<PAGE>
Filed Pursuant to Rule 424B(5)
Registration File No.: 333-64903
PROSPECTUS SUPPLEMENT
(To Prospectus dated September 8, 2000)
$456,233,200
AAMES MORTGAGE TRUST 2000-1
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-1
AAMES CAPITAL CORPORATION
AS SPONSOR
COUNTRYWIDE HOME LOANS, INC.
AS SERVICER
<TABLE>
<CAPTION>
OFFERED PRINCIPAL PASS-THROUGH PRICE TO UNDERWRITING PROCEEDS TO THE
CERTIFICATES BALANCE RATE PUBLIC(1) DISCOUNT SPONSOR(1)(2)
-------------- -------------- ----------------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Class A-1F $ 62,664,000 7.69% 100.00000% 0.30% 99.700000%
Class A-2F $ 31,500,000 7.48% 99.984375% 0.30% 99.684375%
Class A-3F $ 30,000,000 7.54% 100.00000% 0.30% 99.700000%
Class A-4F $ 42,500,000 7.76% 99.984375% 0.30% 99.684375%
Class A-5F $ 28,216,000 8.07%(3)(4) 100.00000% 0.30% 99.700000%
Class A-6F $ 14,000,000 7.63%(3)(4) 100.00000% 0.30% 99.700000%
Class A-V1 $123,676,600 LIBOR + 0.25%(3)(4) 100.00000% 0.30% 99.700000%
Class A-V2 $123,676,600 LIBOR + 0.26%(3)(4) 100.00000% 0.30% 99.700000%
------------ ----------- ------- ----------
Total $456,233,200 $456,221,638 $1,368,700 $454,852,938
</TABLE>
----------
(1) Plus accrued interest, if any, from September 1, 2000 in the case of the
fixed rate group certificates.
(2) Before deducting expenses, estimated to be approximately $700,000.
(3) Subject to a maximum rate as described in this prospectus supplement.
(4) Subject to a step-up if the optional termination is not exercised.
YOU SHOULD CAREFULLY REVIEW THE INFORMATION UNDER THE CAPTION "RISK FACTORS"
BEGINNING ON PAGE S-12 IN THIS PROSPECTUS SUPPLEMENT AND ON PAGE 23 IN THE
PROSPECTUS.
THE CERTIFICATES ARE NONRECOURSE OBLIGATIONS OF THE TRUST ONLY AND DO NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF AAMES CAPITAL CORPORATION, THE
TRUSTEE OR ANY OF THEIR AFFILIATES.
THIS PROSPECTUS SUPPLEMENT MUST BE ACCOMPANIED BY THE PROSPECTUS IF IT IS
BEING USED TO OFFER AND SELL THE CERTIFICATES.
THE CERTIFICATES
o represent the entire beneficial interest in a trust, whose assets include a
pool of fixed rate and adjustable rate mortgage loans secured by first and
junior liens on one- to four-family residential properties.
o currently have no trading market.
o are obligations of the trust only and are not obligations of the sponsor, the
servicer or their affiliates.
CREDIT ENHANCEMENT
o will be provided in the form of overcollateralization, cross-collateraliza-
tion and a certificate guaranty insurance policy issued by Financial Security
Assurance Inc. that will unconditionally and irrevocably guarantee payment of
interest due on the offered certificates on each distribution date and
ultimate collection of the principal balance of the certificates.
[LOGO]
EXPECTED RATINGS
o AAA from S&P, AAA from Fitch and Aaa from Moody's for the offered
certificates.
THE TRUST
o will make REMIC elections for federal income tax purposes.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE CERTIFICATES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The offered certificates will be delivered in book-entry form only, on or about
September 21, 2000.
------------------
GREENWICH CAPITAL MARKETS, INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
September 8, 2000
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the certificates in two separate
documents that provide progressively more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to your certificates; and
o this prospectus supplement, which describes the specific terms of your
certificates.
YOU SHOULD RELY PRIMARILY ON THE DESCRIPTION OF YOUR CERTIFICATES IN THIS
PROSPECTUS SUPPLEMENT.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Mortgage Pass-Through Certificates, Series 2000-1, and with
respect to their unsold allotments or subscriptions. In addition, all dealers
selling Mortgage Pass-Through Certificates, Series 2000-1, will be required to
deliver a prospectus supplement and prospectus for ninety days following the
date of this prospectus supplement.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
CAPTION PAGE
---------------------------------------------------------- -----
<S> <C>
Summary .................................................. S-3
Risk Factors ............................................. S-12
Description of the Certificates .......................... S-19
Credit Enhancement ....................................... S-33
The Mortgage Loans ....................................... S-41
Prepayment and Yield Considerations ...................... S-51
Origination and Servicing of the Mortgage Loans .......... S-67
The Certificate Insurer .................................. S-78
The PMI Insurer .......................................... S-81
Certain Federal Income Tax Consequences .................. S-81
ERISA Considerations ..................................... S-82
Use of Proceeds .......................................... S-85
Legal Investment Considerations .......................... S-85
Underwriting ............................................. S-85
Experts .................................................. S-87
Legal Matters ............................................ S-87
Rating of the Offered Certificates ....................... S-87
Index of Principal Terms ................................. S-89
Annex A: Description of the Mortgage Pool ................ A-1
Annex B: Global Clearance, Settlement and Tax
Documentation Procedures ............................... B-1
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
CAPTION PAGE
------------------------------------------------------ -----
<S> <C>
Prospectus Supplement ................................ 3
Available Information ................................ 3
Incorporation of Certain Documents by Reference ...... 4
Reports To Securityholders ........................... 4
Summary .............................................. 7
Risk Factors ......................................... 23
The Trusts and Trust Estates ......................... 34
Use of Proceeds ...................................... 39
Aames Capital Acceptance Corp ........................ 39
Aames Capital Corporation ............................ 40
The Originators ...................................... 42
Description of the Securities ........................ 49
Credit Enhancement ................................... 62
Maturity, Prepayment and Yield Considerations ........ 69
The Pooling and Servicing Agreement .................. 72
The Indenture ........................................ 87
Certain Legal Aspects of the Mortgage Loans and
Related Matters .................................... 91
Certain Federal Income Tax Consequences .............. 97
State Tax Considerations ............................. 126
ERISA Considerations ................................. 126
Legal Investment Considerations ...................... 129
Method of Distribution ............................... 130
Legal Matters ........................................ 131
Financial Information ................................ 131
Rating ............................................... 131
Index of Principal Terms ............................. 133
</TABLE>
S-2
<PAGE>
SUMMARY
This section outlines the significant terms of the offered certificates.
As this is a summary, we do not attempt to discuss or describe in any detail
the terms outlined here. We recommend that you review carefully the more
detailed information in this prospectus supplement and in the attached
prospectus.
THE ISSUER.................. Aames Mortgage Trust 2000-1.
THE SPONSOR................. Aames Capital Corporation, a California
corporation. The principal office of the sponsor
is located at 350 South Grand Avenue, Los
Angeles, California 90071.
THE SERVICER................ Countrywide Home Loans, Inc., a New York
corporation. The servicer may appoint a
sub-servicer to service mortgage loans on its
behalf. During the servicer transfer period
expected to be completed by October 31, 2000, the
sponsor will act as interim subservicer.
THE CERTIFICATE INSURER..... Financial Security Assurance Inc.
THE TRUSTEE................. Bankers Trust Company of California, N.A.
CUT-OFF DATE................ The close of business on September 1, 2000.
STATISTIC CALCULATION DATE... August 1, 2000.
CLOSING DATE................ On or about September 21, 2000.
DISTRIBUTION DATES.......... The 25th day of each month or, if such day is
not a business day, the next business day,
beginning in October 2000.
RECORD DATES................ The record date for the fixed rate group
certificates is the last business day of the
month before the month in which the applicable
distribution date occurs. The record date for the
Class A-V1 and Class A-V2 Certificates is the
business day immediately before the applicable
distribution date so long as the Class A-V1 and
Class A-V2 Certificates remain in book-entry
form.
S-3
<PAGE>
FINAL SCHEDULED DISTRIBUTION
DATE....................... The final scheduled distribution date for each
class of offered certificates is as follows:
<TABLE>
<CAPTION>
FINAL SCHEDULED
CLASS DISTRIBUTION DATE
---------------------------- -------------------
<S> <C>
Class A-1F Certificates: January 2017
Class A-2F Certificates: August 2022
Class A-3F Certificates: November 2025
Class A-4F Certificates: January 2029
Class A-5F Certificates: October 2030
Class A-6F Certificates: October 2030
Class A-V1 Certificates: October 2030
Class A-V2 Certificates: October 2030
</TABLE>
The actual last distribution date for each class
of offered certificates is expected to be
significantly earlier than its final scheduled
distribution date.
DESIGNATIONS................ Each class of certificates will have different
characteristics. Certain of those characteristics
are reflected in the following general
designations. These designations are used in this
prospectus supplement and the attached prospectus
to provide you with a better understanding of the
certificates.
Book-Entry Certificates... All classes of offered certificates.
Fixed Rate Group
Certificates.............. Class A-1F, Class A-2F, Class A-3F, Class A-4F,
Class A-5F and Class A-6F Certificates.
Adjustable Rate Group I
Certificates............... Class A-V1 Certificates.
Adjustable Rate Group II
Certificates.............. Class A-V2 Certificates.
Certificate Group......... Fixed rate group certificates, adjustable rate
group I or adjustable rate group II certificates,
as applicable.
Mortgage Loan Group....... Fixed rate group, adjustable rate group I or
adjustable rate group II, as applicable.
Fixed Rate Group.......... All mortgage loans bearing interest at fixed
rates.
Adjustable Rate Group I... Those mortgage loans having agency
conforming balances, bearing interest at
adjustable rates, including mortgage loans that
bear interest at rates that are fixed for some
specified period before beginning to adjust, and
included in adjustable rate group I.
S-4
<PAGE>
Adjustable Rate Group II... Those mortgage loans bearing interest at
adjustable rates, including mortgage loans that
bear interest at rates that are fixed for some
specified period before beginning to adjust, and
included in adjustable rate group II.
Offered Certificates...... Fixed rate group certificates, adjustable rate
group I certificates and adjustable rate group II
certificates.
Retained Certificates..... Class C Certificates, Class P Certificates and
Class R Certificates.
S-5
<PAGE>
REGISTRATION OF OFFERED CERTIFICATES
We will issue the offered certificates in book-entry form. You will
hold your interests either through a depository in the United States or through
one of two depositories in Europe. You will not be entitled to receive a
definitive certificate representing your interests except under limited
circumstances that are described in this prospectus supplement. While the
certificates are in book-entry form, they will be registered in the name of the
applicable depository, or in the name of the depository's nominee. Transfers
within any depository system will be made in accordance with the usual rules
and operating procedures of that system.
We refer you to "Description of the Certificates -- Book-Entry
Registration of Offered Certificates" in this prospectus supplement, "Annex B:
Global Clearance, Settlement and Tax Documentation Procedures" to this
prospectus supplement and "Description of the Securities -- Form of Securities
-- Book-Entry Registration" in the prospectus.
DISTRIBUTIONS ON THE OFFERED CERTIFICATES
INTEREST
The pass-through rate for each class of offered certificates is set
forth on the cover page of, and further described in, this prospectus
supplement. The pass-through rate on the Class A-5F, Class A-6F, Class A-V1 and
Class A-V2 Certificates is limited by a maximum rate cap that will be
determined based in whole or in part on the weighted average of the interest
rates on the applicable mortgage loans (minus specified fees and expenses).
Holders of the Class A-5F and Class A-6F will not be entitled to any interest
amounts in excess of the applicable maximum rate cap. Holders of the Class A-V1
and Class A-V2 Certificates will be entitled to certain interest amounts in
excess of the applicable maximum rate cap, but such amounts will be paid on a
subordinated basis. The ratings on the Class A-V1 and Class A-V2 Certificates
do not address the likelihood of, and the policy does not cover, the payment of
any such interest amounts.
We refer you to "Description of the Certificates -- Pass-Through Rates"
in this prospectus supplement for a more detailed description of the
pass-through rates on the offered certificates.
Generally, on each distribution date, each class of offered
certificates will be entitled to interest in an amount equal to:
o the applicable pass-through rate, multiplied by
o the applicable class principal balance on the day before that
distribution date, multiplied by
o 1/12 or, in the case of the Class A-V1 and Class A-V2 Certificates,
the actual days in the accrual period divided by 360, minus
o the pro rata share of civil relief act interest shortfalls and
prepayment interest shortfalls, plus
o any unpaid interest amounts from prior distribution dates, plus
o interest on such unpaid interest amounts at the applicable pass-
through rate.
The interest accrual period for the fixed rate group certificates is
the calendar month preceding the month in which a distribution date occurs. The
interest accrual period for the adjustable
S-6
<PAGE>
rate group I certificates and adjustable rate group II certificates is the
period from the prior distribution date (or in the case of the first
distribution date from the closing date) to and including the day before the
applicable distribution date. Interest accrues with respect to the fixed rate
group certificates on the basis of a 360-day year consisting of twelve 30-day
months. Interest accrues with respect to the adjustable rate group I
certificates and adjustable rate group II certificates on the basis of the
actual number of days elapsed in the interest accrual period divided by 360.
PRINCIPAL
The initial class principal balances of the offered certificates are
set forth on the cover page of this prospectus supplement.
On each distribution date, to the extent funds are available, you will
be entitled to distributions of principal in the order of priority described in
this prospectus supplement.
Principal in respect of adjustable rate group I will be distributed to
the Class A-V1 Certificates. Principal in respect of adjustable rate group II
will be distributed to the Class A-V2 Certificates. Principal in respect of the
fixed rate group will be distributed in the following order of priority:
o first, to the Class A-6F Certificates, for each distribution date on
or after the distribution date in October 2003 in an amount up to a
specified amount;
o second, to the Class A-1F, Class A-2F, Class A-3F, Class A-4F, Class
A-5F and Class A-6F Certificates in that order, until the principal
balance of each such class has been reduced to zero.
The Class A-6F Certificate is a "lock-out" certificate. If you are a
holder of a Class A-6F Certificate, generally you will not be entitled to
receive payments of principal until the distribution date in October 2003 and
thereafter you will be entitled to receive a disproportionately smaller or
larger amount of principal relative to the other fixed rate group certificates.
We refer you to "Description of the Certificates -- Distributions" in
this prospectus supplement.
MONTHLY ADVANCES AND COMPENSATING INTEREST
Each month the servicer will determine the amount of any unpaid
interest due on the mortgage loans. If the servicer believes that unpaid
interest can be recovered from the related mortgage loan, then the servicer
will either:
o advance the unpaid interest to the trust out of its own funds; or
o advance the unpaid interest to the trust out of collections on the
mortgage loans that are not required to be distributed on the
related distribution date.
The servicer is required to reimburse the trust for amounts advanced
from trust collections on the next succeeding deposit date.
The servicer is entitled to be reimbursed from the related mortgage
loan group for any advances of unpaid interest to the extent that the servicer
reasonably believes thereafter that such advances will not be recoverable from
subsequent collections on the related mortgage loan.
S-7
<PAGE>
The servicer will provide to the trust the amount of any shortfall in
the anticipated collection of interest on a mortgage loan that is caused by a
full or partial prepayment of a mortgage loan generally up to the amount of the
servicer's monthly servicing fee.
We refer you to "Origination and Servicing of the Mortgage Loans --
Monthly Advances; Servicing Advances; Compensating Interest; and Interest
Shortfalls" in this prospectus supplement.
SERVICING ADVANCES
Unless the servicer determines that any proposed advance is not
recoverable from the related mortgage loan, the servicer will be required to
pay all reasonable and customary "out-of-pocket" costs and expenses incurred in
the performance of its servicing obligations, including, but not limited to:
o expenditures in connection with a foreclosed mortgage loan prior to
the liquidation of the loan;
o the cost of any enforcement of judicial proceedings, including
foreclosures; and
o the cost of the management and liquidation of property acquired in
satisfaction of the related mortgage loan.
The servicer is entitled to be reimbursed by the trust for servicing
advances only from the related mortgage loan in respect of which the servicing
advance was made.
We refer you to "Origination and Servicing of the Mortgage Loans --
Monthly Advances; Servicing Advances; Compensating Interest; and Interest
Shortfalls" in this prospectus supplement.
CREDIT ENHANCEMENT
Credit enhancement refers to a mechanism that is intended to protect
the holders of the offered certificates against losses due to defaults by the
borrowers under the mortgage loans.
The offered certificates have the benefit of four types of credit
enhancement:
o the use of excess interest to cover losses and to create
overcollateralization;
o cross-collateralization of the mortgage loan groups;
o the financial guaranty insurance policy; and
o the primary mortgage guaranty insurance policy with respect to
certain mortgage loans, in each mortgage loan group, having an
original loan-to-value ratio greater than 80%.
THE MORTGAGE LOANS
Set forth below is selected information about the mortgage loans that
existed as of the statistic calculation date of August 1, 2000. On the closing
date, additional mortgage loans will be delivered to the trust.
Fixed Rate Group
number of mortgage loans: 2,226
aggregate principal
balance: $159,205,063.33
secured by first lien on mortgaged property: 98.39%
range of loan
sizes: $10,000.00 to $453,750.00
S-8
<PAGE>
mortgaged property locations: 43 states
and the District
of Columbia
average principal balance: $71,520.69
interest rates range: 6.5000% to 18.0800%
weighted average interest rate (approximate): 10.8727%
weighted average remaining term to stated maturity, based on
principal balance (months)
(approximate): 327
range of remaining term to
maturity (months): 53 to 360
weighted average original term to maturity (months)
(approximate): 329
latest maturity date: September 1, 2030
range of original term to
maturity (months): 60 to 360
combined loan-to-value ratio
range (approximate): 6.67% to 100.00%
weighted average combined loan-to
value ratio (approximate): 72.35%
mortgage loans with prepayment
charges (by aggregate principal
balance): 71.25%
Adjustable Rate Group I
number of mortgage loans: 1,013
aggregate principal balance: $96,418,663.40
conforming balances: 100.00%
secured by first lien on
mortgaged property: 100.00%
range of loan
sizes: $20,000.00 to $351,920.00
mortgaged property locations: 42 states
average principal balance: $95,181.31
interest rates range: 7.5000% to 18.200%
weighted average interest rate (approximate): 10.7398%
weighted average remaining term to stated maturity, based on
principal balance (months)
(approximate): 357
range of remaining term to
stated maturity (months): 173 to 360
weighted average original term to
maturity (months): 358
latest maturity date: September 1, 2030
range of original term to
maturity (months): 180 to 360
combined loan-to-value ratio
range (approximate): 15.38% to 98.80%
weighted average combined loan-to
value ratio (approximate): 77.53%
range of gross margins: 3.440% to 8.990
weighted average gross margin: 6.092%
range of maximum
rates: 13.500% to 24.200%
weighted average maximum
rate: 16.741%
range of minimum
rates: 7.500% to 18.200%
weighted average minimum
rate: 10.737%
loans with fixed rates for two
years prior to adjustment: 42.380%
loans with fixed rates for three
years prior to adjustment: 56.700%
mortgage loans with prepayment
charges (by aggregate principal
balance): 86.46%
Adjustable Rate Group II
number of mortgage loans: 862
S-9
<PAGE>
aggregate principal balance: $96,426,603.75
secured by first lien on mortgaged property: 100%
range of loan
sizes: $15,000.00 to $544,000.00
mortgaged property locations: 43 states
and the District
of Columbia
average principal balance: $111,863.81
interest rates range: 7.490% to 16.300%
weighted average interest rate (approximate): 10.577%
weighted average remaining term to stated maturity, based on
principal balance (months)
(approximate): 357
range of remaining term to
stated maturity (months): 119 to 360
weighted average original term to
maturity (months): 358
latest maturity date: September 1, 2030
range of original term to maturity
(months): 120 to 360
combined loan-to-value ratio
range (approximate): 13.32% to 95.00%
weighted average combined loan-to
value ratio (approximate): 75.29%
range of gross margins: 2.945% to 9.750%
weighted average gross margin: 6.021%
range of maximum
rates: 13.490% to 22.300%
weighted average maximum rate: 16.595%
range of minimum
rates: 7.490% to 16.300%
weighted average minimum rate: 10.577%
loans with fixed rates for two
years prior to adjustment: 48.300%
loans with fixed rates for three
years prior to adjustment: 50.780%
mortgage loans with prepayment
charges (by aggregate principal
balance): 83.17%
We refer you to "The Mortgage Loans" in this prospectus supplement and
"Annex A: Description of the Mortgage Pool" to this prospectus supplement.
OPTIONAL TERMINATION OF THE TRUST
On any distribution date when the principal balance of the mortgage
loans is less than 5% of the sum of the principal balances of the mortgage
loans delivered on the closing date, the servicer may purchase all of the
remaining mortgage loans from the trust and thereby terminate the trust. Upon
receipt of the purchase price of the mortgage loans from the servicer, the
trustee will make a final payment to the certificateholders.
We refer you to "Description of the Certificates" in this prospectus
supplement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The trust will make one or more elections to treat certain assets of
the trust as a REMIC for federal income tax purposes. The offered certificates,
the Class P Certificates and Class C Certificates will represent regular
interests in a REMIC and generally will be treated as newly originated debt
instruments for federal income tax purposes. In addition, each of the Class
A-V1 and Class A-V2 Certificates will represent an undivided beneficial
ownership interest in an interest rate cap agreement. The Class R Certificates
will represent the residual interest in each REMIC.
S-10
<PAGE>
We refer you to "Certain Federal Income Tax Consequences" in this
prospectus supplement and in the prospectus.
ERISA CONSIDERATIONS
Subject to the satisfaction of certain conditions described in this
prospectus supplement, the offered certificates may be acquired and held by a
pension or other employee benefit plan.
We refer you to "ERISA Considerations" in this prospectus supplement
and in the prospectus.
LEGAL INVESTMENT CONSIDERATIONS
The offered certificates will NOT constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984.
We refer you to "Legal Investment Considerations" in this prospectus
supplement and in the prospectus.
S-11
<PAGE>
RISK FACTORS
An investment in the offered certificates involves significant risks.
Before you decide to invest in the offered certificates, you should consider
the following risk factors and the risk factors discussed under the heading
"Risk Factors" beginning on page 23 of the prospectus.
YOU MAY HAVE DIFFICULTY SELLING YOUR CERTIFICATES
The offered certificates will not be listed on any securities exchange. As
a result, if you wish to sell your certificates, you will have to find a
purchaser that is willing to purchase your certificates. The underwriters
intend to make a secondary market for the offered certificates. The
underwriters may do so by offering to buy the offered certificates from
investors that wish to sell. However, the underwriters will not be obligated to
make offers to buy the offered certificates and may stop making offers at any
time. In addition, the prices offered, if any, may not reflect prices that
other potential purchasers, were they to be given the opportunity, would be
willing to pay. There have been times in the past where there have been very
few buyers of similar mortgage-backed securities, and there may be such times
in the future. As a result, you may not be able to sell your certificates if or
when you wish to do so or you may not be able to obtain the price you wish to
receive.
THE UNIQUE FEATURES OF THE MORTGAGE LOANS CREATE SPECIAL RISKS
There are a number of unique features of the mortgage loans that create
risks, including the following:
o Risks Associated with Underwriting Standards. The sponsor has
underwritten and originated or re-underwritten all of the mortgage loans
in accordance with the sponsor's guidelines. The sponsor's guidelines
rely on the creditworthiness of the mortgagor and the value and adequacy
of the related mortgaged property as collateral. As a lender that
specializes in loans made to credit impaired borrowers, the sponsor
ordinarily makes mortgage loans to borrowers with credit histories or
other factors that would disqualify them from consideration for a loan
from traditional financial institutions. A derogatory credit history or a
lack of credit history will not necessarily prevent the sponsor from
making or acquiring a mortgage loan. The values of the mortgaged
properties may decline from those on the dates the related mortgage loans
were originated thereby increasing the loan-to-value ratios of the
mortgage loans. Even assuming that the mortgaged properties provide
adequate security for the mortgage loans, substantial delays could be
encountered in connection with the foreclosure and liquidation of
defaulted mortgage loans. The actual rates of delinquencies, foreclosures
and losses on mortgage loans could be higher than those historically
experienced in the mortgage lending industry in general, particularly in
periods during which the values of the related mortgaged properties
decline. We refer you to "The Originators -- Underwriting Guidelines" in
the prospectus.
o Newly Originated Mortgage Loans May Default. Defaults on mortgage loans
tend to occur at higher rates during the early years of the mortgage
loans. A
S-12
<PAGE>
substantial majority of the mortgage loans will have been originated
within 12 months prior to their sale to the trust. As a result, the
trust may experience higher rates of default than if the mortgage loans
had been outstanding for a longer period of time.
o Defaults on Junior Lien Mortgage Loans May Result in More Severe Losses.
Based on the statistic calculation date principal balances of the
statistic calculation loans, approximately 1.61% of the mortgage loans in
the fixed rate group are secured by junior liens on the related property.
