opinions set forth below, we have examined and relied upon
the following: (1) the Registration Statement, the Prospectus and the form of
Prospectus Supplement constituting a part thereof, each substantially in the
form filed with the Commission; (2) the Pooling and Servicing Agreement and (3)
such other documents, materials and authorities as we have deemed necessary in
order to enable us to render our opinion set forth below. We express no opinion
with respect to any Series of Certificates for which we do not act as counsel to
the Depositor.
<PAGE>
Chase Commercial Mortgage
Securities Corp. -2- May 28, 1996
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a
Series of Certificates has been duly and validly authorized,
executed and delivered by the Depositor, a Servicer, a Trustee
and any other party thereto, such Pooling and Servicing
Agreement will constitute a valid and legally binding
agreement of Depositor, enforceable against the Depositor in
accordance with its terms, subject to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws
affecting the enforcement of rights of creditors generally and
to general principles of equity and the discretion of the
court (regardless of whether enforceability is considered in a
proceeding in equity or at law).
2. When a Pooling and Servicing Agreement for a
Series of Certificates has been duly and validly authorized,
executed and delivered by the Depositor, a Servicer, a Trustee
and any other party thereto, and the Certificates of such
Series have been duly executed, authenticated, delivered and
sold as contemplated in the Registration Statement, such
Certificates will be legally and validly issued, fully paid
and nonassessable, and the holders of such Certificates will
be entitled to the benefits of such Pooling and Servicing
Agreement.
3. The description of federal income tax consequences
appearing under the heading "Certain Federal Income Tax
Consequences" in the Prospectus accurately describes the
material federal income tax consequences to holders of Offered
Certificates, under existing law and subject to the
qualifications and assumptions stated therein.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the headings
"Legal Matters" and "Certain Federal Income Tax Consequences" in the Prospectus,
which is a part of the Registration Statement. This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Act.
Very truly yours,