If a borrower on a mortgage loan secured by a junior lien defaults, the
trust's rights to proceeds on liquidation of the related property are
subordinate to the rights of the holder of the first lien on the related
property. There may not be enough proceeds to pay both the first lien and
the junior lien, and the trust would suffer a loss.
o Geographic Concentration Increases Risks. Based on the statistic
calculation date principal balances, approximately 19.09%, 12.96%, 8.11%,
7.91% and 5.36% of the statistic calculation loans in the fixed rate
group are secured by mortgaged properties located in California, Texas,
Florida, New York and Michigan, respectively, approximately 24.65% and
11.28% of the statistic calculation loans in adjustable rate group I are
secured by mortgaged properties located in California and Florida,
respectively, and approximately 32.38% and 9.53% of the statistic
calculation loans in adjustable rate group II are secured by mortgaged
properties located in California and Florida, respectively. In general,
declines in the California, Texas, Florida, New York and Michigan
residential real estate markets may adversely affect the values of the
mortgaged properties securing mortgage loans in those states such that
the principal balances of the mortgage loans will equal or exceed the
value of the mortgaged properties. In addition, adverse economic
conditions in those states may affect borrowers' timely payment of
scheduled payments of principal and interest on mortgage loans in those
states. Accordingly, the actual rates of delinquencies, foreclosures and
losses on the mortgage loans could be higher than those currently
experienced in the mortgage lending industry in general.
o Risks Associated with Damaged Mortgage Properties. Generally, the
standard form of hazard insurance policy required to be maintained under
the terms of each mortgage loan does not cover physical damage resulting
from floods and other water-related causes or from earth movement
(including earthquakes, landslides and mudflows). California historically
has been vulnerable to certain natural disaster risks, such as
earthquakes and erosion-caused mudslides. Florida historically has been
vulnerable to certain other natural disasters, such as tropical storms
and hurricanes. To the extent a mortgaged property has been materially
damaged since the cut-off date due to flooding or other water-related
causes or due to an earthquake or other earth movement and that damage
results in losses on the related mortgage loan, and if such damage is
caused by a natural disaster in one of the states with a concentration of
loans, you could suffer a loss if such loss exceeds the
overcollateralization of the mortgage loans and the certificate insurer
does not fulfill its obligations under the certificate insurance policy.
Under the pooling and servicing agreement, the sponsor will represent
that, as of the cut-off date, each mortgaged property is free of
S-13
<PAGE>
substantial damage and is in good repair. In the event that any uncured
breach of that representation materially and adversely affects the
interest of certificateholders in the related mortgage loan, the sponsor
will be required to repurchase the mortgage loan or deliver a substitute
mortgage loan for it. To the extent the sponsor repurchases any mortgage
loan, the repurchase will accelerate the timing of principal
distributions with respect to the related mortgage loan group and may
thereby affect the yields and weighted average lives of the related
class or classes of certificates.
o Risks Associated with Adjustable Rate and Hybrid Loans. Credit-impaired
borrowers with adjustable rate loans or loans that have an initial fixed
rate term followed by an adjustable rate term may encounter financial
difficulties as a result of increases in the interest rate over the life
of the loan. Substantially all of the adjustable rate and hybrid loans
include a teaser rate, i.e., an initial interest rate significantly below
the fully indexed interest rate at origination. As a result, borrowers
will face interest rate increases on their adjustable rate even in a
stable interest rate environment. Loans with an initial adjustment date
six months after funding are underwritten at the indexed rate as of the
first adjustment date, and hybrid loans with an initial adjustment date
two or three years after funding are underwritten at the teaser rate.
Higher risks of delinquency may result when borrowers who may qualify for
adjustable rate and hybrid loans with a teaser rate at the time of
funding may not be able to afford the monthly payments when the payment
amount increases.
THE RETURN ON YOUR INVESTMENT WILL CHANGE OVER TIME
Your pre-tax return on your investment will change from time to time for a
number of reasons, including the following:
o The Rate of Return of Principal is Uncertain. The amount of distributions
of principal of the offered certificates and the time when you receive
those distributions depends on the amount and the times at which
borrowers make principal payments on the mortgage loans. Those principal
payments may be regularly scheduled payments or unscheduled payments
resulting from prepayments or defaults of the mortgage loans. The rate of
prepayment may be affected by the credit standings of the borrowers. If a
borrower's credit standing improves, that borrower may be able to
refinance his existing loan on more favorable terms, which would result
in a principal prepayment.
Substantially all of the statistic calculation loans in adjustable rate
group I and adjustable rate group II have fixed interest rates for some
specified period before beginning to adjust. Those mortgage loans may
have higher prepayments as they approach their first adjustment dates
because the borrowers may want to avoid periodic changes to their
monthly payments or the increase in rate after the initial fixed rate
period. We refer you to "-- Hybrid Loans" below.
o The Rate of Prepayment of the Mortgage Loans is Uncertain. All of the
statistic calculation loans may be prepaid in full or in part at any
time, in some cases upon the payment to the sponsor of a prepayment
charge. The rate of prepayments of the mortgage loans cannot be predicted
and may be affected by a wide variety of economic, social, competitive
and other factors. Prepayments,
S-14
<PAGE>
liquidations, repurchases and purchases of the mortgage loans will
result in distributions to offered certificateholders of principal
amounts that would otherwise be distributed over the remaining terms of
the mortgage loans thereby potentially affecting the yield to maturity
of an offered certificate from the anticipated yield. We refer you to
"The Mortgage Loans -- General" in this prospectus supplement and "Risk
Factors -- Yield, Maturity and Prepayment Considerations" in the
prospectus.
o You Bear Reinvestment Risk. Mortgage-backed securities like the offered
certificates usually produce more returns of principal to investors when
market interest rates fall below the interest rates on the mortgage loans
and produce less returns of principal when market interest rates are
above the interest rates on the mortgage loans. If borrowers refinance
their mortgage loans as a result of lower market interest rates, you will
receive an unscheduled payment of principal. As a result, you are likely
to receive more money to reinvest at a time when other investments
generally are producing a lower yield than that on the offered
certificates, and are likely to receive less money to reinvest when other
investments generally are producing a higher yield than that on the
offered certificates. You will bear the risk that the timing and amount
of distributions on your offered certificates will prevent you from
attaining your desired yield.
o The Optional Termination May Affect the Yield. Your investment in the
offered certificates may be ended before you desire if the optional
termination is exercised. In addition, holders of the Class A-V1 and
Class A-V2 Certificates will not be entitled to any supplemental interest
amounts accrued but unpaid at the time the optional termination is
exercised. We refer you "Description of the Certificates -- Termination;
Retirement of the Certificates" in this prospectus supplement.
o Pass-Through Rates May be Limited. The rate at which interest accrues on
the Class A-5F, Class A-6F, Class A-V1 and Class A-V2 Certificates is
subject to a rate cap that differs by mortgage loan group. The rate cap
for the Class A-5F and Class A-6F Certificates is the maximum rate for
the fixed rate group, the rate cap for the Class A-V1 Certificates is the
lesser of the maximum rate for adjustable rate group I or 14% and the
rate cap for the Class A-V2 Certificates is the lesser of the maximum
rate for adjustable rate group II or 14%. Each maximum rate is based on
the weighted average of the interest rates on the mortgage loans in the
related mortgage loan group, net of certain fees and expenses. If
mortgage loans with relatively higher loan rates prepay, the maximum rate
on the related classes of offered certificates will be lower than
otherwise would be the case.
Your investment in the Class A-V1 and Class A-V2 Certificates also
involves the risk that the level of LIBOR may change in a direction
and/or at a rate that is different from the level of the index used to
determine the interest rates on the related adjustable rate mortgage
loans, which could reduce the maximum rate for those classes.
If the pass-through rate on your certificates is limited by the
applicable rate cap, the market value and liquidity of your certificates
may decline.
S-15
<PAGE>
We refer you to "Prepayment and Yield Considerations -- The Pass-Through
Rates" in this prospectus supplement.
o Hybrid Loans. Based on principal balances as of the statistic calculation
date, approximately 42.38% and 48.30% of the statistic calculation loans
in adjustable rate group I and adjustable rate group II, respectively,
had at origination a two year fixed rate term followed by either a 13 or
28 year adjustable rate term, and approximately 56.70% and 50.78% of the
statistic calculation loans in adjustable rate group I and adjustable
rate group II, respectively, had at origination a three year fixed rate
term followed by either a 12 or a 27 year adjustable rate term. As with
all mortgage loans, the rate of prepayments on Hybrid Loans (as we call
these loans in this prospectus supplement) that are in their respective
initial fixed rate periods is sensitive to prevailing interest rates. The
prepayment behavior of the Hybrid Loans may differ from that of the other
mortgage loans. As a Hybrid Loan approaches its initial adjustment date,
the borrower may become more likely to refinance the loan to avoid an
increase in the coupon rate, even if fixed rate loans are only available
at rates that are slightly lower or higher than the coupon rate before
adjustment. The existence of the applicable periodic rate cap, lifetime
cap and lifetime floor also may affect the likelihood of prepayments
resulting from refinancings. You will bear the risk of any faster or
slower prepayments on the mortgage loans. We refer you to "Prepayment and
Yield Considerations" in this prospectus supplement.
THE TRUST ASSETS ARE THE ONLY SOURCE OF PAYMENTS ON THE OFFERED CERTIFICATES
All distributions on the offered certificates will be made from payments
by borrowers under the mortgage loans, payments under the financial guaranty
insurance policy or, in the case of certain mortgage loans, the related primary
mortgage insurance policy. The trust has no other assets to make distributions
on the offered certificates. The mortgage loans are not insured, other than by
the related primary mortgage insurance policy in the case of the primary
mortgage insurance loans, or guaranteed by any person. The trust is the only
person that is obligated to make distributions on the offered certificates. The
offered certificates are not insured by any governmental agency.
TRANSFER OF PRIMARY SERVICING MAY RESULT IN HIGHER DELINQUENCIES AND DEFAULTS
WHICH MAY ADVERSELY AFFECT THE YIELD ON YOUR CERTIFICATES
Countrywide Home Loans, Inc. will be the servicer under the pooling and
servicing agreement. However, the sponsor has serviced the mortgage loans since
origination or acquisition by the originator or the sponsor and will continue
to service the mortgage loans on an interim basis pending the transfer of
primary servicing obligations to Countrywide Home Loans, Inc. Although we
expect the transfer to be completed by October 31, 2000, we cannot assure you
that it will be completed by that date. All transfers of servicing involve the
risk of disruption in collections due to data input errors, misapplied or
misdirected payments, system incompatibilities and other reasons. As a result,
the rate of delinquencies and defaults are likely to increase at least for a
period of time. A higher delinquency rate may delay payments of principal to
you. A higher default rate may result in accelerated prepayments on the offered
certificates.
S-16
<PAGE>
You will bear any reinvestment risk associated with any accelerated
prepayments. We cannot assure you as to the extent or duration of any
disruptions associated with the transfer of servicing or as to the resulting
effect on the yield on your certificates.
FAILURE OF THE CERTIFICATE INSURER TO EXTEND TERM OF SERVICING COULD BE
DISRUPTIVE
The pooling and servicing agreement provides that the rights and
obligations of the servicer terminate each calendar quarter commencing December
31, 2000, unless renewed by the certificate insurer for successive quarterly
periods. The certificate insurer has agreed to extend each three month term of
the servicer in the absence of an event of default by the servicer under the
pooling and servicing agreement. If the term of the servicer is not renewed,
servicing of the mortgage loans would be transferred to a successor servicer
appointed in the manner set forth in the pooling and servicing agreement, the
selection of which may be made by the certificate insurer unless a certificate
insurer default has occurred and is continuing. These provisions of the pooling
and servicing agreement may be modified or eliminated with the consent of the
certificate insurer. Any such transfer of servicing involves the risk of
disruption in collections which may result in higher delinquencies and defaults
which may adversely affect the yield on your certificates. We refer you to
"Origination and Servicing of the Mortgage Loans -- Initial Term of Servicer
and Extensions of Term" in this prospectus supplement.
RISKS ASSOCIATED WITH ORIGINATION FEES
Fees earned on the origination of loans, placement of related insurance
and other services provided by the sponsor and affiliated originators are often
paid by the borrower out of related loan proceeds. From time to time, in the
ordinary course of their businesses, originators of mortgage loans have been
named in legal actions brought by mortgagors challenging the amount or method
of imposing or disclosing such fees. If such an action against any originator
with respect to any mortgage loan were successful, a court might require that
the principal balances of the related mortgage loans be reduced by the amount
of contested fees or charges. Any such reductions could result in substantial
realized losses during one or more collection periods. To cover such losses in
excess of any overcollateralization, payments by the certificate insurer would
result in accelerated distributions in reduction of the related certificate
principal balance.
VIOLATIONS OF CONSUMER PROTECTION LAWS MAY RESULT IN LOSSES
Based on aggregate principal balances as of the statistic calculation
date, approximately 6.02% of the statistic calculation loans in the fixed rate
group, none of the statistic calculation loans in adjustable rate group I and
11.74% of the statistic calculation loans in adjustable rate group II are
subject to the Home Ownership and Equity Protection Act of 1994, which amended
the Truth in Lending Act as it applies to certain mortgages. This act requires
certain additional disclosures, specifies the timing of such disclosures and
limits or prohibits inclusion of certain provisions in mortgages that are
subject to the act, any violation of which could limit the ability of the
servicer to collect on such mortgage loans. The act also provides that any
purchaser or assignee of a mortgage covered by the act is subject to all of the
claims and defenses that the borrower could assert against the original lender.
The maximum damages that may be recovered under the act from an assignee is the
remaining amount of indebtedness plus
S-17
<PAGE>
the total amount paid by the borrower in connection with the mortgage loan.
Although the sponsor has procedures in place to ensure compliance with the
requirements of the act, the trust could be subject to all of the claims and
defenses that the borrower of a mortgage covered by the act could assert
against the sponsor. Any violation of the act that would result in such
liability would be a breach of the sponsor's representations and warranties
under the pooling and servicing agreement and the sponsor would be obligated to
cure, repurchase or substitute for the mortgage loan in question, which could
accelerate the timing of principal distributions with respect to the related
mortgage loan group and may thereby affect the yields and weighted average
lives of the related class or classes of certificates.
WITHDRAWAL OR DOWNGRADING OF INITIAL RATINGS WILL AFFECT THE PRICES FOR
CERTIFICATES
A security rating is not a recommendation to buy, sell or hold securities.
Similar ratings on different types of securities do not necessarily mean the
same thing. You are encouraged to analyze the significance of each rating
independently from any other rating. Any rating agency may change its rating of
the offered certificates after those offered certificates are issued if that
rating agency believes that circumstances have changed. Any subsequent change
in rating will likely affect the price that a subsequent purchaser will be
willing to pay for your certificates.
THE OFFERED CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS
The offered certificates are not a suitable investment if you require a
regular or predictable schedule of payments or payment on any specific date.
The offered securities are complex investments that should be considered only
by investors who, either alone or with their financial, tax and legal advisors,
have the expertise to analyze the prepayment, reinvestment, default and market
risk, the tax consequences of an investment, and the interaction of these
factors.
S-18
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will represent certain undivided beneficial ownership
interests in Aames Mortgage Trust 2000-1 (the "Trust") created pursuant to a
Pooling and Servicing Agreement dated as of September 1, 2000 (the "Pooling and
Servicing Agreement") among Aames Capital Corporation, as sponsor (the
"Sponsor"), Countrywide Home Loans, Inc., as servicer (the "Servicer") and
Bankers Trust Company of California, N.A., as trustee (the "Trustee"), subject
to the limits and priority of distributions described therein. The Offered
Certificates will be issued in minimum denominations of $1,000 and integral
dollar multiples of $1 in excess thereof.
The assets of the Trust will consist of (a) the Mortgage Loans, divided
into three groups each constituting a sub-trust, that from time to time are
subject to the Pooling and Servicing Agreement; (b) the assets that from time
to time are required by the Pooling and Servicing Agreement to be deposited in
the Collection Account and the Certificate Account or invested in Permitted
Investments (we refer you to "The Mortgage Loans -- Payments on Mortgage Loans
and Deposits to the Collection Account" in this Prospectus Supplement); (c) all
rights of the mortgagee under any insurance policy covering a Mortgage Loan or
the related Mortgaged Property; (d) property and any proceeds thereof acquired
by foreclosure of the Mortgage Loans, deed in lieu of foreclosure or a
comparable conversion; (e) the Certificate Insurance Policy; and (f) rights
under the applicable primary mortgage guaranty policy in connection with the
PMI Mortgage Loans.
You can find the definitions for some of the capitalized terms used both
in the prospectus and this prospectus supplement under the caption "Glossary of
Terms" in this Prospectus Supplement. For the location of the definitions of
capitalized terms used in the Prospectus or this Prospectus Supplement, but not
included under the caption "Glossary of Terms" in this Prospectus Supplement,
we refer you to the "Index of Principal Terms" in the Prospectus or the one in
this Prospectus Supplement.
SEPARATE REMIC STRUCTURE
The Sponsor will designate in the Pooling and Servicing Agreement, for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"), each of
the Offered Certificates (exclusive of any rights of the Class A-V1 and Class
A-V2 Certificates to receive Supplemental Interest Amounts), the Class P
Certificates and the Class C Certificates as "regular interests" in a real
estate mortgage investment conduit (a "REMIC"), and the Class R Certificates as
representing the sole class of "residual interests" in each REMIC created
pursuant to the Pooling and Servicing Agreement. The Supplemental Interest
Reserve Fund will not be part of any REMIC. The Closing Date will be designated
as the "Startup Day" (within the meaning of the Code) of the REMICs. We refer
you to "Certain Federal Income Tax Consequences" in this Prospectus Supplement
and in the Prospectus.
DISTRIBUTION DATES
The Trustee, in its capacity as paying agent (the "Paying Agent"), will
make distributions of principal and interest on the Offered Certificates on the
25th day of
S-19
<PAGE>
each month or, if such day is not a Business Day, on the next succeeding
Business Day, commencing October 25, 2000 (each such day, a "Distribution
Date"). Distributions will be made pursuant to the cashflow priorities
hereinafter described and subject to the availability of amounts therefor, to
the person in whose name a Certificate is registered (a "Certificateholder" or
"Holder") as of the Record Date. The "Record Date" for any Distribution Date
and (a) the Fixed Rate Group Certificates, is the last business day of the
calendar month preceding the month in which such Distribution Date occurs and
(b) for either the Adjustable Rate Group I Certificates or the Adjustable Rate
Group II Certificates, the business day immediately preceding such Distribution
Date so long as such Certificates remain in book-entry form and, otherwise, the
last business day of the calendar month immediately preceding the month in
which such Distribution Date occurs.
Distributions will be made (i) in immediately available funds to Holders
of Certificates the aggregate principal balance of which is at least
$5,000,000, by wire transfer or otherwise, to the account of such
Certificateholder at a domestic bank or other entity having appropriate
facilities therefor, if such Certificateholder has so notified the Trustee, or
(ii) by check mailed to the address of the person entitled thereto as it
appears on the register (the "Certificate Register") maintained by the Trustee
as registrar. Notwithstanding the foregoing, the final distribution on any
Certificate will be made in like manner but only upon presentment and surrender
of such Certificate at the office or agency appointed for such purpose.
DISTRIBUTIONS
On each Distribution Date, the Trustee will withdraw the Available Funds
for each Mortgage Loan Group plus the amount, if any, paid under the
Certificate Insurance Policy with respect to such Mortgage Loan Group and apply
such amounts in the following order of priority, in each case, to the extent of
the funds remaining:
1. Concurrently, to the Trustee, the Trustee Fee, to the Servicer, the
Monthly Servicing Fee and the PMI Insurer Premium (if any) (to the extent
not otherwise reimbursed from the Collection Account), and to the
Certificate Insurer, the Certificate Insurer Premium, in each case for such
Mortgage Loan Group and Distribution Date.
2. To the Class of Offered Certificates in the related Certificate
Group, the related Accrued Certificate Interest and any Interest Carry
Forward Amount for such Class of Certificates for such Distribution Date.
3. To the Class of Offered Certificates in the related Certificate
Group, an amount up to the related Principal Distribution Amount as
follows:
A. Fixed Rate Group in the following order of priority:
The Fixed Rate Group Principal Distribution Amount, as follows;
(i) to the Class A-6F Certificates, the Class A-6F Lockout
Distribution Amount, until the Certificate Principal Balance
thereof has been reduced to zero; and
(ii) sequentially, to the Class A-1F, Class A-2F, Class
A-3F, Class A-4F, Class A-5F and Class A-6F Certificates, in
that order, until the respective Certificate Principal Balances
thereof have been reduced to zero;
S-20
<PAGE>
Notwithstanding the priorities set forth in this clause A, if a
Certificate Insurer Default has occurred and is continuing, the applicable
Principal Distribution Amount will be distributed concurrently to each
Class of Offered Certificates in the Fixed Rate Group on a pro rata basis
in accordance with their respective Certificate Principal Balances.
B. Adjustable Rate Group I:
The Adjustable Rate Group I Principal Distribution Amount to the
Class A-V1 Certificates until the Certificate Principal Balance
thereof has been reduced to zero.
C. Adjustable Rate Group II:
The Adjustable Rate Group II Principal Distribution Amount to
the Class A-V2 Certificates until the Certificate Principal Balance
thereof has been reduced to zero.
4. To the Certificate Insurer, any amounts owing under the Insurance
Agreement.
5. To the Holders of Certificates in either or both of the other
Certificate Groups, the amount of any applicable Available Funds Shortfall
for such other Certificate Group or Groups, allocated in accordance with
the pooling and servicing agreement.
6. To the Class of Offered Certificates in the related Certificate
Group, an amount up to the Extra Principal Distribution Amount for the
related Certificate Group for such Distribution Date, until the related
Targeted Overcollateralization Amount is reached.
7. To the Class of Offered Certificates in either or both of the other
Certificate Groups, any applicable Target Deficiency for such Certificate
Group or Groups remaining after the distributions pursuant to clause 6
above, allocated in accordance with pooling and servicing agreement.
8. To fund a distribution to the Class C Certificateholders or to make a
payment of any Supplemental Interest Amount (which shall be made to the
Class A-V1 and Class A-V2 Certificates based on the respective outstanding
Supplemental Interest Amounts due thereon), as the case may be.
9. To the Class R Certificates, the remainder.
On each Distribution Date, the Accrued Certificate Interest and any
Interest Carry Forward Amount for each Class of Offered Certificates in a
Certificate Group will be distributed on an equal priority and any shortfall in
the amount required to be distributed as interest thereon to each such Class
will be allocated among such Classes pro rata based on the amount that would
have been distributed on each such Class in the absence of such shortfall.
On each Distribution Date, the Holders of the Class P Certificates will be
entitled to all Prepayment Charges received with respect to the Mortgage Loans
in each Mortgage Loan Group during the related Collection Period, and such
amounts will not be available for distribution on the other Classes of
Certificates.
S-21
<PAGE>
GLOSSARY OF TERMS
The following terms have the meanings given below to help describe the
cashflows on the Offered Certificates:
"Accrued Certificate Interest" for any Class of Certificates on any
Distribution Date is the amount of interest due thereon in respect of any
Interest Period at the applicable Pass-Through Rate, less the related pro rata
share of Interest Shortfalls.
"Adjustable Rate Group I Principal Distribution Amount" with respect to
any Distribution Date is the Principal Distribution Amount with respect to the
Adjustable Rate Group I Certificates and the related Collection Period.
"Adjustable Rate Group II Principal Distribution Amount" with respect to
any Distribution Date is the Principal Distribution Amount with respect to the
Adjustable Rate Group II Certificates for the related Collection Period.
"Available Funds" as to any Mortgage Loan Group and any Distribution Date,
is the sum, without duplication of the following amounts with respect to the
Mortgage Loans in such Mortgage Loan Group and the immediately preceding
Collection Period:
(i) scheduled and unscheduled payments of principal and interest on the
Mortgage Loans received by the Servicer, including amounts deposited in
respect of interest on any Mortgage Loan that does not have a monthly
payment due in the Collection Period relating to the Distribution Date (net
of amounts representing the Monthly Servicing Fee with respect to each
Mortgage Loan and reimbursement for Monthly Advances and Servicing
Advances);
(ii) Net Liquidation Proceeds and Trust Insurance Proceeds with respect
to the Mortgage Loans (net of amounts applied to the restoration or repair
of a Mortgaged Property);
(iii) amounts payable in connection with each such Mortgage Loan that
was repurchased from the Trust, and all amounts payable in respect of any
Mortgage Loan in the related Mortgage Loan Group in connection with a
substitution of a Qualified Replacement Mortgage Loan therefor; and
(iv) payments from the Servicer in connection with (a) Monthly Advances
and (b) Compensating Interest and payments in connection with the
termination of the Trust with respect to the Mortgage Loans as provided in
the Pooling and Servicing Agreement.
Available Funds shall not include any amounts paid by a mortgagor in
connection with certain partial prepayments and all prepayments in full
("Prepayment Charges").
"Available Funds Shortfall" as to any Mortgage Loan Group and any
Distribution Date, is the excess, if any, of (x) the aggregate of the amounts
required to be distributed pursuant to clauses 1 through 4 above under "--
Distributions," over (y) the Available Funds for such Mortgage Loan Group and
Distribution Date.
"Basic Principal Amount" as to any Mortgage Loan Group and any
Distribution Date, is an amount equal to the sum of the following amounts
(without duplication) with respect to the Mortgage Loans in such Mortgage Loan
Group and the immediately preceding Collection Period:
S-22
<PAGE>
(i) each payment of principal on a Mortgage Loan received by the
Servicer during such Collection Period, including all full and partial
principal prepayments;
(ii) the Net Liquidation Proceeds and Trust Insurance Proceeds allocable
to principal received by the Servicer with respect to any Mortgage Loan
during such Collection Period; and
(iii) all amounts allocable to principal payable in connection with each
such Mortgage Loan that was repurchased from the Trust during such
Collection Period, and all amounts allocable to principal payable in
respect of any Mortgage Loan in the related Mortgage Loan Group in
connection with a substitution of a Qualified Replacement Mortgage Loan
therefor.
"Certificate Insurer Premium" means, for any Certificate Group, the sum of
the premium under the Certificate Insurance Policy plus any premium supplement
imposed under the Insurance Agreement upon the occurrence of certain events
thereunder.
"Certificate Principal Balance" of any Class of the Offered Certificates
is the original Certificate Principal Balance of such Class as reduced by all
amounts in respect of principal actually distributed to the related
Certificateholders on all prior Distribution Dates.
"Class A-6F Lockout Distribution Amount" for any Distribution Date will be
the product of (i) the applicable Class A-6F Lockout Percentage for such
Distribution Date and (ii) the Class A-6F Lockout Pro Rata Distribution Amount
for such Distribution Date, not to exceed the Fixed Rate Group Principal
Distribution Amount.
"Class A-6F Lockout Percentage" for each Distribution Date will be as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION DATES LOCKOUT PERCENTAGE
---------------------------------- -------------------
<S> <C>
October 2000 -- September 2003 0%
October 2003 -- September 2005 45%
October 2005 -- September 2006 80%
October 2006 -- September 2007 100%
October 2007 and thereafter 300%
</TABLE>
"Class A-6F Lockout Pro Rata Distribution Amount" for any Distribution
Date will be an amount equal to the product of (x) a fraction, the numerator of
which is the Certificate Principal Balance of the Class A-6F Certificates
immediately prior to such Distribution Date and the denominator of which is the
aggregate Certificate Principal Balance of the Fixed Rate Group Certificates
immediately prior to such Distribution Date and (y) the Fixed Rate Group
Principal Distribution Amount for such Distribution Date.
"Collection Period" with respect to the first Distribution Date, is the
period beginning on and including September 2, 2000 and ending on and including
October 1, 2000 (except that with respect to payments due and unpaid on or
before September 1, 2000, only collections of principal are included), and with
respect to any Distribution Date thereafter for collections of both interest
and principal, the period beginning on and including the second day of the
calendar month immediately preceding such Distribution Date and ending on and
including the first day of the calendar month of such Distribution Date.
S-23
<PAGE>
"Extra Principal Distribution Amount" as to any Certificate Group and any
Distribution Date, shall be the lesser of (i) the related Target Deficiency and
(ii) the related Monthly Excess Cashflow Amount.
"Fixed Rate Group Principal Distribution Amount" with respect to any
Distribution Date is the Principal Distribution Amount with respect to the
Fixed Rate Group Certificates and the related Collection Period.
"Interest Carry Forward Amount" with respect to any Class of Certificates
on any Distribution Date is the amount, if any, by which (i) the Accrued
Certificate Interest on such Class for the preceding Distribution Date plus any
outstanding Interest Carry Forward Amount with respect to such Class from the
second preceding Distribution Date (together with interest on such outstanding
Interest Carry Forward Amount at the related Pass-Through Rate for the related
Interest Period to the extent lawful) exceeds (ii) the amount of interest
actually distributed to the holders of such Certificates on such preceding
Distribution Date.
"Interest Shortfall" as to any Class of Certificates and any Distribution
Date, is the amount equal to the sum of Relief Act Shortfalls and Prepayment
Interest Shortfalls.
"Liquidation Proceeds" means the aggregate of any proceeds received by the
Servicer, including payments received under the PMI Policy, during the related
Collection Period in connection with the liquidation of any Mortgaged Property
securing a Mortgage Loan, whether through trustee's sale, foreclosure,
condemnation, taking by eminent domain or otherwise (including any insurance
proceeds to the extent not duplicative of Trust Insurance Proceeds).
"Monthly Excess Cashflow Amount" as to any Distribution Date, shall be the
Available Funds remaining after the application of payments pursuant to clauses
1 through 5 above, under "-- Distributions."
"Net Liquidation Proceeds" means the amount equal to Liquidation Proceeds
less expenses incurred by the Servicer in connection with the liquidation of
such Mortgage Loan.
"Overcollateralization Amount" is, with respect to a Mortgage Loan Group
as of any Distribution Date the excess of (x) the aggregate of the outstanding
Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the
last day of the related Collection Period over (y) the aggregate Certificate
Principal Balance of the related Offered Certificates (after taking into
account all distributions of principal on the Offered Certificates on such
Distribution Date).
"Overcollateralization Release Amount" is, for any Distribution Date and
any Certificate Group, the lesser of (i) the related Basic Principal Amount for
such Distribution Date and (ii) the excess, if any of (x) the related
Overcollateralization Amount over (y) the Targeted Overcollateralization
Amount.
"PMI Insurer Premium" means, for any Distribution Date and any Certificate
Group, the aggregate of the premiums payable by the Servicer, if any, during
the immediately preceding Collection Period under the PMI Policy for any PMI
Mortgage Loans in the related Mortgage Loan Group.
"Principal Distribution Amount" as to any Distribution Date and any
Certificate Group, means the lesser of (a) the aggregate Certificate Principal
Balances of the
S-24
<PAGE>
related Certificate Group immediately preceding such Distribution Date and (b)
the Basic Principal Amount of the related Certificate Group minus the related
Overcollateralization Release Amount.
"Relief Act" means the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"Relief Act Shortfalls" as to any Distribution Date and any Mortgage Loan
Group, shall be the amount of any reduction of interest collectable on any
Mortgage Loan in such Mortgage Loan Group for the related period due to the
application of the Relief Act.
"Supplemental Interest Amount" means (A) with respect to the Class A-V1
Certificates on any Distribution Date, the sum of (i) the positive excess, if
any, of the amount of interest that would have accrued thereon during the
related Interest Period calculated at the lesser of (x) the related Class A-V1
Formula Pass-Through Rate and (y) 14%, over the amount of interest that did
accrue thereon at the Class A-V1 Pass-Through Rate and (ii) any related
Supplemental Interest Amount remaining unpaid from a prior Distribution Date
(and, in the case of any related Supplemental Interest Amount remaining unpaid
from a prior Distribution Date, interest thereon calculated at the lesser of
(x) the related Class A-V1 Formula Pass-Through Rate and (y) 14%, to the extent
lawful) and (B) with respect to the Class A-V2 Certificates on any Distribution
Date, the sum of (1) the positive excess, if any, of the amount of interest
that would have accrued thereon during the related Interest Period calculated
at the lesser of (x) the related Class A-V2 Formula Pass-Through Rate and (y)
14%, over the amount of interest that did accrue thereon at the Class A-V2
Pass-Through Rate and (ii) any related Supplemental Interest Amount remaining
unpaid from a prior Distribution Date (and, in the case of any related
Supplemental Interest Amount remaining unpaid from a prior Distribution Date,
interest thereon calculated at the lesser of (x) the related Class A-V2 Formula
Pass-Through Rate and (y) 14%, to the extent lawful).
"Target Deficiency" as to any Certificate Group and any Distribution Date,
shall be the excess, if any, of (i) the related Targeted Overcollateralization
Amount for such Distribution Date over (ii) the related Overcollateralization
Amount for such Distribution Date calculated, for this purpose only, after
giving effect to the distribution of the related Basic Principal Amount on such
Distribution Date but prior to any distributions of related Extra Principal
Distribution Amount on such Distribution Date.
"Targeted Overcollateralization Amount" means, with respect to any
Certificate Group and any Distribution Date, a specified level of
overcollateralization required by the Certificate Insurer calculated as
provided in the Pooling and Servicing Agreement. The Pooling and Servicing
Agreement provides that the Targeted Overcollateralization Amount with respect
to any Mortgage Loan Group may be modified, reduced or eliminated without the
consent of any Certificateholders.
"Trust Insurance Proceeds" means the aggregate of any proceeds from or in
respect of any policy of insurance (other than the PMI Policy or Certificate
Insurance Policy) covering a Mortgage Loan in a Mortgage Loan Group that are
received during a Collection Period and applied by the Servicer to reduce the
principal balance of the related Mortgage Loan or losses with respect thereto
(which proceeds will not include
S-25
<PAGE>
any amounts applied to the restoration or repair of the related Mortgaged
Property or released to the related Mortgagor in accordance with applicable
law, the Servicer's customary servicing procedures or the terms of the related
Mortgage Loan).
PASS-THROUGH RATES
The "Pass-Through Rate" for the Fixed Rate Group Certificates is set forth
on the cover page of this Prospectus Supplement. Such Pass-Through Rates on the
Class A-5F and the Class A-6F Certificates are subject to the Fixed Rate Group
Available Funds Cap.
The "Fixed Rate Group Available Funds Cap" will be, with respect to any
Distribution Date, the per annum rate equal to the percentage obtained by
dividing (x) the amount of interest that accrued on the Mortgage Loans in the
Fixed Rate Group in respect of the related Interest Period at the related
Mortgage Interest Rates applicable to Monthly Payments due on such Mortgage
Loans during such Interest Period, reduced by (i) the Monthly Servicing Fee for
the Mortgage Loans in the Fixed Rate Group for such Interest Period, (ii) the
Certificate Insurer Premium attributable to the Fixed Rate Group for the
related Distribution Date, (iii) the Trustee Fee attributable to the Fixed Rate
Group for the related Distribution Date and (iv) the PMI Insurance Premium, if
any, attributable to the Fixed Rate Group for the related Distribution Date by
(y) the product of (i) the Fixed Rate Group balance as of the first day of such
Interest Period and (ii) 1/12.
The Class A-5F Pass-Through Rate and Class A-6F Pass-Through Rate with
respect to each Interest Period ending prior to the Clean-up Call Date will be
8.07% per annum and 7.63% per annum, respectively, in each case subject to the
Fixed Rate Group Available Funds Cap. The Class A-5F Pass-Through Rate and
Class A-6F Pass-Through Rate for each Interest Period thereafter will be 8.57%
per annum and 8.13% per annum, respectively, in each case subject to the Fixed
Rate Group Available Funds Cap.
The Class A-V1 Pass-Through Rate with respect to each Interest Period will
be equal to the lesser of (x) with respect to each Interest Period ending on or
prior to the Clean-up Call Date, LIBOR (calculated as described below under "--
Calculation of LIBOR") plus 0.25% per annum and for any Interest Period
thereafter, LIBOR plus 0.50% per annum (the "Class A-V1 Formula Pass-Through
Rate") and (y) the Adjustable Rate Group I Available Funds Cap.
The Pass-Through Rate for the Class A-V1 Certificates generally will be
limited to the Adjustable Rate Group I Available Funds Cap. The "Adjustable
Rate Group I Available Funds Cap" will be, with respect to any Distribution
Date, the per annum rate equal to the lesser of (A) the percentage obtained by
dividing (x) the amount of interest that accrued on the Mortgage Loans in
Adjustable Rate Group I in respect of the related Interest Period at the
related Mortgage Interest Rates applicable to Monthly Payments due on such
Mortgage Loans during such Interest Period, reduced by (i) the Monthly
Servicing Fee for the Mortgage Loans in Adjustable Rate Group I for such
Interest Period, (ii) the Certificate Insurer Premium attributable to
Adjustable Rate Group I for the related Distribution Date, (iii) the Trustee
Fee attributable to Adjustable Rate Group I for the related Distribution Date,
(iv) the PMI Insurance Premium, if any, attributable to Adjustable Rate Group I
for the related Distribution Date and (v) after the 12th Distribution Date,
one-twelfth of 0.50% of the Adjustable
S-26
<PAGE>
Rate Group balance as of the first day of the related Collection Period by (y)
the product of (i) the Adjustable Rate Group I balance as of the first day of
such Interest Period, (ii) the actual number of days elapsed during such
Interest Period divided by 360 and (B) 14%.
The Class A-V2 Pass-Through Rate with respect to each Interest Period will
be equal to the lesser of (x) with respect to each Interest Period ending on or
prior to the Clean-up Call Date, LIBOR (calculated as described below under "--
Calculation of LIBOR") plus 0.26% per annum and for any Interest Period
thereafter, LIBOR plus 0.52% per annum (the "Class A-V2 Formula Pass-Through
Rate") and (y) the Adjustable Rate Group II Available Funds Cap.
The Pass-Through Rate for the Class A-V2 Certificates generally will be
limited to the Adjustable Rate Group II Available Funds Cap. The "Adjustable
Rate Group II Available Funds Cap" will be, with respect to any Distribution
Date, the per annum rate equal to the lesser of (A) the percentage obtained by
dividing (x) the amount of interest that accrued on the Mortgage Loans in
Adjustable Period, reduced by (i) the Monthly Servicing Fee for the Mortgage
Loans in Adjustable Rate Group II for such Interest Period, (ii) the
Certificate Insurer Premium attributable to Adjustable Rate Group II for the
related Distribution Date, (iii) the Trustee Fee attributable to Adjustable
Rate Group II for the related Distribution Date, (iv) the PMI Insurance
Premium, if any, attributable to Adjustable Rate Group II for the related
Distribution Date and (v) after the 12th Distribution Date, one-twelfth of
0.50% of the Adjustable Rate Group II balance as of the first day of the
related Collection Period by (y) the product of (i) the Adjustable Rate Group
II balance as of the first day of such Interest Period, (ii) the actual number
of days elapsed during such Interest Period divided by 360 and (B) 14%.
The Class A-V1 and Class A-V2 Certificates will be entitled to receive any
related Supplemental Interest Amount on the Distribution Date on which it
arises or on a subsequent Distribution Date from and to the extent of amounts
otherwise distributable to the Class C Certificateholders. However,
Supplemental Interest Amounts will not be paid after the date on which the
Trust is terminated by optional termination or otherwise.
The Certificate Insurer does not guarantee the payment of, and the ratings
assigned to the Class A-V1 and Class A-V2 Certificates do not address the
likelihood of the payment of, any Supplemental Interest Amounts.
CALCULATION OF LIBOR
"LIBOR" shall mean the London Interbank Offered Rate for one-month United
States dollar deposits. LIBOR for each Interest Period shall be determined on
the second business day preceding the first day of any Interest Period (each, a
"LIBOR Determination Date"), on the basis of the offered rate for one-month
United States dollar deposits, as such rate appears on the Dow Jones Telerate
Service Page 3750 (or any replacement page on that service for the purpose of
displaying London Interbank Offered Rates of major banks), as of 11:00 a.m.
(London time) on such LIBOR Determination Date. As used in this section,
"business day" means a day on which banks are open for dealing in foreign
currency and exchange in London and New York City; and "Reference Banks" means
leading banks selected by the Trustee and engaged
S-27
<PAGE>
in transactions in Eurodollar deposits in the international Eurocurrency market
(i) with an established place of business in London, (ii) whose quotations
appear on such page on the LIBOR Determination Date in question, (iii) that
have been designated as such by the Trustee and (iv) not controlling,
controlled by or under common control with the Sponsor or any Originator.
On each LIBOR Determination Date, in the event that Dow Jones Telerate
Service Page 3750 (or any replacement page on that service for the purpose of
displaying London Interbank Offered Rates of major banks) is not available, the
Trustee will establish LIBOR as follows:
(a) If on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR shall be the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 0.0625%) of
such offered quotations.
(b) If on such LIBOR Determination Date fewer than two Reference Banks
provide such offered quotations, LIBOR shall be the greater of (x) LIBOR as
determined on the previous LIBOR Determination Date and (y) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum that
the Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 0.0625%) of the
one-month U.S. dollar lending rates that New York City banks selected by
the Trustee are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market
or, in the event that the Trustee can determine no such arithmetic mean,
(ii) the lowest one-month U.S. dollar lending rate that New York City banks
selected by the Trustee are quoting on such LIBOR Determination Date to
leading European banks.
The Trustee's establishment of LIBOR on each LIBOR Determination Date and
the Trustee's calculation of the rate of interest applicable to the Class A-V
Certificates for the related Interest Period shall (in the absence of manifest
error) be final and binding. Each such rate of interest may be obtained by
telephoning the Trustee at (800) 735-7777.
SUPPLEMENTAL INTEREST RESERVE FUND
The Pooling and Servicing Agreement provides for a reserve fund (the
"Supplemental Interest Reserve Fund"), which is held by the Trustee on behalf
of the Holders of the Class A-V1 and Class A-V2 Certificates. To the extent
amounts on deposit are sufficient, Holders of the Class A-V1 and Class A-V2
Certificates will be entitled to receive payments from the fund equal to any
related Supplemental Interest Amount. The amount required to be deposited in
the fund on any Distribution Date (the "Supplemental Interest Reserve Fund
Deposit") will equal any Supplemental Interest Amount for such Distribution
Date, or, if no Supplemental Interest Amount is payable on such Distribution
Date, an amount such that when added to other amounts already on deposit in the
fund, the aggregate amount on deposit therein is equal to $10,000. Any
investment earnings on amounts on deposits in the fund will be paid to (and for
the benefit of) the Holders of the Class C Certificates and will not be
available to pay any Supplemental Interest Amount. The Supplemental Interest
Reserve Fund will not be included as an asset of any REMIC created pursuant to
the Pooling and Servicing Agreement.
S-28
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to Certificateholders, the Trustee
will mail a statement to each Certificateholder in the form required by the
Pooling and Servicing Agreement and setting forth, among other things, the
following information:
(a) the amount of the distribution with respect to each Class of
Certificates (based on a Certificate in the original principal amount of
$1,000);
(b) the amount of such distribution allocable to principal on the
related Mortgage Loans in each Mortgage Loan Group, separately identifying
the aggregate amount of any prepayment or other recoveries of principal
included therein;
(c) the amount of such distribution allocable to interest on the related
Mortgage Loans in each Mortgage Loan Group (based on a Certificate in the
original principal amount of $1,000);
(d) the Accrued Certificate Interest and the Interest Carry Forward
Amount for each Class of Certificates;
(e) the principal amount of each Class of Certificates (based on a
Certificate in the original principal amount of $1,000) that will be
outstanding after giving effect to any payment of principal on such
Distribution Date;
(f) the aggregate of the principal balances of all Mortgage Loans and
the aggregate of the principal balances of the Mortgage Loans in each
Mortgage Loan Group after giving effect to any payment of principal on such
Distribution Date and the related Group Factor;
(g) based upon information furnished by the Sponsor, such information as
may be required by Section 6049(d)(7)(C) of the Code and the regulations
promulgated thereunder to assist Certificateholders in computing their
market discount;
(h) the total of all amounts paid by the Sponsor or the Servicer during
such Collection Period in connection with purchases or repurchases from the
Trust of Mortgage Loans and substitutions for Mortgage Loans of Qualified
Replacement Mortgages with respect to each Mortgage Loan Group;
(i) the Pass-Through Rates for each Class of Offered Certificates;
(j) the weighted average Mortgage Interest Rate of the Mortgage Loans in
each Mortgage Loan Group;
(k) whether certain delinquency and loss triggers under the Pooling and
Servicing Agreement have occurred;
(l) the Overcollateralization Amount and Targeted Overcollateralization
Amount for each Mortgage Loan Group;
(m) the Certificate Principal Balance of each Class of Certificates then
outstanding after giving effect to all payments of principal on such
Distribution Date;
(n) the amount of any draw to be made on the Certificate Insurance
Policy on the related Distribution Date, and the amounts paid and
reimbursable to the Certificate Insurer as of such Distribution Date in
respect of the Certificate Insurance Premium and any Insured Payments;
S-29
<PAGE>
(o) with respect to each Mortgage Loan Group, the number of Mortgage
Loans in each Mortgage Loan Group and the aggregate of their principal
balances as a percentage of the Fixed Rate Group Balance, Adjustable Rate
Group I Balance or Adjustable Rate Group II Balance, as appropriate, that
are (i) 30 to 59 days delinquent, (ii) 60 to 89 days delinquent, (iii) 90
or more days delinquent, (iv) the subject of bankruptcy proceedings (to the
actual knowledge of the Servicer), (v) in foreclosure and (vi) as to which
the related Mortgaged Property is REO Property;
(p) the amount of any Supplemental Interest Amounts paid and remaining
unpaid as of such Distribution Date; and
(q) the dollar amount of (i) claims paid by the PMI Insurer under the
PMI Policy as of the related Distribution Date and (ii) the claims denied
by the PMI Insurer under the PMI Policy as of the related Distribution
Date.
Certain obligations of the Trustee to provide information to the
Certificateholders are conditioned upon such information being received from
the Servicer.
As to any Distribution Date, the "Group Factor" will be the percentage
obtained (carried to eight decimal places, rounded down) by dividing the
Aggregate Principal Balance of the related Mortgage Loan Group on such
Distribution Date (after giving effect to any distribution of principal or
allocation of Realized Losses on the Certificates on such Distribution Date) by
the related Cut-off Date Group Balance.
Within 90 days after the end of each calendar year, the Trustee will mail
to each person who at any time during such calendar year was a holder of record
of a Certificate the information set forth in clauses (a) through (q) above,
aggregated for such calendar year or, in the case of each person who was a
holder of record of a Certificate for a portion of such calendar year, setting
forth such information for each month thereof.
BOOK-ENTRY REGISTRATION OF OFFERED CERTIFICATES
The Offered Certificates initially will be book-entry certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
the Offered Certificates ("Certificateowners") will hold the certificates
through The Depository Trust Company ("DTC"), in the United States, or
Clearstream Banking, societe anonyme ("Clearstream, Luxembourg") or the
Euroclear System ("Euroclear"), in Europe, if the Certificateowners are
participants of the systems, or indirectly through organizations that are
participants in the systems. The Book-Entry Certificates will be issued in one
or more certificates per class, representing the aggregate principal balance of
each class of Offered Certificates, and will initially be registered in the
name of Cede & Co. ("Cede"), the nominee of DTC. Euroclear and Clearstream,
Luxembourg will hold omnibus positions on behalf of their participants through
customers' securities accounts in Euroclear's and Clearstream, Luxembourg's
names on the books of their respective depositaries which in turn will hold
positions in customers' securities accounts in the depositaries' names on the
books of DTC. Citibank N.A. will act as depositary for Clearstream, Luxembourg
and Morgan Guaranty Trust Company of New York will act as depositary for
Euroclear. Investors may hold beneficial interests in the Book-Entry
Certificates in minimum denominations representing principal balances of $1,000
and in integral multiples of $1 in excess of $1,000. Except as described in the
Prospectus, no person acquiring a Book-Entry Certificate will be entitled to
receive a physical
S-30
<PAGE>
certificate representing the Certificate (a "Definitive Certificate"). Unless
and until Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Offered Certificates will be Cede, as nominee of
DTC. Certificateowners will not be Certificateholders as that term is used in
the Agreement. Certificateowners are permitted to exercise their rights only
indirectly through DTC and its participants (including Euroclear and
Clearstream, Luxembourg).
Clearstream Banking, societe anonyme, 67 Bd Grande-Duchesse Charlotte,
L-2967 Luxembourg, was incorporated in 1970 as "Cedel S.A.", a company with
limited liability under Luxembourg law (a societe anonyme). Cedel S.A.
subsequently changed its name to Cedelbank. On January 10, 2000, Cedelbank's
parent company, Cedel International, societe anonyme ("CI") merged its
clearing, settlement and custody business with that of Deutsche B|f-rse
Clearing AG ("DBC"). The merger involved the transfer by CI of substantially
all of its assets and liabilities (including its shares in Cedelbank) to a new
Luxembourg company, New Cedel International, societe anonyme ("New CI"), which
is 50% owned by CI and 50% owned by DBC's parent company Deutsche B|f-rse AG.
The shareholders of these two entities are banks, securities dealers and
financial institutions. CI currently has 92 shareholders, including U.S.
financial institutions or their subsidiaries. No single entity may own more
than 5 percent of CI's stock.
The Board of Directors of New CI decided to rename the companies in the
group in order to give them a cohesive brand name. The new brand name that was
chosen is "Clearstream". With effect from January 14, 2000 New CI has been
renamed "Clearstream International, societe anonyme". On January 18, 2000,
Cedelbank was renamed "Clearstream Banking, societe anonyme", and Cedel Global
Services was renamed "Clearstream Services, societe anonyme".
On January 17, 2000 DBC was renamed "Clearstream Banking AG". This means
that there are now two entities in the corporate group headed by Clearstream
International which share the name "Clearstream Banking", the entity previously
named "Cedelbank" and the entity previously named "Deutsche Borse Clearing AG".
Clearstream, Luxembourg holds securities for its customers and facilitates
the clearance and settlement of securities transactions between Clearstream,
Luxembourg customers through electronic book-entry changes in accounts of
Clearstream, Luxembourg customers, thereby eliminating the need for physical
movement of certificates. Transactions may be settled by Clearstream,
Luxembourg in any of 36 currencies, including United States Dollars.
Clearstream, Luxembourg provides to its customers, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Clearstream, Luxembourg
also deals with domestic securities markets in over 30 countries through
established depository and custodial relationships. Clearstream, Luxembourg is
registered as a bank in Luxembourg, and as such is subject to regulation by the
Commission de Surveillance du Secteur Financier, which supervises Luxembourg
banks. Clearstream, Luxembourg's customers are world-wide financial
institutions including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Clearstream, Luxembourg's U.S.
customers are limited to securities brokers and dealers, and banks. Currently,
Clearstream, Luxembourg has approximately 2,000 customers located in over 80
countries, including all major European countries, Canada, and the United
States. Indirect access to Clearstream,
S-31
<PAGE>
Luxembourg is available to other institutions that clear through or maintain a
custodial relationship with an account holder of Clearstream, Luxembourg.
Clearstream, Luxembourg has established an electronic bridge with Morgan
Guaranty Trust Company of New York as the Operator of the Euroclear System
("MGT/EOC") in Brussels to facilitate settlement of trades between Clearstream,
Luxembourg and MGT/EOC.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The obligations created by the Pooling and Servicing Agreement will
terminate upon the later to occur of (a) the payment to Certificateholders of
all amounts held in the Certificate Account or by or on behalf of the Servicer
and required to be paid to the Certificateholders pursuant to the Pooling and
Servicing Agreement or (b) the final payment or other liquidation of the
Principal Balance of the last Mortgage Loan remaining in the Trust or the
disposition of all property remaining in the Trust acquired in respect of any
Mortgage Loan. In no event, however, will the Trust continue beyond the
expiration of 21 years from the death of the last survivor of certain persons
named in such Pooling and Servicing Agreement. Written notice of termination of
the Pooling and Servicing Agreement will be given to each Certificateholder,
and the final distribution will be made only upon surrender and cancellation of
the Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination.
On any Distribution Date, the Servicer may purchase all of the Mortgage
Loans and all property acquired in respect of such Mortgage Loans at a price
not less than the sum of (x) 100% of the Principal Balance of each Mortgage
Loan (other than any Mortgage Loan as to which title to the underlying
Mortgaged Property has been acquired and whose fair market value is included
pursuant to clause (y) below) as of the final Distribution Date, (y) the fair
market value of each Mortgaged Property (as determined by the Servicer as of
the close of business on the third Business Day next preceding the date upon
which notice of any such repurchase is furnished to Certificateholders), plus
one month's interest at the interest rate on each such Mortgage Loan (including
any Mortgage Loan as to which title to the underlying Mortgaged Property has
been acquired by the Trust) less any payments of principal and interest
received during the related Collection Period in respect of such Mortgage Loans
and (z) certain amounts payable to the Certificate Insurer under the Pooling
and Servicing Agreement. The right of the Servicer to make the purchase
described above on any Distribution Date is conditioned upon the principal
balance of the Mortgage Loans as of such Distribution Date being less than 5%
of the principal balance of the Mortgage Loans as of the Cut-off Date (the
"Cut-off Date Pool Balance") (the first such Distribution Date, the "Clean-up
Call Date").
The Pooling and Servicing Agreement will provide that notice of any
termination, specifying the final Distribution Date upon which the
Certificateholders may surrender their Certificates to the Trustee for payment
of the final distribution and cancellation, will be given promptly by the
Trustee by letter to Certificateholders specifying (a) the Distribution Date
for the final distribution, (b) the amount of any such final distribution and
(c) that the final distribution will be made only upon presentation and
surrender of the Certificates at the office or agency of the Trustee therein
specified.
S-32
<PAGE>
If the termination of the Trust is in connection with a purchase of the
assets of the Trust by the Servicer and the fair market value of any acquired
property is less than the Principal Balance of the related Mortgage Loan, then
the excess of such Principal Balance over such fair market value shall be
allocated in reduction of the amounts otherwise distributable on the final
Distribution Date in the following order of priority: first, to the Class R
Certificateholders, second, to the Class C Certificateholders, and third, to
the Offered Certificateholders pro rata based on the Certificate Principal
Balances thereof on such Distribution Date; provided that any Coverage Deficit
will be covered under the terms of the Certificate Insurance Policy. The
distribution on the final Distribution Date in connection with the purchase by
the Servicer of the assets of the Trust shall be in lieu of the distribution
otherwise required to be made on such Distribution Date in respect of the
Offered Certificates.
Any such termination of the Trust by the Servicer will be effected only
pursuant to a "qualified liquidation" as defined in Code Section 860F(a)(4)(A)
and the receipt by the Trustee of a satisfactory opinion of counsel that such
purchase will not (i) result in the imposition of a tax on "prohibited
transactions" under Code Section 860F(a)(1) or (ii) cause any REMIC created
pursuant to the Pooling and Servicing Agreement to fail to qualify as a REMIC.
THE TRUSTEE
Bankers Trust Company of California, N.A., will be the Trustee under the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement will
provide that the Trustee is entitled to certain fees (the "Trustee Fee") and
reimbursement of expenses. The Trustee may resign at any time, in which event
the Servicer will be obligated to appoint a successor Trustee. The Servicer may
also remove the Trustee if the Trustee ceases to be eligible to continue as
such under the Pooling and Servicing Agreement, if the Trustee fails to fulfill
its obligations in any material respect under the Pooling and Servicing
Agreement or if the Trustee becomes insolvent. Upon becoming aware of such
circumstances, the Servicer will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee will not become effective until acceptance of the appointment by the
successor Trustee. We refer you to "The Pooling and Servicing Agreement -- The
Trustee" in the Prospectus.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the Offered
Certificateholders consists of the application of the related Monthly Excess
Cashflow Amounts, the overcollateralization and cross-collateralization
features of the Trust, the Certificate Insurance Policy and, in certain
instances, the PMI Policy.
TREATMENT OF REALIZED LOSSES
If, with respect to any Mortgage Loan that becomes a Liquidated Mortgage
Loan during a Collection Period, the Net Liquidation Proceeds relating thereto
and allocated to principal are less than the Principal Balance of such Mortgage
Loan, the amount of the insufficiency will constitute a "Realized Loss."
Realized Losses will reduce the aggregate of the outstanding principal balances
of the Mortgage Loans in the related Mortgage Loan Group and accordingly will
reduce the related Overcollateralization
S-33
<PAGE>
Amount. The application of related Monthly Excess Cashflow Amounts to fund
Extra Principal Distribution Amounts and thereby reduce the Certificate
Principal Balances of the related Offered Certificates will increase the
related Overcollateralization Amount. Realized Losses that occur in a Mortgage
Loan Group will, in effect, be absorbed first, by the related Retained
Certificates, both through the application of the Monthly Excess Cashflow
Amount to fund such deficiency and through a reduction in the related
Overcollateralization Amount.
Realized Losses remaining after such absorption by the Retained
Certificates and the application of the related Monthly Excess Cashflow Amount
and through the reduction of the related Overcollateralization Amount
(including giving effect to the cross-collateralization feature of the Trust)
to the extent of any Coverage Deficit will be covered by a draw on the
Certificate Insurance Policy.
OVERCOLLATERALIZATION AND APPLICATION OF MONTHLY EXCESS CASHFLOW AMOUNTS
The weighted average net Mortgage Interest Rate for the Mortgage Loans in
each Mortgage Loan Group is generally expected to be higher than the weighted
average of the Pass-Through Rates on the related Offered Certificates. In
addition, to the extent that there is overcollateralization, these Mortgage
Loans will be generating still further excess interest relative to the
Pass-Through Rates on the related Offered Certificates. The Monthly Excess
Cashflow Amount generally consists of both the excess interest generated on the
related Mortgage Loans together with the Overcollateralization Release Amount.
Monthly Excess Cashflow Amounts will be allocated to the extent described
herein to the accelerated payment of principal in the form of the Extra
Principal Distribution Amount.
The overcollateralization mechanics of the Trust result in a limited
acceleration of the Offered Certificates relative to the amortization of the
Mortgage Loans in the related Mortgage Loan Group. The accelerated amortization
is achieved by the application of the Monthly Excess Cashflow Amounts described
above and certain amounts released from one or both of the other Mortgage Loan
Groups, as described below under the caption "-- Crosscollateralization
Provisions," to the payment of the Certificate Principal Balances of the
related Offered Certificates. Any such application will cause the aggregate of
the related Certificate Principal Balances to amortize more rapidly than the
Mortgage Loans in the Mortgage Loan Group, increasing the amount of
overcollateralization. These features are intended to create
overcollateralization equal to the excess of the aggregate Principal Balances
of the Mortgage Loans in the related Mortgage Loan Group over the aggregate
Certificate Principal Balance of the related Offered Certificates. Once the
Targeted Overcollateralization Amount is reached, such accelerated amortization
features will cease, unless necessary to maintain the Targeted
Overcollateralization Amount.
As of the Closing Date, there will be limited initial
Overcollateralization Amount only with respect to Adjustable Rate Group I and
Adjustable Rate Group II in the amount required by the Certificate Insurer and
provided in the Pooling and Servicing Agreement. Any Monthly Excess Cashflow
Amounts of a Mortgage Loan Group will be paid as Extra Principal Distribution
Amounts of the related Certificates, thereby increasing the
Overcollateralization Amount related to such Mortgage Loan Group up to the
related Targeted Overcollateralization Amount. On any Distribution Date on
S-34
<PAGE>
which the Targeted Overcollateralization Amount of a Mortgage Loan Group steps
down, the related Overcollateralization Release Amounts will not be passed
through as a distribution of principal to the holders of the related Offered
Certificates on such Distribution Date, but will be distributed to the Retained
Certificateholders as described under the caption "Description of the
Certificates -- Distributions," and the amortization of the Offered
Certificates of the related Certificate Group will accordingly be decelerated.
Any Monthly Excess Cashflow Amounts distributed to the Class C or Class R
Certificateholders on any Distribution Date will not be available to pay
amounts due to the Offered Certificateholders on subsequent Distribution Dates.
The Pooling and Servicing Agreement provides that, based on the
delinquency and loss experience of the Mortgage Loans and certain triggers
required by the Certificate Insurer as set forth in the Pooling and Servicing
Agreement, the Targeted Overcollateralization Amount with respect to such
Mortgage Loan Group may increase or decrease over time. In addition, the
Pooling and Servicing Agreement provides that the Targeted
Overcollateralization Amount with respect to a Mortgage Loan Group may be
modified, reduced or eliminated without the consent of any Certificateholders.
An increase would result in a temporary period of accelerated amortization of
the related Offered Certificates to increase the actual level of
overcollateralization to the Targeted Overcollateralization Amount; a decrease
would result in a temporary period of decelerated amortization to reduce the
actual level of overcollateralization to the Targeted Overcollateralization
Amount.
OVERCOLLATERALIZATION AND THE CERTIFICATE INSURANCE POLICY
The Pooling and Servicing Agreement will require the Trustee to make a
claim for an Insured Payment under the Certificate Insurance Policy not later
than the third Business Day prior to any Distribution Date as to which the
Trustee has determined that a Deficiency Amount with respect to a Class of
Offered Certificates will occur for the purpose of applying the proceeds of
such Insured Payment to the related Class of Offered Certificateholders on such
Distribution Date. The Trustee shall allocate any Insured Payment first to any
Accrued Certificate Interest and any Interest Carry Forward Amount remaining
unpaid after giving effect to all distributions on such Distribution Date and
second to the payment of each Class' applicable Coverage Deficit. With respect
to any Distribution Date and any Class of Offered Certificates, a "Coverage
Deficit" will mean such Class' allocable percentage of the amount, if any, by
which (x) the aggregate of the Certificate Principal Balances of the Classes of
Offered Certificates, after taking into account all distributions thereto in
respect of principal to be made on such Distribution Date, other than amounts
paid by the Certificate Insurer, exceeds (y) the Aggregate Principal Balance of
the Mortgage Loans as of the end of the applicable Collection Period.
Consequently, no Insured Payment will be payable solely as a result of the
Certificate Principal Balance of the Offered Certificates of a Certificate
Group being greater than the Aggregate Principal Balance of the Mortgage Loans
of the related Mortgage Loan Group. Accordingly, the Certificate Insurance
Policy guarantees ultimate collection of the full amount of the Certificate
Principal Balance of each Class of Offered Certificates, rather than current
payments of the amounts of any Realized Losses to the holders of each Class of
Offered Certificates. YOU SHOULD REALIZE THAT, UNDER CERTAIN LOSS OR
DELINQUENCY SCENARIOS APPLICABLE TO THE MORTGAGE LOANS, YOU MAY TEMPORARILY
RECEIVE NO DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF
THEIR RESPECTIVE CLASS.
S-35
<PAGE>
THE CERTIFICATE INSURANCE POLICY
The following summary of the terms of the Certificate Insurance Policy
does not purport to be complete and is qualified in its entirety by reference
to the Certificate Insurance Policy. A form of the Certificate Insurance Policy
may be obtained, upon request, from the Trustee.
Simultaneously with the issuance of the Offered Certificates, the
Certificate Insurer will deliver the Certificate Insurance Policy to the
Trustee for the benefit of the Holders of the Offered Certificates. Under the
Certificate Insurance Policy, the Certificate Insurer will irrevocably and
unconditionally guarantee payment on each Distribution Date to the Trustee for
the benefit of the Holders of the Offered Certificates of Insured Payments with
respect to the Offered Certificates for such Distribution Date, calculated in
accordance with the original terms of the Offered Certificates when issued and
without regard to any amendment or modification of the Offered Certificates
except amendments or modifications to which the Certificate Insurer has given
its prior written consent.
As used in the Certificate Insurance Policy, the following terms have the
following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of
September 1, 2000 among Aames Capital Corporation, as Sponsor, Countrywide Home
Loans, Inc., as Servicer and Bankers Trust Company of California, N.A., as
Trustee, without regard to any amendment or supplement unless the Certificate
Insurer shall have consented to such amendment or supplement in writing.
"Business Day" means any day other than a Saturday, Sunday or a day on
which the Certificate Insurer or banking institutions in New York City or in
the city in which the corporate trust office of the Trustee under the Agreement
is located are authorized or obligated by law or executive order to close.
"Deficiency Amount" means, with respect to the Offered Certificates and
any Distribution Date, the excess, if any, of (A) the sum of (i) the Accrued
Certificate Interest for each Class of Offered Certificates plus any Interest
Carry Forward Amount for each Class of Offered Certificates and (ii) the
Guaranteed Principal Amount over (B) Available Funds for all of the Mortgage
Loan Groups (after payment of the Trustee Fee, Monthly Servicing Fee, the
Certificate Insurer Premium and the PMI Insurer Premium, if any). The
Certificate Insurance Policy will not cover payment of any Supplemental
Interest Amount.
"Guaranteed Principal Amount" means for any Distribution Date (a) the
amount, if any, by which the aggregate Certificate Principal Balance of the
Offered Certificates exceeds the Aggregate Principal Balance of the Mortgage
Loans at the end of the previous month (after giving effect to all
distributions of principal on the Offered Certificates on such Distribution
Date) and (b) on the Distribution Date in October 25, 2030 (after giving effect
to all other distributions of principal on the Offered Certificates), an amount
equal to the aggregate Certificate Principal Balance.
"Insured Payment" means (i) as of any Distribution Date, any Deficiency
Amount and (ii) any Preference Amount.
"Preference Amount" means any amount previously distributed to an Owner on
the Offered Certificates that is recoverable and sought to be recovered as a
voidable
S-36
<PAGE>
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C. Section 101 et seq.), as amended from time to time, in
accordance with a final nonappealable order of a court having competent
jurisdiction.
"Receipt" and "Received" with respect to the Certificate Insurance Policy
means actual delivery to the Certificate Insurer and to the fiscal agent
appointed by the Certificate Insurer at its option, if any, prior to 12:00
p.m., New York City time, on a Business Day; delivery either on a day that is
not a Business Day or after 12:00 p.m., New York City time, shall be deemed to
be Receipt on the next succeeding Business Day. If any notice or certificate
given under the Certificate Insurance Policy by the Trustee is not in proper
form or is not properly completed, executed or delivered, it shall be deemed
not to have been Received, and the Certificate Insurer or the fiscal agent
shall promptly so advise the Trustee and the Trustee may submit an amended
notice.
"Term of the Policy" means the period from and including the date of
issuance of the Certificate Insurance Policy to and including the date on which
the Certificate Principal Balance for each Class of Certificates is zero, plus
such additional period, to the extent specified in the Certificate Insurance
Policy, during which any payment on the applicable Class of Certificates could
be avoided in whole or in part as a preference payment.
Capitalized terms used in the Certificate Insurance Policy and not
otherwise defined therein shall have the respective meanings set forth in the
Agreement as of the date of execution of the Certificate Insurance Policy,
without giving effect to any subsequent amendment or modification to the
Agreement unless such amendment or modification has been approved in writing by
the Certificate Insurer.
If any Insured Payment is treated as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law, the Certificate Insurer
will pay such amount out of funds of the Certificate Insurer on the later of
(a) the date when due to be paid pursuant to the Order referred to below or (b)
the first to occur of (i) the fourth Business Day following Receipt by the
Certificate Insurer from the Trustee of (A) a certified copy of the order of
the court or other governmental body that exercised jurisdiction to the effect
that a holder of the applicable Class of Certificates is required to return
principal or interest distributed with respect to the applicable Class of
Certificates during the Term of the Policy because such distributions were
avoidable preferences under applicable bankruptcy law (the "Order"), (B) a
certificate of such Holder of the applicable Class of Certificates that the
Order has been entered and is not subject to any stay, and (C) an assignment
duly executed and delivered by such Holder of the applicable Class of
Certificates, in such form as is reasonably required by the Certificate Insurer
and provided to such Holder of the applicable Class of Certificates by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer all
rights and claims of such Holder of the applicable Class of Certificates
against the debtor which made such preference payment or otherwise with respect
to such preference payment, or (ii) the date of Receipt by the Certificate
Insurer from the Trustee of the items referred to in clauses (A), (B) and (C)
above if, at least four Business Days prior to such date of Receipt, the
Certificate Insurer shall have Received written notice from the Trustee that
such items were to be delivered on such date and such date was specified in
such notice. Such payment shall be disbursed to the receiver,
S-37
<PAGE>
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trustee or Holder of the applicable Class of Certificates
directly (unless a Holder of the applicable Class of Certificates has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the Order, in which case such payment shall
be disbursed to the Trustee for distribution to such Certificateholder upon
proof of such payment reasonably satisfactory to the Certificate Insurer). In
connection with the foregoing, the Certificate Insurer shall have the rights
provided pursuant to the Pooling and Servicing Agreement.
Payment of claims under the Certificate Insurance Policy will be made by
the Certificate Insurer following Receipt by the Certificate Insurer of the
appropriate notice for payment on the later to occur of (a) 12:00 noon, New
York City time, on the second Business Day following Receipt of such notice for
payment, and (b) 12:00 noon, New York City time, on the relevant Distribution
Date.
The Certificate Insurer shall be subrogated to the rights of the holders
of the Offered Certificates to receive payments of principal and interest, as
applicable, with respect to distributions on the Offered Certificates to the
extent of any payment by the Certificate Insurer under the Certificate
Insurance Policy. To the extent the Certificate Insurer makes Insured Payments,
either directly or indirectly (as by paying through the Trustee), to the
Holders of the Offered Certificates, the Certificate Insurer will be subrogated
to the rights of the Holders of the Offered Certificates, as applicable, with
respect to such Insured Payment and shall be deemed to the extent of the
payments so made to be a registered holder of Offered Certificates for purposes
of payment.
Claims under the Certificate Insurance Policy constitute direct unsecured
and unsubordinated obligations of the Certificate Insurer, and will rank
equally with any other unsecured and unsubordinated obligations of the
Certificate Insurer except for certain obligations in respect to tax and other
payments to which preference is or may become afforded by statute. The terms of
the Certificate Insurance Policy cannot be modified, altered or affected by any
other agreement or instrument, or by the merger, consolidation or dissolution
of the Sponsor. The Certificate Insurance Policy by its terms may not be
canceled or revoked prior to distribution in full of all Guaranteed Principal
Amounts. The Certificate Insurance Policy is governed by the laws of the State
of New York. The Certificate Insurance Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
To the fullest extent permitted by applicable law, the Certificate Insurer
agrees under the Certificate Insurance Policy not to assert, and waives, for
the benefit of each Holder of Offered Certificates, all its rights (whether by
counterclaim, setoff or otherwise) and defenses (including, without limitation,
the defense of fraud), whether acquired by subrogation, assignment or
otherwise, to the extent that such rights and defenses may be available to the
Certificate Insurer to avoid payment of its obligations under the Certificate
Insurance Policy in accordance with the express provisions of the Certificate
Insurance Policy.
Pursuant to the terms of the Pooling and Servicing Agreement, unless a
default by the Certificate Insurer in connection with the Certificate Insurance
Policy exists, the Certificate Insurer will be entitled to exercise certain
rights of the Holders of the Offered Certificates, without the consent of such
Holders, and the Holders of the Offered Certificates may exercise such rights
only with the prior written consent of the Certificate Insurer.
S-38
<PAGE>
The Sponsor and the Certificate Insurer will enter into an Insurance and
Indemnity Agreement (the "Insurance Agreement") pursuant to which the Sponsor
will agree to reimburse, with interest, the Certificate Insurer for amounts
paid pursuant to claims under the Certificate Insurance Policy. The Sponsor
will further agree to pay the Certificate Insurer all reasonable charges and
expenses which the Certificate Insurer may pay or incur relative to any amounts
paid under the Certificate Insurance Policy or otherwise in connection with the
transaction and to indemnify the Certificate Insurer against certain
liabilities. Except to the extent provided therein, amounts owing under the
Insurance Agreement will be payable solely from the Trust. An event of default
by the Servicer under the Insurance Agreement will constitute an event of
default by the Servicer under the Pooling and Servicing Agreement and allow the
Certificate Insurer, among other things, to direct the Trustee to terminate the
Servicer. An "event of default" by the Servicer under the Insurance Agreement
includes (i) the Servicer's failure to pay when due any amount owed under the
Insurance Agreement or certain other documents, (ii) the Servicer's untruth or
incorrectness in any material respect of any representation or warranty of the
Servicer in the Insurance Agreement, the Pooling and Servicing Agreement or
certain other documents, (iii) the Servicer's failure to perform or to observe
any covenant or agreement in the Pooling and Servicing Agreement and certain
other documents, (iv) the Servicer's failure to pay its debts in general or the
occurrence of certain events of insolvency or bankruptcy with respect to the
Servicer, and (v) the occurrence of an event of default under the Pooling and
Servicing Agreement or certain other documents. For a description of the
Certificate Insurer, we refer you to "The Certificate Insurer" in this
Prospectus Supplement.
CROSSCOLLATERALIZATION PROVISIONS
Certain Available Funds with respect to each Certificate Group will be
available to cover certain shortfalls and to create overcollateralization with
respect to the Offered Certificates relating to the other Certificate Groups as
described above under the caption "Description of the Certificates --
Distributions."
THE PMI POLICY
The following description of the primary mortgage guaranty insurance
policy (the "PMI Policy") is only a brief outline and does not purport to
summarize or describe all of the provisions, terms and conditions of the PMI
Policy. For a more complete description of these provisions, terms and
conditions, reference is made to the PMI Policy, a copy of which is available
upon request from the Trustee.
As of the Statistic Calculation Date, approximately 65.95%, 54.49% and
65.94% (by Aggregate Principal Balance) of the Statistic Calculation Loans in
the Fixed Rate Group, Adjustable Rate Group I and Adjustable Rate Group II,
respectively, which have original Loan-to-Value Ratios in excess of 80% (the
"PMI Mortgage Loans") are insured by Mortgage Guaranty Insurance Corporation
(the "PMI Insurer") pursuant to the PMI Policy. The amount of coverage provided
by the PMI Policy varies on a loan-by-loan basis based upon the original
Loan-to-Value Ratio of the PMI Mortgage Loan. The PMI Policy provides for the
payment to the PMI Insurer of certain initial and renewal premiums with respect
to each PMI Mortgage Loan, at rates calculated under the PMI Policy. Coverage
of each PMI Mortgage Loan under the PMI Policy is conditioned upon timely
payment to the PMI Insurer of such premiums.
S-39
<PAGE>
Unless otherwise agreed by the Certificate Insurer, the PMI Policy is
required to remain in force with respect to each PMI Mortgage Loan until: (1)
the Principal Balance of such PMI Mortgage Loan is paid in full, or (2) the
Principal Balance of such PMI Mortgage Loan has amortized down to a level that
results in a Loan-to-Value Ratio for such Mortgage Loan agreed to with the PMI
Insurer, provided, however, that no coverage of any PMI Mortgage Loan under the
PMI Policy is required where prohibited by applicable law.
S-40
<PAGE>
THE MORTGAGE LOANS
GENERAL
The assets of the Trust will consist primarily of a pool (the "Mortgage
Pool") of mortgage loans, divided into three groups (each, a "Mortgage Loan
Group"), secured by first and junior liens on one- to four-family residential
properties, including units in condominiums and manufactured housing (each, a
"Mortgaged Property"), along with the Certificate Insurance Policy and rights
under the PMI Policy, as described herein. The mortgage loans will include:
(a) the mortgage loans identified as of August 1, 2000 and described in
this Prospectus Supplement, called the "Statistic Calculation Loans," and
(b) additional fixed and adjustable rate mortgage loans to be delivered on
the Closing Date, referred to as the "Additional Mortgage Loans," and together
with the Statistic Calculation Loans, called the "Mortgage Loans."
The following brief description of the Statistic Calculation Loans is
based on the terms of the Statistic Calculation Loans, including their
respective principal balances as of the Statistic Calculation Date, and each
Mortgage Loan Group as of the Statistic Calculation Date. Certain mortgage
loans may be removed, prior to the Closing Date, from the Mortgage Pool and
each Mortgage Loan Group and other Mortgage Loans may be substituted therefor
with the consent of the Certificate Insurer. As a result, the statistical
information presented below regarding the Statistic Calculation Loans and each
Mortgage Loan Group set forth herein may vary in certain limited respects but
will not vary in any material respects from comparable information based on the
actual composition of the Mortgage Pool and each Mortgage Loan Group at the
Closing Date.
None of the Mortgage Loans is or will be insured or guaranteed by the
Sponsor, the Servicer, the Trustee, any Originator or any of their respective
affiliates, or by any governmental agency or other person.
A schedule of the Mortgage Loans included in each Mortgage Loan Group as
of the Closing Date will be attached to the Pooling and Servicing Agreement
delivered to the Trustee upon delivery of the Certificates. A Current Report on
Form 8-K containing a description of the Mortgage Loans included in the final
Mortgage Pool in a form comparable to the description of the Statistic
Calculation Loans contained in "ANNEX A: Description of the Mortgage Pool" will
be filed with the Securities and Exchange Commission within 15 days after the
Closing Date.
The term "Aggregate Principal Balance" means the aggregate of the
Principal Balances of the Mortgage Loans in the related Mortgage Loan Group or
in the Mortgage Pool, as specified. The information expressed as a percentage
of the Aggregate Principal Balance may not total 100% due to rounding. For a
more detailed description of certain characteristics of the Statistic
Calculation Loans in tabular form, we refer you to "ANNEX A: Description of the
Mortgage Pool" to this Prospectus Supplement.
Each Mortgage Loan in the Trust will be assigned to the Fixed Rate Group,
Adjustable Rate Group I or Adjustable Rate Group II. Each Mortgage Loan
assigned to the Fixed Rate Group bears interest at a fixed rate, and each
Mortgage Loan assigned to Adjustable Rate Group I and Adjustable Rate Group II
bears interest at an
S-41
<PAGE>
adjustable rate. The Statistic Calculation Loans contained in the Fixed Rate
Group are secured by first and second liens with respect to the related
Mortgaged Properties. All of the Statistic Calculation Loans contained in
Adjustable Rate Group I and Adjustable Rate Group II are secured by first liens
on the related Mortgaged Properties. The Fixed Rate Group Certificates
represent undivided beneficial ownership interests in all Mortgage Loans
contained in the Fixed Rate Group. The Adjustable Rate Group I Certificates
represent undivided beneficial ownership interests in all Mortgage Loans
contained in Adjustable Rate Group I and the Adjustable Rate Group II
Certificates represent undivided beneficial ownership interests in all Mortgage
Loans contained in Adjustable Rate Group II.
Each Mortgage Loan will have the interest due thereon computed on an
actuarial basis. Certain Mortgage Loans will provide for the payment of a
charge if the principal thereof is paid prior to its stated maturity date.
71.25% of the Fixed Rate Group Mortgage Loans, 86.46% of the Adjustable Rate
Group I Mortgage Loans and 83.17% of the Adjustable Rate Group II Mortgage
Loans provide for certain prepayment charges. No Mortgage Loan will impose a
prepayment penalty for a term in excess of five years. Such charge, to the
extent received, however, will not be available to the Trust but will instead
be paid to the holders of the Class P Certificates. All of the Mortgage Loans
will be required to be covered by standard hazard insurance policies insuring
against certain losses.
In connection with the assignment of the Mortgage Loans to the Trust, the
Sponsor will represent and warrant that, among other things, as of the Cut-off
Date, no Mortgage Loan had two or more monthly payments past due. However, you
should be aware that approximately 35.24%, 36.06% and 36.71% (by Aggregate
Principal Balance) of the Statistic Calculation Loans in the Fixed Rate Group,
Adjustable Rate Group I and Adjustable Rate Group II, respectively, had a first
monthly payment due before August 1, 2000, and it was not possible for any
Mortgage Loan other than such Mortgage Loans to have had two or more monthly
payments past due as of the Statistic Calculation Date. No Statistic
Calculation Loan has a Loan-to-Value Ratio at origination of more than 100%.
FIXED RATE GROUP
As of the Statistic Calculation Date, the Aggregate Principal Balance of
the Statistic Calculation Loans in the Fixed Rate Group was $159,205,063.33.
Approximately 90.46%, 7.52%, 1.56% and 0.46% of the related Mortgaged
Properties (by Aggregate Principal Balance) were single family residences, two-
to four-family residences, units in condominiums and manufactured housing,
respectively, and no more than 0.51% of the Statistic Calculation Loans in the
Fixed Rate Group (by Aggregate Principal Balance) were secured by Mortgaged
Properties located in any single ZIP code. Approximately 19.09%, 12.96%, 8.11%,
7.91% and 5.36% of the Statistic Calculation Loans in the Fixed Rate Group (by
Aggregate Principal Balance) are secured by Mortgaged Properties located in the
states of California, Texas, Florida, New York and Michigan, respectively.
The original weighted average Combined Loan-to-Value Ratio of all
Statistic Calculation Loans in the Fixed Rate Group was approximately 72.35%.
The maximum
S-42
<PAGE>
and average current balances as of the Statistic Calculation Date were
approximately $453,182.28 and $71,520.69, respectively. The average property
value of the Mortgaged Properties securing Statistic Calculation Loans in the
Fixed Rate Group was approximately $110,309.92 at the time of origination of
such Mortgage Loans. The "Combined Loan-to-Value Ratio" is the sum of the
outstanding principal balance (at origination of each Mortgage Loan) of each
mortgage loan, if any, senior to such Mortgage Loan and the Original Principal
Balance of such Mortgage Loan as a percentage of the appraised valuation (or,
if the Mortgage Loan was obtained in connection with the purchase of the
related Mortgaged Property, the purchase price, if less) of the related
Mortgaged Property determined by the Originator at the time of origination of
such Mortgage Loan. We refer you to "Risk Factors -- The Unique Features of the
Mortgage Loans Create Special Risks -- Risks Associated with Underwriting
Standards" in this Prospectus Supplement.
The interest rates borne by the Statistic Calculation Loans (each, a
"Mortgage Interest Rate") in the Fixed Rate Group as of the Statistic
Calculation Date ranged from approximately 6.5000% per annum to 18.0800% per
annum. As of the Statistic Calculation Date, the weighted average Mortgage
Interest Rate of the Statistic Calculation Loans in the Fixed Rate Group was
approximately 10.8727% per annum.
The weighted average remaining term to stated maturity of the Statistic
Calculation Loans in the Fixed Rate Group was approximately 327 months. The
weighted average original term to maturity of the Statistic Calculation Loans
in the Fixed Rate Group was approximately 329 months. As of the Statistic
Calculation Date, the weighted average seasoning of the Statistic Calculation
Loans in the Fixed Rate Group was approximately 1 month.
Based on the Aggregate Principal Balance of the Statistic Calculation
Loans in the Fixed Rate Group as of the Statistic Calculation Date,
substantially all of the Statistic Calculation Loans provide for the payment of
principal and interest on a level basis to fully amortize such Mortgage Loan
over its stated term. The Statistic Calculation Loans in the Fixed Rate Group
have original terms to stated maturity of up to 30 years.
ADJUSTABLE RATE GROUP I
As of the Statistic Calculation Date, all of the Mortgage Loans in
Adjustable Rate Group I have conforming balances. As of the Statistic
Calculation Date, the Aggregate Principal Balance of the Statistic Calculation
Loans in Adjustable Rate Group I was $96,418,663.40. Approximately 88.78%,
6.59%, 3.80% and 0.82% of the related Mortgaged Properties (by Aggregate
Principal Balance) were single family residences, two- to four-family
residences, units in condominiums and manufactured housing, respectively, and
no more than 0.59% of the Statistic Calculation Loans in the Adjustable Rate
Group I (by Aggregate Principal Balance) were secured by Mortgaged Properties
located in any single ZIP code. Approximately 24.65% and 11.28% of the
Statistic Calculation Loans in Adjustable Rate Group I (by Aggregate Principal
Balance) are secured by Mortgaged Properties located in the states of
California and Florida, respectively.
S-43
<PAGE>
The original weighted average Combined Loan-to-Value Ratio of all
Statistic Calculation Loans in Adjustable Rate Group I was approximately
77.53%. The maximum and average current balances as of the Statistic
Calculation Date were approximately $351,733.69 and $95,181.31, respectively.
The average appraised value of the Mortgaged Properties securing Statistic
Calculation Loans in Adjustable Rate Group I was approximately $126,480.37 at
the time of origination of such Mortgage Loans.
Certain Statistic Calculation Loans in Adjustable Rate Group I bear
interest rates that, after a period of approximately two years or three years
following the related date of origination, adjust based on the six-month London
Interbank Offered Rate based on quotations of major banks as published in The
Wall Street Journal. These Statistic Calculation Loans have semi-annual
interest rate and payment adjustment frequencies after the first interest rate
adjustment date. Approximately 42.380% (by Aggregate Principal Balance) of the
Statistic Calculation Loans included in Adjustable Rate Group I have initial
Mortgage Interest Rates that will remain fixed for two years from the date of
origination before initial adjustment, and approximately 56.700% (by Aggregate
Principal Balance) of the Statistic Calculation Loans included in Adjustable
Rate Group I have initial Mortgage Interest Rates that will remain fixed for
three years from the date of origination before initial adjustment.
Each Statistic Calculation Loan in Adjustable Rate Group I that has its
interest rate adjusted on the basis of the six-month London Interbank Offered
Rate has a semi-annual rate adjustment cap of 1.0% to 1.5% above the then
current interest rate for such Statistic Calculation Loan. In addition, each
Statistic Calculation Loan in Adjustable Rate Group I that has an initial rate
adjustment date that is approximately two years or three years from its date of
origination has or will have an initial rate adjustment cap of 1.0% to 3.0%
above the related initial Mortgage Interest Rate. The Statistic Calculation
Loans in Adjustable Rate Group I have a weighted average initial periodic rate
adjustment cap as of the Statistic Calculation Date equal to approximately
2.979%. The Statistic Calculation Loans in Adjustable Rate Group I had a
weighted average gross margin as of the Statistic Calculation Date of
approximately 6.092%. The initial gross margin for the Statistic Calculation
Loans in Adjustable Rate Group I ranged from approximately 3.440% to 8.990%.
The interest rates borne by the Statistic Calculation Loans in Adjustable Rate
Group I as of the Statistic Calculation Date ranged from approximately 7.500%
per annum to approximately 18.200% per annum and their weighted average
Mortgage Interest Rate was approximately 10.7398% per annum. As of the
Statistic Calculation Date, the maximum rates at which interest may accrue on
the Statistic Calculation Loans (the "Maximum Rates") in Adjustable Rate Group
I ranged from 13.500% per annum to 24.200% per annum. The Statistic Calculation
Loans in Adjustable Rate Group I had a weighted average Maximum Rate as of the
Statistic Calculation Date of approximately 16.741% per annum. As of the
Statistic Calculation Date, the minimum rates at which interest may accrue on
the Statistic Calculation Loans (the "Minimum Rates") in Adjustable Rate Group
I after their respective first interest adjustment dates ranged from
approximately 7.500% per annum to approximately 18.200% per annum. As of the
Statistic Calculation Date, the weighted average Minimum Rate of the Statistic
Calculation Loans was approximately 10.737% per annum.
S-44
<PAGE>
The weighted average remaining term to stated maturity of the Statistic
Calculation Loans in Adjustable Rate Group I was approximately 357 months. The
weighted average original term to maturity of the Statistic Calculation Loans
in Adjustable Rate Group I was approximately 358 months. As of the Statistic
Calculation Date, the weighted average seasoning of the Statistic Calculation
Loans in Adjustable Rate Group I was approximately 2 months.
ADJUSTABLE RATE GROUP II
As of the Statistic Calculation Date, the Aggregate Principal Balance of
the Statistic Calculation Loans in Adjustable Rate Group II was $96,426,603.75.
Approximately 90.54%, 5.26%, 3.71% and 0.49% of the related Mortgaged
Properties (by Aggregate Principal Balance) were single family residences, two-
to four-family residences, units in condominiums and manufactured housing,
respectively, and no more than 1.06% of the Statistic Calculation Loans in the
Adjustable Rate Group II (by Aggregate Principal Balance) were secured by
Mortgaged Properties located in any single ZIP code. Approximately 32.38% and
9.53% of the Statistic Calculation Loans in Adjustable Rate Group II (by
Aggregate Principal Balance) are secured by Mortgaged Properties located in the
states of California and Florida, respectively.
The original weighted average Combined Loan-to-Value Ratio of all
Statistic Calculation Loans in Adjustable Rate Group II was approximately
75.29%. The maximum and average current balances as of the Statistic
Calculation Date were approximately $544,000.00 and $111,863.81, respectively.
The average appraised value of the Mortgaged Properties securing Statistic
Calculation Loans in Adjustable Rate Group II was approximately $154,925.90 at
the time of origination of such Mortgage Loans.
Certain Statistic Calculation Loans in Adjustable Rate Group II bear
interest rates that, after a period of approximately two years or three years
following the related date of origination, adjust based on the six-month London
Interbank Offered Rate based on quotations of major banks as published in The
Wall Street Journal. These Statistic Calculation Loans have semi-annual
interest rate and payment adjustment frequencies after the first interest rate
adjustment date. Approximately 48.300% (by Aggregate Principal Balance) of the
Statistic Calculation Loans included in Adjustable Rate Group II have initial
Mortgage Interest Rates that will remain fixed for two years from the date of
origination before initial adjustment, and approximately 50.780% (by Aggregate
Principal Balance) of the Statistic Calculation Loans included in Adjustable
Rate Group II have initial Mortgage Interest Rates that will remain fixed for
three years from the date of origination before initial adjustment.
Each Statistic Calculation Loan in Adjustable Rate Group II that has its
interest rate adjusted on the basis of the six-month London Interbank Offered
Rate has a semi-annual rate adjustment cap of 1.0% to 1.5% above the then
current interest rate for such Statistic Calculation Loan. In addition, each
Statistic Calculation Loan in Adjustable Rate Group II that has an initial rate
adjustment date that is approximately two years or three years from its date of
origination has or will have an initial rate adjustment cap of 1.0% to 3.0%
above the related initial Mortgage Interest Rate. The Statistic Calculation
Loans in the Adjustable Rate Group have a weighted average initial periodic
rate adjustment cap as of the Statistic Calculation Date equal to
S-45
<PAGE>
approximately 2.949%. The Statistic Calculation Loans in Adjustable Rate Group
II had a weighted average gross margin as of the Statistic Calculation Date of
approximately 6.021%. The initial gross margin for the Statistic Calculation
Loans in Adjustable Rate Group II ranged from approximately 2.945% to 9.750%.
The interest rates borne by the Statistic Calculation Loans in Adjustable Rate
Group II as of the Statistic Calculation Date ranged from approximately 7.490%
per annum to approximately 16.300% per annum and their weighted average
Mortgage Interest Rate was approximately 10.577% per annum. As of the Statistic
Calculation Date, the Maximum Rates for Adjustable Rate Group II ranged from
13.490% per annum to 22.300% per annum. The Statistic Calculation Loans in
Adjustable Rate Group II had a weighted average Maximum Rate as of the
Statistic Calculation Date of approximately 16.595% per annum. As of the
Statistic Calculation Date, the Minimum Rates for Adjustable Rate Group II
after their respective first interest adjustment dates ranged from
approximately 7.490% per annum to approximately 16.300% per annum. As of the
Statistic Calculation Date, the weighted average Minimum Rate of the Statistic
Calculation Loans was approximately 10.577% per annum.
The weighted average remaining term to stated maturity of the Statistic
Calculation Loans in Adjustable Rate Group II was approximately 357 months. The
weighted average original term to maturity of the Statistic Calculation Loans
in Adjustable Rate Group II was approximately 358 months. As of the Statistic
Calculation Date, the weighted average seasoning of the Statistic Calculation
Loans in Adjustable Rate Group II was approximately 2 months.
CONVEYANCE OF ADDITIONAL MORTGAGE LOANS
The Additional Mortgage Loans to be delivered on the Closing Date are
subject to the following requirements:
(i) no Additional Mortgage Loans may be more than 30 days contractually
delinquent as of the Cut-off Date,
(ii) the original term to stated maturity of such Additional Mortgage
Loans may not exceed 30 years,
(iii) each Additional Mortgage Loan will have an interest rate of not
less than 8.10% if it is a Fixed Rate Group Mortgage Loan, an initial
interest rate of not less than 7.85% if it is an Adjustable Rate Group I
Mortgage Loan and an initial interest rate of not less than 7.85% if it is
an Adjustable Rate Group II Mortgage Loan,
(iv) such Additional Mortgage Loans will be underwritten or
re-underwritten, as applicable, in accordance with the criteria set forth
under "The Originators -- Underwriting Guidelines" in the Prospectus, and
(v) following the delivery of such Additional Mortgage Loans by the
Trust, the Mortgage Loans in the related Mortgage Loan Group (including the
Additional Mortgage Loans) (a) will have a related weighted average
Mortgage Interest Rate not materially different from the weighted average
Mortgage Interest Rate of the Statistic Calculation Loans in the related
Mortgage Loan Group, (b) will each have a principal balance not in excess
of $475,000; and (c) will satisfy any additional requirements set forth in
the Pooling and Servicing Agreement.
S-46
<PAGE>
In addition, the transfer of Additional Mortgage Loans to the Trust on the
Closing Date is subject to the approval of the Certificate Insurer, which may
also, in its discretion, approve Additional Mortgage Loans not meeting the
foregoing requirements. We refer you to "Risk Factors -- The Return on Your
Investment Will Change Over Time" in this Prospectus Supplement.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Sponsor will assign to
the Trustee all of its right, title and interest in and to the Mortgage Loans,
including all principal received on or after the Cut-off Date and all interest
due and received from and including the Cut-off Date, together with its right,
title and interest in and to the proceeds of any related insurance policies
received on and after the Cut-off Date. The Trustee, concurrently with such
assignment, will deliver the Certificates at the direction of the Sponsor in
exchange for, among other things, the Mortgage Loans. Each Mortgage Loan will
be identified in a schedule appearing as an exhibit to the Pooling and
Servicing Agreement (the "Mortgage Loan Schedule") that will provide
information about each Mortgage Loan, including, among other things, its
identifying number and the name of the related Mortgagor, the street address of
the related Mortgaged Property, its date of origination, the original number of
months to stated maturity, the original stated maturity, its original Principal
Balance, its Aggregate Principal Balance as of the Cut-off Date, its interest
rate as of the Cut-off Date and its monthly payment as of the Cut-off Date.
The Pooling and Servicing Agreement will require the Sponsor to deliver to
the Trustee the Mortgage Loans, the related Mortgage Notes endorsed without
recourse to the Trustee, the related mortgages or deeds of trust with evidence
of recording thereon, assignments of the mortgages in recordable form, the
title policies with respect to the related Mortgaged Properties, all
intervening mortgage assignments, if applicable, and certain other documents
relating to the Mortgage Loans (the "Mortgage Files"). Assignments of the
Mortgage Loans to the Trustee (or its nominee) will be recorded in the
appropriate public office for real property records in the states where such
recording is required to protect the Trustee's interest in the Mortgage Loans
against the claims of any subsequent transferee or any successor to or creditor
of the Sponsor. The Trustee will hold such documents in trust for the benefit
of the Certificateholders and the Certificate Insurer.
The Trustee will review the Mortgage Files delivered to it within 45 days
following such delivery, and if any document required to be included in any
Mortgage File is found to be missing or to be defective in any material respect
and such defect is not cured within the earlier of 60 days following
notification thereof to the Sponsor by the Trustee or 90 days following the
Trustee's discovery of the defect, the Sponsor will be obligated to immediately
repurchase the related Mortgage Loan from the Trust or substitute a Qualified
Replacement Mortgage, in the manner described below.
Because certain of the assignments by the Sponsor to the Trustee of
Mortgage Loans will not be recorded, it may be possible for the Sponsor to
transfer such Mortgage Loans to bona fide purchasers for value without notice,
notwithstanding the rights of the Trustee. However, in most instances, the
Sponsor would not be able to deliver the original documents evidencing the
Mortgage Notes or the mortgages
S-47
<PAGE>
because, under the terms of the Pooling and Servicing Agreement, such documents
will be retained in the possession of the Trustee, except when released to the
Servicer in connection with its servicing activities. Moreover, a subsequent
transferee who failed to obtain delivery of the original evidence of
indebtedness generally would not, in the absence of special facts, be able to
defeat the interests of the Trustee in a Mortgage Loan so long as such evidence
of indebtedness remained in the possession of the Trustee.
The Sponsor will make certain representations and warranties as to the
accuracy in all material respects of the information set forth on the Mortgage
Loan Schedule. In addition, the Sponsor will make certain other representations
and warranties regarding the Mortgage Loans, including, for instance, that each
Mortgage Loan, at its origination, complied in all material respects with
applicable state and federal laws; that each mortgage is a valid lien of the
applicable priority; that, as of the Closing Date, no Mortgage Loan had two or
more monthly payments past due; that each Mortgaged Property consists of a one-
to four-family residential property or unit in a condominium or planned unit
development; that the Sponsor had good title to each Mortgage Loan prior to the
sale and assignment by the Sponsor; that the Originator was authorized to
originate each Mortgage Loan; and that no proceeds from any Mortgage Loan were
used to finance single-premium credit, life and disability insurance policies.
We refer you to "The Pooling and Servicing Agreement -- Assignment of Mortgage
Loans" in the Prospectus.
If with respect to any Mortgage Loan (1) a defect in any document
constituting a part of the related Mortgage File remains uncured and materially
and adversely affects the interests of the Certificateholders or the
Certificate Insurer in such Mortgage Loan or (2) a breach of any representation
or warranty made by the Sponsor in the Pooling and Servicing Agreement relating
to such Mortgage Loan occurs and such breach materially and adversely affects
the interests of the Certificateholders or the Certificate Insurer in such
Mortgage Loan, the Sponsor will be required to repurchase the related Mortgage
Loan (any such Mortgage Loan, a "Defective Mortgage Loan") from the Trust at a
price equal to its Principal Balance together with one month's interest at the
Mortgage Interest Rate (net of the applicable Servicing Fee Rate) on such
Defective Mortgage Loan, less any payments received during the related
Collection Period in respect of such Defective Mortgage Loan (the "Purchase
Price"). The Sponsor will also have the option, but not the obligation, during
the two years (or such longer period as permitted by the applicable REMIC
Regulations) immediately following the Closing Date, to substitute for such
Defective Mortgage Loan a Mortgage Loan conforming to the requirements of the
Pooling and Servicing Agreement (a "Qualified Replacement Mortgage"). Upon
delivery of a Qualified Replacement Mortgage and deposit of certain amounts in
the Collection Account as set forth in the Pooling and Servicing Agreement, or
deposit of the Purchase Price in the Collection Account and receipt by the
Trustee of written notification of any such substitution or repurchase, as the
case may be, the Trustee shall execute and deliver an instrument of transfer or
assignment necessary to vest in the Sponsor legal and beneficial ownership of
such Defective Mortgage Loan (including any property acquired in respect
thereof or proceeds of any insurance policy with respect thereto).
The obligation of the Sponsor to cure, repurchase or substitute any
Mortgage Loan as described above will constitute the sole remedy available to
Certificateholders or the Trustee for a Defective Mortgage Loan.
S-48
<PAGE>
The Pooling and Servicing Agreement additionally provides that the
Servicer will have the option, but not the obligation, to purchase from the
Trust at the Purchase Price any Mortgage Loan as to which a scheduled payment
thereon becomes 90 or more days contractually delinquent; provided, however,
that the aggregate of the Principal Balances of the Mortgage Loans so purchased
by the Servicer may not exceed 3% of the aggregate Cut-off Date Pool Balance
and such Mortgage Loans may be purchased only in the order of the most
delinquent to the least delinquent. We refer you to "The Pooling and Servicing
Agreement -- Realization upon Defaulted Mortgage Loans" in the Prospectus.
PAYMENTS ON MORTGAGE LOANS AND DEPOSITS TO THE COLLECTION ACCOUNT
The Servicer shall establish and maintain an account or, with respect to
certain Mortgage Loans serviced by a Sub-Servicer, shall cause the related
Sub-Servicer to establish and maintain an account (collectively, the
"Collection Account") into which all collections on or with respect to the
Mortgage Loans in each Mortgage Loan Group will be deposited and the Trustee
shall establish and maintain an account (the "Certificate Account" and,
together with the Collection Account, the "Accounts") from which all
distributions with respect to the Certificates will be made. All amounts held
in the Accounts shall be invested in Permitted Investments that mature not
later than the date that is one Business Day prior to the Deposit Date for the
related Distribution Date next succeeding the date of investment. A "Business
Day" will be any day other than a Saturday or Sunday or a day on which banking
institutions in the State of California or the State of New York are required
or authorized by law, executive order or governmental decree to be closed.
"Permitted Investments" will be specified in the Pooling and Servicing
Agreement and will be limited to investments that are approved by the
Certificate Insurer and meet the criteria of the Rating Agencies from time to
time as being consistent with their then current ratings of the Offered
Certificates. We refer you to "The Pooling and Servicing Agreement -- Permitted
Investments" in the Prospectus. No Permitted Investment shall be sold or
disposed of at a gain prior to maturity unless the Servicer has obtained a
satisfactory opinion of counsel that such sale or disposition will not cause
any REMIC created pursuant to the Pooling and Servicing to be subject to the
tax on income from prohibited transactions imposed by Code Section 860F(a)(1),
otherwise subject any such REMIC to tax or cause any such REMIC to fail to
qualify as a REMIC. Investment income on monies on deposit in the Certificate
Account and the Collection Account will not be available for distribution to
Certificateholders or otherwise subject to any claims or rights of the
Certificateholders.
The Servicer will deposit, or cause the related Sub-Servicer to deposit,
into the Collection Account not later than two Business Days after receipt, all
payments on or in respect of the Mortgage Loans received from or on behalf of
Mortgagors and all proceeds of Mortgage Loans. On the date in each month
specified in the Pooling and Servicing Agreement (the "Deposit Date"),
Available Funds in respect of each Class of Offered Certificates will be
transferred from the Collection Account to the Certificate Account.
Notwithstanding the foregoing, payments and collections that do not constitute
Available Funds (e.g., amounts representing interest accrued on Mortgage Loans
in respect of any period prior to the Cut-off Date, fees, late payment charges,
Prepayment Charges, charges for checks returned for insufficient funds,
extension or other administrative charges or other amounts received for
application towards the payment of taxes, insurance premiums, assessments and
similar items) will not be required to be deposited into the Collection
Account.
S-49
<PAGE>
The Servicer may make withdrawals from the Collection Account to make the
deposits to the Certificate Account, to pay the Monthly Servicing Fee for each
Mortgage Loan Group to itself, to reimburse itself for payment of any PMI
Insurer Premium made by it, to reimburse itself for certain Advances that it
has made and for which it may be entitled to reimbursement under the Pooling
and Servicing Agreement, for any other expenses incurred by it for which it may
be entitled to reimbursement under the Pooling and Servicing Agreement and to
withdraw any amount not required to have been deposited therein.
S-50
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The weighted average life of and, if purchased at other than par, the
yield to maturity on an Offered Certificate will be directly related to the
rate of payment of principal of the Mortgage Loans in the related Mortgage Loan
Group (and to a lesser extent, the other Mortgage Loan Groups), including for
this purpose voluntary payment in full of Mortgage Loans prior to stated
maturity, liquidations due to defaults, casualties and condemnations, and
repurchases of Mortgage Loans by the Servicer. The actual rate of principal
prepayments on the Mortgage Loans may be influenced by a variety of economic,
tax, geographic, demographic, social, competitive, legal and other factors and
has fluctuated considerably in recent years. In addition, the rate of principal
prepayments may differ between the Mortgage Loan Groups at any time because of
specific factors relating to the Mortgage Loans in the particular group,
including, among other things, the age of the Mortgage Loans, the manner in
which the Mortgage Interest Rates on the Mortgage Loans are calculated, the
geographic locations of the Mortgaged Properties and the extent of the
Mortgagors' equity in such Mortgaged Properties, and changes in the Mortgagors'
housing needs, job transfers and unemployment. The Mortgage Loans may be
prepaid by the borrowers at any time. However, a majority of the Mortgage Loans
are subject to a prepayment charge.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. In general, the
earlier the payment of principal on the Mortgage Loans the greater the effect
will be on an investor's yield to maturity. As a result, the effect on an
investor's yield of principal prepayments occurring at a rate higher (or lower)
than the rate anticipated by the investor during the period immediately
following the issuance of the Offered Certificates will not be offset by a
subsequent like reduction (or increase) in the rate of principal prepayments.
Investors must make their own decisions as to the appropriate prepayment
assumptions to be used in deciding whether to purchase any of the Offered
Certificates. The Sponsor makes no representations or warranties as to the rate
of prepayment or the factors to be considered in connection with such
determination.
The rate of prepayments on the Mortgage Loans may be sensitive to the
credit standing of the borrower, which may improve and thereby allow the
borrower to refinance on more favorable terms, or may decline and limit the
borrower's ability to refinance. The prepayment behavior of the Hybrid Loans
may differ from that of the other Mortgage Loans. As a Hybrid Loan approaches
its initial adjustment date, the borrower may become more likely to refinance
such loan to avoid an increase in the Mortgage Interest Rate, even if fixed
rate loans are only available at rates that are slightly lower or higher than
the Mortgage Interest Rate before adjustment. The existence of the applicable
periodic rate cap, lifetime cap and lifetime floor also may affect the
likelihood of prepayments resulting from refinancings. As is the case with
conventional fixed rate mortgage loans, adjustable rate mortgage loans may be
subject to a greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly,
adjustable rate mortgage loans could be subject to higher prepayment rates than
if prevailing interest rates remain constant because the availability of fixed
rate mortgage loans at competitive interest
S-51
<PAGE>
rates may encourage mortgagors to refinance their adjustable rate mortgage loan
to "lock in" a lower fixed interest rate. However, no assurance can be given as
to the level of prepayments that the Mortgage Loans will experience.
Because all amounts available for distribution on each Class of
Certificates after distributions in respect of Accrued Certificate Interest are
applied as reductions of the related Certificate Principal Balance, the
weighted average lives of the Certificates will be influenced by the amount of
excess interest so applied. Because the overcollateralization feature is
expected to cause interest collections on the related Mortgage Loans to outpace
required distributions in respect of Accrued Certificate Interest for each
class of Certificates and such excess interest will be applied to reduce the
Certificate Principal Balances of the related Classes, the amount paid as
principal on the Certificates on a Distribution Date will usually be greater
than the aggregate amount of principal payments (including prepayments)
received on the Mortgage Loans in the related Mortgage Loan Group distributable
on such Distribution Date. As a consequence, it is expected that this excess
interest available for distribution in reduction of the Certificate Principal
Balances of related Classes will increase in proportion to the outstanding
Certificate Principal Balances of the related Classes over time in the absence
of offsetting Realized Losses on the Mortgage Loans in the related Mortgage
Loan Group. In addition, because under certain circumstances all or a portion
of the Monthly Excess Cashflow Amount for a Mortgage Loan Group may be
available for distribution in respect of the Extra Principal Distribution
Amount for the other Mortgage Loan Groups, the resulting
cross-collateralization may increase the rate at which the Targeted
Overcollateralization Amount with respect to a Mortgage Loan Group is achieved,
further accelerating the amortization of the related Offered Certificates.
The Certificate Insurer will have the right, but not the obligation, to
fund related Realized Losses with respect to any Collection Period, which may
have the effect of increasing the rate of amortization of either such Class.
THE PASS-THROUGH RATES
The Pass-Through Rate for the Class A-5F and Class A-6F Certificates is
subject to the Fixed Rate Group Available Funds Cap. The Fixed Rate Group
Available Funds Cap on any Distribution Date is determined by reference to the
weighted average Mortgage Interest Rate of the Mortgage Loans net of certain
expenses (the "Net Loan Rate") in the Fixed Rate Group in effect at the
beginning of the related Collection Period. All of the Mortgage Interest Rates
on the Mortgage Loans in the Fixed Rate Group are fixed for the lives of such
Mortgage Loans. If Mortgage Loans bearing higher Mortgage Interest Rates were
to prepay at rates faster than Mortgage Loans with lower Mortgage Interest
Rates, the Fixed Rate Group Available Funds Cap would be lower than otherwise
would be the case. Thus, the effective Pass-Through Rate on the Class A-5F and
Class A-6F Certificates will be dependent on the prepayment experience in the
Fixed Rate Group. There is no mechanism to compensate the holders of the Class
A-5F and Class A-6F Certificates if the related Pass-Through Rate is limited by
the Fixed Rate Group Available Funds Cap.
The yield to investors on the Class A-V1 and Class A-V2 Certificates will
be sensitive to, among other things, the level of LIBOR and the levels of index
used for
S-52
<PAGE>
computing the Mortgage Loan Rate on the adjustable rate mortgage loans (the
"Index"). 42.38% and 56.70% (by Aggregate Principal Balance) of the Statistic
Calculation Loans in Adjustable Rate Group I and 48.30% and 50.78% of the
Statistic Calculation Loans in Adjustable Rate Group II are Hybrid Loans which
will bear interest at fixed rates for 24 months and 36 months, respectively,
after origination of such Mortgage Loans. Although each of the adjustable rate
Mortgage Loans bears interest at an adjustable rate, such rate is subject to a
periodic rate cap, a lifetime floor and a lifetime cap. If the Index increases
substantially between the dates on which the adjustable rate Mortgage Loan
adjust (each, a "Change Date"), the adjusted Mortgage Interest Rate on the
related Mortgage Loan may not equal the Index plus the related gross margin due
to the constraint of such caps. In such event, the related Mortgage Interest
Rate will be less than would have been the case in the absence of such caps. In
addition, the Mortgage Interest Rate applicable to any Change Date will be
based on the Index related to the Change Date. Thus, if the value of the Index
with respect to a Mortgage Loan rises, the lag in time before the corresponding
Mortgage Interest Rate increases will, all other things being equal, slow the
upward adjustment of the related Available Funds Cap. Furthermore, Mortgage
Loans that have not reached their first Change Date are more likely to be
subject to the applicable Periodic Rate Cap on their first Change Date. We
refer you to "The Mortgage Loans" in this Prospectus Supplement. Although the
Holders of the Class A-V1 and Class A-V2 Certificates will be entitled to
receive the related Supplemental Interest Amount to the extent funds are
available therefor as described herein and in the priority set forth herein,
there is no assurance that sufficient funds will be available therefor. The
ratings on the Class A-V1 and Class A-V2 Certificates do not address the
likelihood of, and the Policy does not cover, the payment of any Supplemental
Interest Amount.
Although the Mortgage Interest Rates on the adjustable rate Mortgage Loans
are subject to adjustment, the Mortgage Interest Rates adjust less frequently
than LIBOR and adjust by reference to the Index. Changes in LIBOR may not
correlate with changes in the Index and either may not correlate with
prevailing interest rates. It is possible that an increased level of LIBOR
could occur simultaneously with a lower level of prevailing interest rates,
which would be expected to result in faster prepayments, thereby reducing the
weighted average life of the Class A-V1 and Class A-V2 Certificates.
PAYMENT DELAY FEATURE OF FIXED RATE CERTIFICATES
The effective yield to the Certificateholders of the Fixed Rate Group
Certificates will be lower than the yield otherwise produced by the
Pass-Through Rate for such Class and the purchase price of such Certificates
because distributions will not be payable to the Certificateholders until the
25th day of the month following the month of accrual (without any additional
distribution of interest or earnings thereon in respect of such delay).
CLASS A-6F CERTIFICATES
Investors in the Class A-6F Certificates should be aware that because the
Class A-6F Certificates do not receive any portion of principal payments prior
to the Distribution Date occurring in October 2003 and thereafter will receive
a disproportionately small or large portion of principal payments (unless the
Certificate
S-53
<PAGE>
Principal Balances of the Class A-1F, Class A-2F, Class A-3F, Class A-4F and
Class A-5F Certificates have been reduced to zero), the weighted average life
of the Class A-6F Certificates will be longer or shorter than would otherwise
be the case, and the effect on the market value of the Class A-6F Certificates
of changes in market interest rates or market yields for similar securities may
be greater or less than for other classes of Offered Certificates entitled to
such distributions.
PROJECTED PREPAYMENTS AND YIELDS FOR THE OFFERED CERTIFICATES
If an Offered Certificate is purchased at other than par, its yield to
maturity will be affected by the rate of the payment of principal on the
Mortgage Loans in the related Mortgage Loan Group. If the actual rate of
payments on the Mortgage Loans in the related Mortgage Loan Group is slower
than the rate anticipated by an investor who purchases an Offered Certificate
at a discount, the actual yield to such investor will be lower than such
investor's anticipated yield. If the actual rate of payments on the Mortgage
Loans in the related Mortgage Loan Group is faster than the rate anticipated by
an investor who purchases an Offered Certificate at a premium, the actual yield
to such investor will be lower than such investor's anticipated yield.
The rate of prepayments with respect to conventional fixed rate mortgage
loans has fluctuated significantly in recent years. In general, if prevailing
interest rates fall significantly below the interest rates on fixed rate
mortgage loans, such mortgage loans are likely to be subject to higher
prepayment rates than if prevailing rates remain at or above the interest rate
on such mortgage loans. However, the monthly payment on a home equity loan is
often smaller than the monthly payment on a purchase money first mortgage loan.
Consequently, a decrease in the interest rate payable results in a smaller
reduction in the amount of the monthly payment on the smaller balance loan.
Conversely, if prevailing interest rates rise appreciably above the interest
rate on fixed rate mortgage loans, such mortgage loans are likely to experience
a lower prepayment rate than if prevailing rates remain at or below the
interest rates on such mortgage loans.
As is the case with conventional fixed rate mortgage loans, adjustable
rate mortgage loans may be subject to a greater rate of principal prepayments
in a declining interest rate environment. For example, if prevailing interest
rates fall appreciably, adjustable rate mortgage loans are likely to be subject
to a higher prepayment rate than if prevailing interest rates remain constant
because the availability of fixed rate mortgage loans at competitive interest
rates may encourage mortgagors to refinance their adjustable rate mortgage
loans to "lock in" a lower fixed interest rate. However, no assurance can be
given as to the expected level of prepayments on the Mortgage Loans. The
Sponsor does not have representative prepayment experience that may be referred
to for purposes of estimating the future prepayment experience of the Mortgage
Loans that are adjustable rate Mortgage Loans.
In addition to the foregoing factors affecting the weighted average life
of each Class of Certificates, the overcollateralization provisions of the
Trust may result in an additional reduction of the Offered Certificates
relative to the amortization of the related Mortgage Loans in the early months
of the transaction. The accelerated amortization is achieved by the application
of the Monthly Excess Cashflow Amount to the payment of the Certificate
Principal Balance of the related Classes of Offered Certificates and by the
cross-collateralization feature by which all or a portion of the
S-54
<PAGE>
Monthly Excess Cashflow Amount for a Mortgage Loan Group may be available for
distribution in respect of the Extra Principal Distribution Amount for the
other Mortgage Loan Groups. This creates overcollateralization, which results
from the excess of the aggregate Principal Balances of the Mortgage Loans of
the related Mortgage Loan Group over the aggregate Certificate Principal
Balance of the related Offered Certificates. Once the Targeted
Overcollateralization Amount for a Mortgage Loan Group is reached, the
application of the Monthly Excess Cashflow Amount to pay down principal on the
related Offered Certificates will cease, unless necessary to maintain the
Targeted Overcollateralization Amount, and may be applied toward the Targeted
Overcollateralization Amounts of either or both of the other Certificate
Groups. In addition, if the related Targeted Overcollateralization Amount steps
down, you may experience a deceleration of principal payments. Moreover,
because of the operation of the cross-collateralization provisions, all or a
portion of the Monthly Excess Cashflow Amounts of a Certificate Group may be
applied to fund shortfalls in another Certificate Group thereby slowing the
rate of amortization of the Offered Certificates of the related Certificate
Group.
There will not be any Insured Payment made under the Certificate Insurance
Policy in respect of principal until the aggregate of the Certificate Principal
Balances of all Offered Certificates exceeds the Aggregate Principal Balances
of all the Mortgage Loans. As a result, there may be a situation where a
Certificate Group is undercollateralized with respect to the Mortgage Loans in
the related Mortgage Loan Group while holders of the related Certificates are
not entitled to receive an Insured Payment in the amount of such
undercollateralization.
FINAL DISTRIBUTION DATES
The "Final Scheduled Distribution Date" for each Class of Offered
Certificates is set forth in the "Summary" in this Prospectus Supplement. The
Final Scheduled Distribution Dates for the Class A-1F, Class A-2F, Class A-3F
and Class A-4F Certificates have been set to equal the Distribution Date on
which the applicable Certificate Principal Balance would be reduced to zero
based upon the structuring aasumptions set forth below, a 0% applicable
Prepayment Assumption and an assumption that no Monthly Excess Cashflow Amounts
are used to make accelerated payments of principal on the Offered Certificates.
The Final Scheduled Distribution Date for the Class A-5F, Class A-6F, Class
A-V1 and Class A-V2 Certificates is the Distribution Date in the month of the
last due date of the latest maturing Mortgage Loan in either Mortgage Loan
Group. The weighted average lives of the Offered Certificates are likely to be
shorter, and the actual final Distribution Date for each Class of Offered
Certificates could occur significantly earlier than the Final Scheduled
Distribution Date for such Class because (i) prepayments are likely to occur
that will be applied to the payment of the Certificate Principal Balances of
the Offered Certificates, (ii) distributions of Monthly Excess Cashflow Amounts
may occur on each Distribution Date, which will accelerate the amortization of
the Offered Certificates and (iii) the Servicer may cause a termination of the
Trust when the aggregate principal balance of the Mortgage Loans in the Trust
has declined to less than 5% of the Cut-off Date Pool Balance.
STRUCTURING ASSUMPTIONS
The following tables have been prepared on the basis of the following
assumptions, except as set forth in the respective tables: (i) the Offered
Certificates are purchased on
S-55
<PAGE>
September 21, 2000; (ii) all adjustable rate Mortgage Loans have semi-annual
rate adjustment frequencies; (iii) with respect to the initial Collection
Period, the Mortgage Loans include 30 days of interest and no deposits in
respect of interest were contributed to the Trust; (iv) scheduled payments are
timely received on the first day of each month commencing in October 2000; (v)
distributions on the Offered Certificates are received, in cash, on the 25th
day of each month, commencing in October 2000; (vi) no defaults or
delinquencies in, or modifications, waivers or amendments respecting, the
payment by the Mortgagors of principal and interest on the Mortgage Loans
occur; (vii) prepayments represent payment in full of individual Mortgage Loans
and are received on the last day of each month, commencing in September 2000
and include 30 days' interest thereon; (viii) the Mortgage Loans prepay
according to the indicated Prepayment Scenario as described below; (ix) the
six-month London Interbank Offered Rate remains constant at 6.78% and the
one-month London Interbank Offered Rate remains constant at 6.62%; (x) early
termination occurs in the manner set forth in the respective tables; (xi) the
related Targeted Overcollateralization Amount is set initially as specified in
the Pooling and Servicing Agreement and thereafter decreases in accordance with
the provisions as specified herein; (xii) the Statistic Calculation Loans are
included in the Trust as of the Cut-off Date; (xiii) except as otherwise
indicated on the following table, the Servicer does not exercise its right of
optional termination; and (xiv) each Mortgage Loan Group consists of Mortgage
Loans having the following characteristics:
FIXED RATE GROUP
<TABLE>
<CAPTION>
REMAINING
ORIGINAL TERM ORIGINAL
MORTGAGE TERM TO TO AMORTIZATION
PRINCIPAL INTEREST MATURITY MATURITY TERM
BALANCE RATE (MONTHS) (MONTHS) (MONTHS) TOTAL FEE*
------------------- -------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Level Pay ......... $ 38,202,860.84 11.25243% 360 358 360 0.50750%
Level Pay ......... 4,913,192.58 11.66020 360 359 360 1.27147
Level Pay ......... 113,586,600.85 10.59063 360 359 360 0.50750
Level Pay ......... 14,229,330.13 11.18754 360 359 360 1.27475
Level Pay ......... 16,544,450.13 11.47191 187 185 187 0.50750
Level Pay ......... 398,773.03 11.22560 215 214 215 1.24750
Level Pay ......... 19,478,007.54 10.79448 189 188 189 0.50750
Level Pay ......... 1,369,501.47 11.13222 183 181 183 1.28267
Balloon ........... 157,283.43 12.80000 180 175 360 0.50750
</TABLE>
----------
* Includes the Monthly Servicing Fee, the PMI Insurer Premium and the
Trustee Fee.
S-56
<PAGE>
ADJUSTABLE RATE GROUP I
<TABLE>
<CAPTION>
ORIGINAL REMAINING ORIGINAL
MORTGAGE TERM TO TERM TO AMORTIZATION
PRINCIPAL INTEREST MATURITY MATURITY TERM
BALANCE RATE (MONTHS) (MONTHS) (MONTHS)
------------------ -------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Level Pay.. $ 6,642,946.56 11.46490% 349 346 349
Level Pay.. 2,561,480.74 10.73868 360 358 360
Level Pay.. 30,802,916.22 10.35538 359 357 359
Level Pay.. 14,409,248.49 10.43135 360 359 360
Level Pay.. 5,830,574.32 12.07725 350 348 350
Level Pay.. 1,853,692.02 12.09302 360 360 360
Level Pay.. 50,274,303.57 10.78225 358 357 358
Level Pay.. 12,105,296.41 10.94411 360 359 360
Level Pay.. 75,230.60 12.55500 360 354 360
Level Pay.. 674,638.81 9.98901 342 337 342
Level Pay.. 329,668.26 9.55867 360 355 360
<CAPTION>
INITIAL PERIODIC MAXIMUM MINIMUM
MONTHS TO NEXT PERIODIC RATE RATE MORTGAGE MORTGAGE
MORTGAGE GROSS ADJUSTMENT ADJUSTMENT INTEREST INTEREST TOTAL
RATE CHANGE MARGIN CAP CAP RATE RATE FEE*
---------------- ------------- --------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Level Pay.. 21 6.03838% 3.00000% 1.00000% 17.46490% 11.46490% 0.50750%
Level Pay.. 22 5.95989 3.00000 1.00000 16.73868 10.73868 1.93277
Level Pay.. 22 5.79045 2.98624 1.00179 16.36286 10.35538 0.50750
Level Pay.. 23 6.12508 2.97388 1.00000 16.44807 10.43135 1.94195
Level Pay.. 34 6.48328 2.96457 1.00000 18.11267 12.07725 0.50750
Level Pay.. 36 6.44870 3.00000 1.00000 18.09302 12.09302 2.04085
Level Pay.. 35 6.25196 2.99424 1.00000 16.78779 10.78225 0.50750
Level Pay.. 35 6.09447 3.00000 1.00000 16.94411 10.94411 1.90583
Level Pay.. 6 7.12500 1.00000 1.00000 18.55500 12.55500 0.50750
Level Pay.. 4 5.04607 1.00000 1.00000 15.39071 9.39071 0.50750
Level Pay.. 1 5.98772 1.00000 1.00000 15.55867 9.55867 2.09750
</TABLE>
-------
* Includes the Monthly Servicing Fee, the PMI Insurer Premium and the
Trustee Fee.
ADJUSTABLE RATE GROUP II
<TABLE>
<CAPTION>
ORIGINAL REMAINING ORIGINAL
MORTGAGE TERM TO TERM TO AMORTIZATION
PRINCIPAL INTEREST MATURITY MATURITY TERM
BALANCE RATE (MONTHS) (MONTHS) (MONTHS)
------------------ -------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Level Pay.. $ 7,102,366.64 11.16886% 351 348 351
Level Pay.. 2,646,369.19 10.59358 354 351 354
Level Pay.. 38,294,164.13 10.03013 360 358 360
Level Pay.. 11,398,872.71 10.08187 360 358 360
Level Pay.. 8,185,582.40 11.15345 358 357 358
Level Pay.. 2,605,577.07 11.27083 360 359 360
Level Pay.. 42,918,582.86 10.82816 358 357 358
Level Pay.. 11,179,119.10 10.83854 360 359 360
Level Pay.. 634,877.90 9.29200 360 358 360
Level Pay.. 525,384.20 10.98005 360 358 360
Level Pay.. 69,103.80 11.00000 360 357 360
<CAPTION>
INITIAL PERIODIC MAXIMUM MINIMUM
MONTHS TO NEXT PERIODIC RATE RATE MORTGAGE MORTGAGE
MORTGAGE GROSS ADJUSTMENT ADJUSTMENT INTEREST INTEREST TOTAL
RATE CHANGE MARGIN CAP CAP RATE RATE FEE*
---------------- ------------- --------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Level Pay.. 21 5.92028% 2.96244% 1.00000% 17.19390% 11.16886% 0.50750%
Level Pay.. 21 5.88877 3.00000 1.00000 16.59358 10.59358 1.90385
Level Pay.. 22 5.75116 2.94338 1.00297 16.04453 10.03013 0.50750
Level Pay.. 22 6.08364 3.00000 1.03423 16.15034 10.08187 1.99016
Level Pay.. 35 6.24237 2.97243 1.00000 17.18102 11.15345 0.50750
Level Pay.. 35 6.26566 2.90137 1.00000 17.33658 11.27083 2.00964
Level Pay.. 35 6.16723 2.99287 1.00000 16.82816 10.82816 0.50750
Level Pay.. 35 6.19230 3.00000 1.00000 16.83854 10.83854 1.93929
Level Pay.. 4 4.50000 1.00000 1.00000 15.29200 9.29200 0.50750
Level Pay.. 4 6.37788 1.33204 1.00000 16.98005 10.98005 0.50750
Level Pay.. 3 5.75000 1.00000 1.00000 17.00000 11.00000 2.09750
</TABLE>
-------
* Includes the Monthly Servicing Fee, the PMI Insurer Premium and the
Trustee Fee.
S-57
<PAGE>
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal
of such security will be repaid to the investor. The weighted average lives of
the Offered Certificates will be influenced by the rate at which principal
payments on the Mortgage Loans in the related Mortgage Loan Group are made,
which may be in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes prepayments and liquidations due to
default).
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the prepayment assumption, which represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of the pool of
mortgage loans for the life of such mortgage loans. In the case of the Fixed
Rate Group, a 100% prepayment assumption (the "Prepayment Assumption") assumes
a 4.0% constant prepayment rate ("CPR") per annum of the outstanding principal
balance of such mortgage loans in the first month of the life of the mortgage
loans and an additional 1.4545% in each month thereafter until the twelfth
month; beginning in the twelfth month and in each month thereafter during the
life of the mortgage loans, a CPR of 20% per annum each month is assumed. In
the case of Adjustable Rate Group I and Adjustable Rate Group II, a 100%
Prepayment Assumption assumes a 4.0% constant prepayment rate ("CPR") per annum
of the outstanding principal balance of such mortgage loans in the first month
of the life of the mortgage loans and approximately an additional 1.4762% in
each month thereafter until the twenty-second month; beginning in the
twenty-second month and in each month thereafter during the life of the
mortgage loans, a CPR of 35% per annum each month is assumed. As used in the
table below, 0% Prepayment Assumption assumes a prepayment rate equal to 0% of
the applicable Prepayment Assumption, i.e., no prepayments. Correspondingly,
100% Prepayment Assumption assumes a prepayment rate equal to 100% of the
applicable Prepayment Assumption, and so forth. The applicable Prepayment
Assumption does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans. The Sponsor is not aware of any
statistics that provide a reliable basis for predicting with any certainty the
amount or the timing of receipt of prepayments on the related mortgage loans.
The "Prepayment Scenarios" are defined as a percentage of the applicable
Prepayment Assumption:
<TABLE>
<CAPTION>
SCENARIO SCENARIO SCENARIO SCENARIO SCENARIO SCENARIO SCENARIO SCENARIO
I II III IV V VI VII VIII
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Group; % of
Prepayment Assumption ...... 0 35 60 90 110 140 175 200
Adjustable Rate Group I;
Prepayment Assumption % 0 35 50 75 100 125 150 175
Adjustable Rate Group II,
Prepayment Assumption %..... 0 35 50 75 100 125 150 175
</TABLE>
S-58
<PAGE>
PERCENT OF CLASS A-1F INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PREPAYMENT SCENARIO
---------------------------------------------------------------------------
DISTRIBUTION DATE I II III IV V VI VII VIII
--------------------------------------------------- --------- ------ --------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent ................................... 100% 100% 100% 100% 100% 100% 100% 100%
September 2001 .................................... 89 73 62 48 39 25 9 0
September 2002 .................................... 84 46 21 0 0 0 0 0
September 2003 .................................... 80 23 0 0 0 0 0 0
September 2004 .................................... 77 2 0 0 0 0 0 0
September 2005 .................................... 72 0 0 0 0 0 0 0
September 2006 .................................... 68 0 0 0 0 0 0 0
September 2007 .................................... 63 0 0 0 0 0 0 0
September 2008 .................................... 58 0 0 0 0 0 0 0
September 2009 .................................... 53 0 0 0 0 0 0 0
September 2010 .................................... 46 0 0 0 0 0 0 0
September 2011 .................................... 40 0 0 0 0 0 0 0
September 2012 .................................... 32 0 0 0 0 0 0 0
September 2013 .................................... 23 0 0 0 0 0 0 0
September 2014 .................................... 13 0 0 0 0 0 0 0
September 2015 .................................... 1 0 0 0 0 0 0 0
September 2016 .................................... 0 0 0 0 0 0 0 0
September 2017 .................................... 0 0 0 0 0 0 0 0
September 2018 .................................... 0 0 0 0 0 0 0 0
September 2019 .................................... 0 0 0 0 0 0 0 0
September 2020 .................................... 0 0 0 0 0 0 0 0
September 2021 .................................... 0 0 0 0 0 0 0 0
September 2022 .................................... 0 0 0 0 0 0 0 0
September 2023 .................................... 0 0 0 0 0 0 0 0
September 2024 .................................... 0 0 0 0 0 0 0 0
September 2025 .................................... 0 0 0 0 0 0 0 0
September 2026 .................................... 0 0 0 0 0 0 0 0
September 2027 .................................... 0 0 0 0 0 0 0 0
September 2028 .................................... 0 0 0 0 0 0 0 0
September 2029 .................................... 0 0 0 0 0 0 0 0
September 2030 .................................... 0 0 0 0 0 0 0 0
Weighted Average Life to Maturity (years) ......... 8.54 2 1.35 1.02 0.9 0.77 0.67 0.62
Weighted Average Life to Call* (years) ............ 8.54 2 1.35 1.02 0.9 0.77 0.67 0.62
</TABLE>
----------
* Assuming early termination by repurchase of the related Mortgage Loans.
S-59
<PAGE>
PERCENT OF CLASS A-2F INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PREPAYMENT SCENARIO
-----------------------------
DISTRIBUTION DATE I II III
--------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Initial Percent ................................... 100% 100% 100%
September 2001 .................................... 100 100 100
September 2002 .................................... 100 100 100
September 2003 .................................... 100 100 74
September 2004 .................................... 100 100 17
September 2005 .................................... 100 66 0
September 2006 .................................... 100 32 0
September 2007 .................................... 100 0 0
September 2008 .................................... 100 0 0
September 2009 .................................... 100 0 0
September 2010 .................................... 100 0 0
September 2011 .................................... 100 0 0
September 2012 .................................... 100 0 0
September 2013 .................................... 100 0 0
September 2014 .................................... 100 0 0
September 2015 .................................... 100 0 0
September 2016 .................................... 84 0 0
September 2017 .................................... 71 0 0
September 2018 .................................... 56 0 0
September 2019 .................................... 40 0 0
September 2020 .................................... 22 0 0
September 2021 .................................... 1 0 0
September 2022 .................................... 0 0 0
September 2023 .................................... 0 0 0
September 2024 .................................... 0 0 0
September 2025 .................................... 0 0 0
September 2026 .................................... 0 0 0
September 2027 .................................... 0 0 0
September 2028 .................................... 0 0 0
September 2029 .................................... 0 0 0
September 2030 .................................... 0 0 0
Weighted Average Life to Maturity (years) ......... 18.30 5.55 3.47
Weighted Average Life to Call* (years) ............ 18.30 5.55 3.47
<PAGE>
<CAPTION>
PREPAYMENT SCENARIO
-------------------------------------------------
DISTRIBUTION DATE IV V VI VII VIII
--------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percent ................................... 100% 100% 100% 100% 100%
September 2001 .................................... 100 100 100 100 95
September 2002 .................................... 84 47 0 0 0
September 2003 .................................... 0 0 0 0 0
September 2004 .................................... 0 0 0 0 0
September 2005 .................................... 0 0 0 0 0
September 2006 .................................... 0 0 0 0 0
September 2007 .................................... 0 0 0 0 0
September 2008 .................................... 0 0 0 0 0
September 2009 .................................... 0 0 0 0 0
September 2010 .................................... 0 0 0 0 0
September 2011 .................................... 0 0 0 0 0
September 2012 .................................... 0 0 0 0 0
September 2013 .................................... 0 0 0 0 0
September 2014 .................................... 0 0 0 0 0
September 2015 .................................... 0 0 0 0 0
September 2016 .................................... 0 0 0 0 0
September 2017 .................................... 0 0 0 0 0
September 2018 .................................... 0 0 0 0 0
September 2019 .................................... 0 0 0 0 0
September 2020 .................................... 0 0 0 0 0
September 2021 .................................... 0 0 0 0 0
September 2022 .................................... 0 0 0 0 0
September 2023 .................................... 0 0 0 0 0
September 2024 .................................... 0 0 0 0 0
September 2025 .................................... 0 0 0 0 0
September 2026 .................................... 0 0 0 0 0
September 2027 .................................... 0 0 0 0 0
September 2028 .................................... 0 0 0 0 0
September 2029 .................................... 0 0 0 0 0
September 2030 .................................... 0 0 0 0 0
Weighted Average Life to Maturity (years) ......... 2.42 2.03 1.65 1.37 1.24
Weighted Average Life to Call* (years) ............ 2.42 2.03 1.65 1.37 1.24
</TABLE>
----------
* Assuming early termination by repurchase of the related Mortgage Loans.
S-60
<PAGE>
PERCENT OF CLASS A-3F INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PREPAYMENT SCENARIO
-----------------------------
DISTRIBUTION DATE I II III
--------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Initial Percent ................................... 100% 100% 100%
September 2001 .................................... 100 100 100
September 2002 .................................... 100 100 100
September 2003 .................................... 100 100 100
September 2004 .................................... 100 100 100
September 2005 .................................... 100 100 65
September 2006 .................................... 100 100 23
September 2007 .................................... 100 100 0
September 2008 .................................... 100 74 0
September 2009 .................................... 100 50 0
September 2010 .................................... 100 26 0
September 2011 .................................... 100 3 0
September 2012 .................................... 100 0 0
September 2013 .................................... 100 0 0
September 2014 .................................... 100 0 0
September 2015 .................................... 100 0 0
September 2016 .................................... 100 0 0
September 2017 .................................... 100 0 0
September 2018 .................................... 100 0 0
September 2019 .................................... 100 0 0
September 2020 .................................... 100 0 0
September 2021 .................................... 100 0 0
September 2022 .................................... 78 0 0
September 2023 .................................... 52 0 0
September 2024 .................................... 23 0 0
September 2025 .................................... 0 0 0
September 2026 .................................... 0 0 0
September 2027 .................................... 0 0 0
September 2028 .................................... 0 0 0
September 2029 .................................... 0 0 0
September 2030 .................................... 0 0 0
Weighted Average Life to Maturity (years) ......... 23.06 9.07 5.44
Weighted Average Life to Call* (years) ............ 23.06 9.07 5.44
<PAGE>
<CAPTION>
PREPAYMENT SCENARIO
-------------------------------------------------
DISTRIBUTION DATE IV V VI VII VIII
--------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percent ................................... 100% 100% 100% 100% 100%
September 2001 .................................... 100 100 100 100 100
September 2002 .................................... 100 100 94 33 0
September 2003 .................................... 95 46 0 0 0
September 2004 .................................... 25 0 0 0 0
September 2005 .................................... 0 0 0 0 0
September 2006 .................................... 0 0 0 0 0
September 2007 .................................... 0 0 0 0 0
September 2008 .................................... 0 0 0 0 0
September 2009 .................................... 0 0 0 0 0
September 2010 .................................... 0 0 0 0 0
September 2011 .................................... 0 0 0 0 0
September 2012 .................................... 0 0 0 0 0
September 2013 .................................... 0 0 0 0 0
September 2014 .................................... 0 0 0 0 0
September 2015 .................................... 0 0 0 0 0
September 2016 .................................... 0 0 0 0 0
September 2017 .................................... 0 0 0 0 0
September 2018 .................................... 0 0 0 0 0
September 2019 .................................... 0 0 0 0 0
September 2020 .................................... 0 0 0 0 0
September 2021 .................................... 0 0 0 0 0
September 2022 .................................... 0 0 0 0 0
September 2023 .................................... 0 0 0 0 0
September 2024 .................................... 0 0 0 0 0
September 2025 .................................... 0 0 0 0 0
September 2026 .................................... 0 0 0 0 0
September 2027 .................................... 0 0 0 0 0
September 2028 .................................... 0 0 0 0 0
September 2029 .................................... 0 0 0 0 0
September 2030 .................................... 0 0 0 0 0
Weighted Average Life to Maturity (years) ......... 3.69 3.03 2.41 1.95 1.72
Weighted Average Life to Call* (years) ............ 3.69 3.03 2.41 1.95 1.72
</TABLE>
----------
* Assuming early termination by repurchase of the related Mortgage Loans.
S-61
<PAGE>
PERCENT OF CLASS A-4F INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PREPAYMENT SCENARIO
-----------------------------
DISTRIBUTION DATE I II III
--------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Initial Percent ................................... 100% 100% 100%
September 2001 .................................... 100 100 100
September 2002 .................................... 100 100 100
September 2003 .................................... 100 100 100
September 2004 .................................... 100 100 100
September 2005 .................................... 100 100 100
September 2006 .................................... 100 100 100
September 2007 .................................... 100 100 92
September 2008 .................................... 100 100 75
September 2009 .................................... 100 100 58
September 2010 .................................... 100 100 43
September 2011 .................................... 100 100 28
September 2012 .................................... 100 87 15
September 2013 .................................... 100 71 3
September 2014 .................................... 100 57 0
September 2015 .................................... 100 42 0
September 2016 .................................... 100 30 0
September 2017 .................................... 100 21 0
September 2018 .................................... 100 12 0
September 2019 .................................... 100 3 0
September 2020 .................................... 100 0 0
September 2021 .................................... 100 0 0
September 2022 .................................... 100 0 0
September 2023 .................................... 100 0 0
September 2024 .................................... 100 0 0
September 2025 .................................... 93 0 0
September 2026 .................................... 68 0 0
September 2027 .................................... 39 0 0
September 2028 .................................... 6 0 0
September 2029 .................................... 0 0 0
September 2030 .................................... 0 0 0
Weighted Average Life to Maturity (years) ......... 26.62 14.77 9.69
Weighted Average Life to Call* (years) ............ 26.62 14.77 9.69
<PAGE>
<CAPTION>
PREPAYMENT SCENARIO
-------------------------------------------------
DISTRIBUTION DATE IV V VI VII VIII
--------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percent ................................... 100% 100% 100% 100% 100%
September 2001 .................................... 100 100 100 100 100
September 2002 .................................... 100 100 100 100 95
September 2003 .................................... 100 100 88 44 17
September 2004 .................................... 100 83 39 0 0
September 2005 .................................... 80 45 4 0 0
September 2006 .................................... 51 18 0 0 0
September 2007 .................................... 28 0 0 0 0
September 2008 .................................... 15 0 0 0 0
September 2009 .................................... 1 0 0 0 0
September 2010 .................................... 0 0 0 0 0
September 2011 .................................... 0 0 0 0 0
September 2012 .................................... 0 0 0 0 0
September 2013 .................................... 0 0 0 0 0
September 2014 .................................... 0 0 0 0 0
September 2015 .................................... 0 0 0 0 0
September 2016 .................................... 0 0 0 0 0
September 2017 .................................... 0 0 0 0 0
September 2018 .................................... 0 0 0 0 0
September 2019 .................................... 0 0 0 0 0
September 2020 .................................... 0 0 0 0 0
September 2021 .................................... 0 0 0 0 0
September 2022 .................................... 0 0 0 0 0
September 2023 .................................... 0 0 0 0 0
September 2024 .................................... 0 0 0 0 0
September 2025 .................................... 0 0 0 0 0
September 2026 .................................... 0 0 0 0 0
September 2027 .................................... 0 0 0 0 0
September 2028 .................................... 0 0 0 0 0
September 2029 .................................... 0 0 0 0 0
September 2030 .................................... 0 0 0 0 0
Weighted Average Life to Maturity (years) ......... 6.32 5.03 3.87 3.01 2.58
Weighted Average Life to Call* (years) ............ 6.32 5.03 3.87 3.01 2.58
</TABLE>
----------
* Assuming early termination by repurchase of the related Mortgage Loans.
S-62
<PAGE>
PERCENT OF CLASS A-5F INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PREPAYMENT SCENARIO
-----------------------------
DISTRIBUTION DATE I II III
--------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Initial Percent ................................... 100% 100% 100%
September 2001 .................................... 100 100 100
September 2002 .................................... 100 100 100
September 2003 .................................... 100 100 100
September 2004 .................................... 100 100 100
September 2005 .................................... 100 100 100
September 2006 .................................... 100 100 100
September 2007 .................................... 100 100 100
September 2008 .................................... 100 100 100
September 2009 .................................... 100 100 100
September 2010 .................................... 100 100 100
September 2011 .................................... 100 100 100
September 2012 .................................... 100 100 100
September 2013 .................................... 100 100 100
September 2014 .................................... 100 100 88
September 2015 .................................... 100 100 73
September 2016 .................................... 100 100 62
September 2017 .................................... 100 100 52
September 2018 .................................... 100 100 44
September 2019 .................................... 100 100 36
September 2020 .................................... 100 93 30
September 2021 .................................... 100 81 24
September 2022 .................................... 100 70 19
September 2023 .................................... 100 60 15
September 2024 .................................... 100 49 11
September 2025 .................................... 100 39 7
September 2026 .................................... 100 30 4
September 2027 .................................... 100 21 2
September 2028 .................................... 100 12 0
September 2029 .................................... 54 4 0
September 2030 .................................... 0 0 0
Weighted Average Life to Maturity (years) ......... 29.10 24.14 18.22
Weighted Average Life to Call* (years) ............ 29.03 23.41 16.24
<PAGE>
<CAPTION>
PREPAYMENT SCENARIO
-------------------------------------------------
DISTRIBUTION DATE IV V VI VII VIII
--------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percent ................................... 100% 100% 100% 100% 100%
September 2001 .................................... 100 100 100 100 100
September 2002 .................................... 100 100 100 100 100
September 2003 .................................... 100 100 100 100 100
September 2004 .................................... 100 100 100 98 65
September 2005 .................................... 100 100 100 56 30
September 2006 .................................... 100 100 73 33 15
September 2007 .................................... 100 97 52 21 8
September 2008 .................................... 100 82 44 18 8
September 2009 .................................... 100 66 32 11 4
September 2010 .................................... 84 52 22 6 1
September 2011 .................................... 68 39 15 3 0
September 2012 .................................... 54 29 9 0 0
September 2013 .................................... 42 21 5 0 0
September 2014 .................................... 32 14 2 0 0
September 2015 .................................... 24 10 0 0 0
September 2016 .................................... 18 6 0 0 0
September 2017 .................................... 14 4 0 0 0
September 2018 .................................... 10 2 0 0 0
September 2019 .................................... 7 1 0 0 0
September 2020 .................................... 5 0 0 0 0
September 2021 .................................... 3 0 0 0 0
September 2022 .................................... 1 0 0 0 0
September 2023 .................................... 0 0 0 0 0
September 2024 .................................... 0 0 0 0 0
September 2025 .................................... 0 0 0 0 0
September 2026 .................................... 0 0 0 0 0
September 2027 .................................... 0 0 0 0 0
September 2028 .................................... 0 0 0 0 0
September 2029 .................................... 0 0 0 0 0
September 2030 .................................... 0 0 0 0 0
Weighted Average Life to Maturity (years) ......... 13.16 10.78 8.11 5.99 4.89
Weighted Average Life to Call* (years) ............ 11.41 9.08 6.83 5.23 4.40
</TABLE>
----------
* Assuming early termination by repurchase of the related Mortgage Loans.
S-63
<PAGE>
PERCENT OF CLASS A-6F INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PREPAYMENT SCENARIO
-----------------------------
DISTRIBUTION DATE I II III
--------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Initial Percent ................................... 100% 100% 100%
September 2001 .................................... 100 100 100
September 2002 .................................... 100 100 100
September 2003 .................................... 100 100 100
September 2004 .................................... 99 96 94
September 2005 .................................... 99 92 88
September 2006 .................................... 98 86 78
September 2007 .................................... 96 78 67
September 2008 .................................... 90 58 43
September 2009 .................................... 84 43 27
September 2010 .................................... 77 32 17
September 2011 .................................... 70 23 11
September 2012 .................................... 63 17 6
September 2013 .................................... 56 12 4
September 2014 .................................... 48 8 2
September 2015 .................................... 40 6 1
September 2016 .................................... 35 4 1
September 2017 .................................... 31 3 0
September 2018 .................................... 28 2 0
September 2019 .................................... 24 1 0
September 2020 .................................... 20 1 0
September 2021 .................................... 17 1 0
September 2022 .................................... 13 0 0
September 2023 .................................... 10 0 0
September 2024 .................................... 7 0 0
September 2025 .................................... 5 0 0
September 2026 .................................... 3 0 0
September 2027 .................................... 1 0 0
September 2028 .................................... 0 0 0
September 2029 .................................... 0 0 0
September 2030 .................................... 0 0 0
Weighted Average Life to Maturity (years) ......... 14.69 9.18 7.92
Weighted Average Life to Call* (years) ............ 14.69 9.18 7.92
<PAGE>
<CAPTION>
PREPAYMENT SCENARIO
-------------------------------------------------
DISTRIBUTION DATE IV V VI VII VIII
--------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percent ................................... 100% 100% 100% 100% 100%
September 2001 .................................... 100 100 100 100 100
September 2002 .................................... 100 100 100 100 100
September 2003 .................................... 100 100 100 100 100
September 2004 .................................... 91 89 86 82 79
September 2005 .................................... 82 79 74 67 63
September 2006 .................................... 69 64 56 47 40
September 2007 .................................... 56 49 40 29 22
September 2008 .................................... 29 22 13 6 4
September 2009 .................................... 15 9 4 1 0
September 2010 .................................... 7 4 1 0 0
September 2011 .................................... 4 2 0 0 0
September 2012 .................................... 2 1 0 0 0
September 2013 .................................... 1 0 0 0 0
September 2014 .................................... 0 0 0 0 0
September 2015 .................................... 0 0 0 0 0
September 2016 .................................... 0 0 0 0 0
September 2017 .................................... 0 0 0 0 0
September 2018 .................................... 0 0 0 0 0
September 2019 .................................... 0 0 0 0 0
September 2020 .................................... 0 0 0 0 0
September 2021 .................................... 0 0 0 0 0
September 2022 .................................... 0 0 0 0 0
September 2023 .................................... 0 0 0 0 0
September 2024 .................................... 0 0 0 0 0
September 2025 .................................... 0 0 0 0 0
September 2026 .................................... 0 0 0 0 0
September 2027 .................................... 0 0 0 0 0
September 2028 .................................... 0 0 0 0 0
September 2029 .................................... 0 0 0 0 0
September 2030 .................................... 0 0 0 0 0
Weighted Average Life to Maturity (years) ......... 7.08 6.7 6.25 5.83 5.59
Weighted Average Life to Call* (years) ............ 7.06 6.64 6.06 5.25 4.68
</TABLE>
----------
* Assuming early termination by repurchase of the related Mortgage Loans.
S-64
<PAGE>
PERCENT OF CLASS A-V1 INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PREPAYMENT SCENARIO
-----------------------------
DISTRIBUTION DATE I II III
--------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Initial Percent ................................... 100% 100% 100%
September 2001 .................................... 97 93 89
September 2002 .................................... 96 85 74
September 2003 .................................... 95 76 60
September 2004 .................................... 95 69 48
September 2005 .................................... 94 62 39
September 2006 .................................... 94 56 32
September 2007 .................................... 93 50 27
September 2008 .................................... 92 45 22
September 2009 .................................... 91 41 18
September 2010 .................................... 90 37 14
September 2011 .................................... 89 33 12
September 2012 .................................... 88 30 10
September 2013 .................................... 86 27 8
September 2014 .................................... 85 24 6
September 2015 .................................... 83 21 5
September 2016 .................................... 81 19 4
September 2017 .................................... 78 17 3
September 2018 .................................... 75 15 2
September 2019 .................................... 72 13 2
September 2020 .................................... 69 11 1
September 2021 .................................... 65 10 1
September 2022 .................................... 60 8 1
September 2023 .................................... 55 7 0
September 2024 .................................... 49 6 0
September 2025 .................................... 42 5 0
September 2026 .................................... 35 3 0
September 2027 .................................... 27 2 0
September 2028 .................................... 18 1 0
September 2029 .................................... 8 0 0
September 2030 .................................... 0 0 0
Weighted Average Life to Maturity (years) ......... 21.56 9.22 5.34
Weighted Average Life to Call* (years) ............ 21.55 9.14 5.26
<PAGE>
<CAPTION>
PREPAYMENT SCENARIO
-------------------------------------------------
DISTRIBUTION DATE IV V VI VII VIII
--------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percent ................................... 100% 100% 100% 100% 100%
September 2001 .................................... 86 82 79 75 71
September 2002 .................................... 64 54 45 37 29
September 2003 .................................... 46 35 25 18 12
September 2004 .................................... 34 22 14 8 5
September 2005 .................................... 25 15 8 4 1
September 2006 .................................... 18 9 4 2 0
September 2007 .................................... 13 6 2 0 0
September 2008 .................................... 10 4 1 0 0
September 2009 .................................... 7 2 0 0 0
September 2010 .................................... 5 1 0 0 0
September 2011 .................................... 4 1 0 0 0
September 2012 .................................... 3 0 0 0 0
September 2013 .................................... 2 0 0 0 0
September 2014 .................................... 1 0 0 0 0
September 2015 .................................... 1 0 0 0 0
September 2016 .................................... 0 0 0 0 0
September 2017 .................................... 0 0 0 0 0
September 2018 .................................... 0 0 0 0 0
September 2019 .................................... 0 0 0 0 0
September 2020 .................................... 0 0 0 0 0
September 2021 .................................... 0 0 0 0 0
September 2022 .................................... 0 0 0 0 0
September 2023 .................................... 0 0 0 0 0
September 2024 .................................... 0 0 0 0 0
September 2025 .................................... 0 0 0 0 0
September 2026 .................................... 0 0 0 0 0
September 2027 .................................... 0 0 0 0 0
September 2028 .................................... 0 0 0 0 0
September 2029 .................................... 0 0 0 0 0
September 2030 .................................... 0 0 0 0 0
Weighted Average Life to Maturity (years) ......... 3.72 2.86 2.34 1.98 1.72
Weighted Average Life to Call* (years) ............ 3.67 2.84 2.33 1.97 1.71
</TABLE>
----------
* Assuming early termination by repurchase of the related Mortgage Loans.
S-65
<PAGE>
PERCENT OF CLASS A-V2 INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PREPAYMENT SCENARIO
-----------------------------
DISTRIBUTION DATE I II III
--------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Initial Percent ................................... 100% 100% 100%
September 2001 .................................... 97 93 90
September 2002 .................................... 96 84 74
September 2003 .................................... 95 76 60
September 2004 .................................... 95 69 48
September 2005 .................................... 94 62 39
September 2006 .................................... 94 56 32
September 2007 .................................... 93 50 26
September 2008 .................................... 92 45 22
September 2009 .................................... 91 41 18
September 2010 .................................... 90 37 14
September 2011 .................................... 89 33 12
September 2012 .................................... 88 30 10
September 2013 .................................... 86 27 8
September 2014 .................................... 85 24 6
September 2015 .................................... 83 21 5
September 2016 .................................... 81 19 4
September 2017 .................................... 78 17 3
September 2018 .................................... 75 15 2
September 2019 .................................... 72 13 2
September 2020 .................................... 69 11 1
September 2021 .................................... 65 10 1
September 2022 .................................... 60 8 1
September 2023 .................................... 55 7 0
September 2024 .................................... 49 6 0
September 2025 .................................... 42 5 0
September 2026 .................................... 35 3 0
September 2027 .................................... 28 2 0
September 2028 .................................... 19 1 0
September 2029 .................................... 8 0 0
September 2030 .................................... 0 0 0
Weighted Average Life to Maturity (years) ......... 21.57 9.21 5.33
Weighted Average Life to Call* (years) ............ 21.56 9.13 5.25
<PAGE>
<CAPTION>
PREPAYMENT SCENARIO
-------------------------------------------------
DISTRIBUTION DATE IV V VI VII VIII
--------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial Percent ................................... 100% 100% 100% 100% 100%
September 2001 .................................... 86 82 79 75 71
September 2002 .................................... 64 54 45 37 29
September 2003 .................................... 46 35 25 18 12
September 2004 .................................... 33 22 14 8 4
September 2005 .................................... 25 14 8 4 1
September 2006 .................................... 18 9 4 2 0
September 2007 .................................... 13 6 2 0 0
September 2008 .................................... 10 4 1 0 0
September 2009 .................................... 7 2 0 0 0
September 2010 .................................... 5 1 0 0 0
September 2011 .................................... 4 1 0 0 0
September 2012 .................................... 3 0 0 0 0
September 2013 .................................... 2 0 0 0 0
September 2014 .................................... 1 0 0 0 0
September 2015 .................................... 1 0 0 0 0
September 2016 .................................... 0 0 0 0 0
September 2017 .................................... 0 0 0 0 0
September 2018 .................................... 0 0 0 0 0
September 2019 .................................... 0 0 0 0 0
September 2020 .................................... 0 0 0 0 0
September 2021 .................................... 0 0 0 0 0
September 2022 .................................... 0 0 0 0 0
September 2023 .................................... 0 0 0 0 0
September 2024 .................................... 0 0 0 0 0
September 2025 .................................... 0 0 0 0 0
September 2026 .................................... 0 0 0 0 0
September 2027 .................................... 0 0 0 0 0
September 2028 .................................... 0 0 0 0 0
September 2029 .................................... 0 0 0 0 0
September 2030 .................................... 0 0 0 0 0
Weighted Average Life to Maturity (years) ......... 3.71 2.86 2.33 1.97 1.71
Weighted Average Life to Call* (years) ............ 3.66 2.84 2.32 1.96 1.70
</TABLE>
----------
* Assuming early termination by repurchase of the related Mortgage Loans.
S-66
<PAGE>
ORIGINATION AND SERVICING OF THE MORTGAGE LOANS
THE ORIGINATORS
Approximately 99.39%, 97.85% and 96.08% of the Statistic Calculation Loans
(by Aggregate Principal Balance) were originated through the broker network of
an affiliate of the Sponsor, through retail originators of the Sponsor and its
affiliates and through internet loan origination and borrower retention
programs of the Sponsor and its affiliates, respectively (the "Affiliated
Originators"). The remaining 1.94% of the Statistic Calculation Loans were
acquired by the Sponsor in arm's-length transactions from entities not
affiliated with the Sponsor (the "Unaffiliated Originators" and, together with
the Affiliated Originators, the "Originators"). Certain of the Additional
Mortgage Loans may be originated by Unaffiliated Originators, however the
proportion of Mortgage Loans in the final Mortgage Pool (after inclusion of the
Additional Mortgage Loans) that have been originated by Unaffiliated
Originators will not be materially different from the proportion of Statistic
Calculation Loans originated by Affiliated Originators. We refer you to "The
Originators" in the Prospectus.
UNDERWRITING OF MORTGAGE LOANS
Mortgage Loans originated by Affiliated Originators have been underwritten
in accordance with standard guidelines (the "Sponsor's Guidelines") developed
by the Sponsor and the related Affiliated Originator, as described in the
Prospectus. Mortgage Loans originated by Unaffiliated Originators are
re-underwritten in accordance with the Sponsor's Guidelines. We refer you to
"The Originators -- Underwriting Guidelines" in the Prospectus.
MORTGAGE LOAN DELINQUENCY AND FORECLOSURE EXPERIENCE
Certain information concerning the delinquency and foreclosure experience
with respect to home equity mortgage loans serviced by affiliates of the
Sponsor, including home equity loans pooled and securitized or sold in the
secondary market, is set forth under the caption "Aames Capital Corporation --
Mortgage Loan Delinquency and Foreclosure Experience" in the Prospectus. Such
information includes delinquency and foreclosure experience with respect to
home equity mortgage loans originated by Affiliated Originators or purchased by
the Sponsor and, in each case, serviced by or on behalf of the Sponsor as of
the end of the period indicated.
S-67
<PAGE>
The following table sets forth delinquency and foreclosure experience of
home equity loans included in the Sponsor's servicing portfolio as of or for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999
--------------- --------------
(DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS)
<S> <C> <C>
Percentage of dollar amount of delinquent loans to loans
serviced (period end)(1)(2)(3)(4)
One month ................................................ 1.9% 2.4%
Two months ............................................... 0.8 1.0
Three or more months:
Not foreclosed(5) ...................................... 9.0 10.3
Foreclosed(6) .......................................... 1.9 2.0
---- ----
Total ................................................. 13.6% 15.7%
==== ====
Percentage of dollar amount of loans foreclosed during the
period to average servicing portfolio(4)(8) .............. 3.6% 2.9%
Number of loans foreclosed during the period .............. 1,854 1,680
Number of loans liquidated during the period .............. 2,749 1,518
Principal amount at time of foreclosure of loans foreclosed
during the period ........................................ $ 135,629 $ 122,445
Net losses on liquidations during the period(7) ........... $ 96,119 $ 51,730
Percentage of annualized losses to average servicing
portfolio(4)(8) .......................................... 2.6% 1.2%
Servicing portfolio at period end ......................... $3,560,000 $3,841,000
</TABLE>
----------
(1) Delinquent loans are loans for which more than one payment is past due.
(2) The delinquency and foreclosure percentages are calculated on the basis
of the total dollar amount of mortgage loans serviced by the Sponsor and
any subservicers, as of the end of the periods indicated.
(3) At June 30, 2000, the dollar volume of loans delinquent more than 90 days
in 10 of the Sponsor's securitization trusts exceeded the permitted
limits in the related pooling and servicing agreements. At June 30, 2000,
fourteen of the Sponsor's securitization trusts (which includes nine of
the aforementioned trusts) have also exceeded certain loss limits. We
refer you to the related discussion in this section following this table.
(4) The servicing portfolio used in the percentage calculations includes
$280.1 million and $84.0 million of loans subserviced for others by the
Sponsor on an interim basis at June 30, 2000 and June 30, 1999,
respectively.
(5) Represents loans that are in foreclosure but as to which foreclosure
proceedings have not concluded.
(6) Represents properties acquired following a foreclosure sale and still
serviced by the Sponsor at period end.
(7) Represents losses, net of gains, on properties sold through foreclosure
or other default management activities during the periods indicated.
(8) The percentages were calculated to reflect the dollar volume of loans
foreclosed or annualized losses, as the case may be, to the average
dollar amount of mortgage loans serviced by the Sponsor and any
subservicers during the related periods indicated.
S-68
<PAGE>
There is no assurance that the delinquency, foreclosure and loss
experience with respect to any of the Mortgage Loans will be comparable to the
experience reflected above or in the Prospectus. As a lender that specializes
in loans made to credit impaired borrowers, the actual rates of delinquencies,
foreclosures and losses on such Mortgage Loans can be higher than those
historically experienced in the mortgage lending industry in general,
particularly in periods during which the values of the related Mortgaged
Properties decline. In addition, the rate of delinquencies, foreclosures and
losses with respect to the Mortgage Loans will also be affected by, among other
things, interest rate fluctuations and general and regional economic
conditions. We refer you to "Risk Factors -- Nature of the Security for
Mortgage Loans" and "The Originators -- Underwriting Guidelines" in the
Prospectus.
In connection with securitization transactions, the Sponsor has entered
into pooling and servicing agreements that contain specified limits on
delinquencies and losses that may be incurred in each trust. At June 30, 2000,
the dollar volume of loans delinquent more than 90 days in ten of the Sponsor's
securitization trusts formed in calendar years 1995, 1996 and 1997 have
exceeded the permitted limits specified in the related pooling and servicing
agreements. The higher delinquency rates negatively affect the Sponsor's cash
flows by obligating the Sponsor to advance past due interest and permit the
related monoline insurance company to terminate the Sponsor's servicing rights
to the affected trusts.
At June 30, 2000, fourteen of the Sponsor's securitization trusts (which
includes nine of the trusts referred to above) have also exceeded one or both
of the permitted loss limits, which permits the related monoline insurance
company to terminate the Sponsor's servicing rights with respect to the
affected trusts. The limits that have been exceeded provide that losses may not
exceed a certain threshold on a rolling 12 month basis and/or that losses may
not exceed a certain cumulative threshold since the inception of the trust.
Current loss levels have increased due to a loss mitigation strategy of
minimizing the real estate owned ("REO") holding period, thereby reducing
carrying costs. It is the Sponsor's goal to reduce the REO holding period,
consistent with realizing market value for the related properties, to maximize
the economics of liquidation transactions. Current loss levels have also
increased due to the seasoning of the lower credit grade loans purchased in
bulk and included in the Sponsor's earlier trusts. The Sponsor has reduced
significantly its bulk purchase program and the purchase in bulk of lower
credit grade loans. While the accelerated efforts to sell properties is
expected to have a short-term impact on loss levels, the seasoning of the lower
credit grade bulk portfolio may contribute to an increase in losses over time.
Although the related monoline insurance company for each securitization
has the right to terminate servicing with respect to the trusts referred to
above, to date no servicing rights have been terminated. There can be no
assurance, however, that the Sponsor's servicing rights with respect to the
mortgage loans in such trusts, or any other trusts that exceed the specified
delinquency or loss limits in future periods, will not be terminated.
The performance of the mortgage loans in any securitization trust other
than the Trust to which the Offered Certificates relate will not affect the
performance of the Mortgage Loans contained in the Trust. The performance of
the mortgage loans in such
S-69
<PAGE>
other securitization trusts is not necessarily predictive of the performance of
the Mortgage Loans contained in the Trust, and no assurance can be made as to
the levels of delinquencies and losses that may be experienced by the Trust
with respect to the Mortgage Loans contained therein.
THE SERVICER
The information set forth in the following paragraphs has been provided by
the Servicer. None of the Sponsor, the Trustee or the Underwriters or any of
their respective affiliates has made or will make any representation as to the
accuracy or completeness of this information.
Countrywide Home Loans, Inc., called Countrywide, will act as Servicer
under the Pooling and Servicing Agreement. During the servicing transfer period
expected to be completed by October 31, 2000, the Sponsor will directly service
the Mortgage Loans as interim subservicer on behalf of Countrywide. Upon
completion of the servicing transfer, Countrywide will directly service the
Mortgage Loans. Both the Sponsor, as interim subservicer, and Countrywide, as
Servicer, will service the Mortgage Loans in accordance with the terms of the
Pooling and Servicing Agreement.
Countrywide is a New York corporation and a subsidiary of Countrywide
Credit Industries, Inc. Countrywide is engaged primarily in the mortgage
banking business, and as such, originates, purchases, sells and services
mortgage loans. Countrywide originates mortgage loans through a retail branch
system and through mortgage loan brokers and correspondents nationwide.
Countrywide's mortgage loans are principally first-lien, fixed-rate or
adjustable-rate mortgage loans secured by single-family residences.
As of June 30, 2000, Countrywide provided servicing for mortgage loans
with an aggregate principal balance of approximately $264.9 billion,
substantially all of which are being serviced for unaffiliated persons. As of
June 30, 2000, Countrywide provided servicing for approximately $12.2 billion
in subprime mortgage loans.
The principal executive offices of Countrywide are located at 4500 Park
Granada, Calabasas, California 91302. Its telephone number is (818) 225-3000.
Countrywide conducts operations from its headquarters in Calabasas and from
offices throughout the nation.
Loan servicing
Countrywide has established standard policies for the servicing and
collection of mortgage loans. Servicing includes, but is not limited to:
(a) collecting, aggregating and remitting mortgage loan payments,
(b) accounting for principal and interest,
(c) holding escrow (impound) funds for payment of taxes and insurance,
(d) making inspections as required of mortgaged properties,
(e) preparation of tax related information in connection with mortgage
loans,
(f) supervision of delinquent mortgage loans,
(g) loss mitigation efforts,
S-70
<PAGE>
(h) foreclosure proceedings and, if applicable, the disposition of
mortgaged properties, and
(i) generally administering mortgage loans, for which it receives servicing
fees.
Billing statements with respect to mortgage loans are mailed monthly by
Countrywide. The statement details all debits and credits and specifies the
payment due. Notice of changes in the applicable loan rate are provided by
Countrywide to the mortgagor with such statements.
Countrywide currently reports borrower payment performance to three
nationally recognized credit repositories.
Collection procedures
When a mortgagor fails to make a payment on a subprime mortgage loan,
Countrywide attempts to cause the deficiency to be cured by corresponding with
the mortgagor. Pursuant to Countrywide's subprime servicing procedures,
Countrywide generally mails to the mortgagor a notice of intent to foreclose
after the loan becomes 31 days past due (two payments due but not received)
and, within 30 days thereafter, if the loan remains delinquent, institutes
appropriate legal action to foreclose on the mortgaged property. Foreclosure
proceedings may be terminated if the delinquency is cured. Mortgage loans to
borrowers in bankruptcy proceedings may be restructured in accordance with law
and with a view to maximizing recovery of such loans, including any
deficiencies.
Once foreclosure is initiated by Countrywide, a foreclosure tracking
system is used to monitor the progress of the proceedings. The system includes
state specific parameters to monitor whether proceedings are progressing within
the time frame typical for the state in which the mortgaged property is
located. During the foreclosure proceeding, Countrywide determines the amount
of the foreclosure bid and whether to liquidate the mortgage loan.
If foreclosed, the mortgaged property is sold at a public or private sale
and may be purchased by Countrywide. After foreclosure, Countrywide may
liquidate the mortgaged property and charge-off the loan balance which was not
recovered through liquidation proceeds.
Servicing and charge-off policies and collection practices with respect to
subprime mortgage loans may change over time in accordance with, among other
things, Countrywide's business judgment, changes in the servicing portfolio and
applicable laws and regulations.
SERVICING OF MORTGAGE LOANS
The Servicer will service the Mortgage Loans in accordance with the
provisions of the Pooling and Servicing Agreement and the policies, procedures
and practices customarily employed by the Servicer in servicing other
comparable mortgage loans. Consistent with the foregoing, the Servicer may, in
its discretion (a) waive any assumption fees, late payment charges, charges for
checks returned for insufficient funds or other fees that may be collected in
the ordinary course of servicing a Mortgage Loan, (b) arrange a schedule for
the payment of delinquent payments on the related Mortgage Loan, subject to
conditions set forth in the Pooling and Servicing Agreement, if a
S-71
<PAGE>
Mortgagor is in default or about to be in default because of such Mortgagor's
financial condition, or (c) modify monthly payments on Mortgage Loans in
accordance with the Servicer's general policy on mortgage loans subject to the
Relief Act.
In any case in which the Servicer becomes aware that a Mortgaged Property
has been or is about to be conveyed by the related Mortgagor, the Pooling and
Servicing Agreement will require the Servicer to enforce any due-on-sale clause
contained in the related Mortgage Note or mortgage, to the extent permitted by
the related Mortgage Note and mortgage and applicable law or regulation, but
only to the extent such enforcement will not adversely affect or jeopardize
coverage under any related insurance policy or result in legal action by the
Mortgagor. Additionally, the Servicer may, to the extent permitted in the
Pooling and Servicing Agreement, enter into an assumption and modification
agreement with the person to whom such Mortgaged Property has been or is about
to be conveyed, pursuant to which such person becomes liable under the related
promissory note and, to the extent permitted by applicable law, the Mortgagor
remains liable thereon or, if such person satisfies the Servicer's then current
underwriting standards for mortgage loans similar to the Mortgage Loans and the
Servicer finds it appropriate, the Mortgagor is released from liability
thereon. Any fees collected by the Servicer for entering into an assumption or
substitution of liability agreement will be retained by the Servicer as
additional servicing compensation. We refer you to "Certain Legal Aspects of
the Mortgage Loans and Related Matters -- Enforceability of Due-on-Sale
Clauses" in the Prospectus.
The Servicer, acting as agent for the Trust, will not consent to the
subsequent placement of a deed of trust or mortgage, as applicable, on any
Mortgaged Property that is of equal or higher priority to that of the lien
securing the related Mortgage Loan unless such Mortgage Loan is prepaid in
full, thereby removing such Mortgage Loan from the Trust.
The procedures of the Servicer with respect to day to day servicing of the
Mortgage Loans will vary considerably depending on the particular Mortgage
Loan, the Mortgaged Property, the Mortgagor, the presence of an acceptable
party to assume a Mortgage Loan and the laws of the jurisdiction in which the
Mortgaged Property is located. Under the terms of each Mortgage Loan, the
Mortgagor agrees to pay a late charge (which the Servicer is entitled to retain
as additional servicing compensation under the Pooling and Servicing Agreement)
if a monthly payment on a Mortgage Loan is not received within the number of
days specified in the Mortgage Note after its due date. If the Mortgage Loan
remains delinquent, the Servicer will attempt to contact the Mortgagor to
determine the cause of the delinquency and to obtain a commitment to cure the
delinquency at the earliest possible time.
Due to changes in interest rates, property appreciation, loan seasoning
and other factors, borrowers with mortgage loans serviced by the Servicer may
be the subject of solicitations from competitors of the Servicer to refinance
their loans (including the Mortgage Loans). In order to maintain an ongoing
relationship with such borrowers, the Servicer will usually solicit the
refinancing of such loans pursuant to criteria that are applied to all loans
then being serviced by the Servicer and not pursuant to criteria that would
specifically target the Mortgage Loans. Such solicitations by the Servicer may
include certain incentives (such as reduced origination or closing costs or
pre-approved
S-72
<PAGE>
applications). Any such loans actually refinanced by the Servicer will generate
fee income to the refinancing lender. Any refinancing of the Mortgage Loans,
whether such refinancing is effected by the Servicer or a competitor, will
affect the rate of prepayment of the Mortgage Loans.
INITIAL TERM OF SERVICER AND EXTENSIONS OF TERM
Pursuant to the Pooling and Servicing Agreement, the Servicer covenants
and agrees to act as the servicer for an initial term from the Closing Date to
December 31, 2000, which term will be extendable by the Certificate Insurer by
notice to the Trustee for successive terms of three calendar months each, until
the termination of the Trust. The Certificate Insurer has agreed to extend each
three month term of the Servicer in the absence of an event of default by the
Servicer under the Pooling and Servicing Agreement.
The Servicer will, upon its receipt of a notice of extension, become bound
for the duration of the term covered by such extension notice to continue as
the servicer subject to and in accordance with the other provisions of the
Pooling and Servicing Agreement. If, as of the fifteenth day prior to the last
day of any term of the Servicer, the Trustee shall not have received any
extension notice from the Certificate Insurer, the Trustee will, within five
days thereafter, give written notice of such non-receipt to the Certificate
Insurer and the Servicer. Upon any such termination of the Servicer, all
authority and power of the Servicer under the Pooling and Servicing Agreement
will pass to a successor servicer appointed in the manner set forth in the
Pooling and Servicing Agreement, the selection of which may be made by the
Certificate Insurer unless a Certificate Insurer Default has occurred and is
continuing. This provision under the Pooling and Servicing Agreement may be
modified or repealed upon the consent of the Certificate Insurer, without the
consent of Certificateholders.
SUB-SERVICING
The Servicer may enter into sub-servicing agreements with other mortgage
servicing institutions, which may include the Sponsor or affiliates of the
Sponsor, meeting the requirements set forth in the Pooling and Servicing
Agreement (each, a "Sub-Servicer"), to initially service and administer certain
Mortgage Loans on behalf of the Servicer. Any such sub-servicing arrangements
will provide that the Sub-Servicer will service the Mortgage Loans specified
therein in accordance with the provisions and requirements of the Pooling and
Servicing Agreement, but will not relieve the Servicer of any liability
associated with servicing the Mortgage Loans. Compensation for the services of
any Sub-Servicer will be paid by the Servicer.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Servicer will foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come into
default and as to which no satisfactory arrangements can be made for the
collection of delinquent payments; provided, however, that if the Servicer has
actual knowledge or reasonably believes that any Mortgaged Property is
contaminated by hazardous or toxic wastes or substances, the Servicer need not
cause the Trust to acquire title to such Mortgaged Property in a foreclosure or
similar proceeding. In connection with such foreclosure or
S-73
<PAGE>
other conversion, the Servicer will follow such practices as it deems necessary
or advisable and as are in keeping with its general mortgage loan servicing
activities; provided, however, that the Servicer will not be required to expend
its own funds in connection with foreclosure or other conversion, correction of
a default on a senior deed of trust or restoration of any Mortgaged Property
unless the Servicer determines that such foreclosure, correction or restoration
will increase Net Liquidation Proceeds.
In the event that the Trust acquires any Mortgaged Property in connection
with a default or imminent default on a Mortgage Loan, such Mortgaged Property
will be disposed of by or on behalf of the Trust within three years after the
close of the taxable year of its acquisition by the Trust, unless (i) the
Servicer, on behalf of the Trust, has applied for and received an extension of
such three-year period pursuant to the applicable Code provisions, in which
case the Servicer shall sell such Mortgaged Property within the applicable
extension period or (ii) at the request of the Servicer, the Trustee shall have
received a satisfactory opinion of counsel to the effect that the holding by
the Trust of such Mortgaged Property for more than such three-year period will
not result in a tax on prohibited transactions imposed by the Code, otherwise
subject any REMIC created pursuant to the Pooling and Servicing Agreement to
tax or cause any such REMIC to fail to qualify as a REMIC at any time any
Certificates are outstanding. The Servicer will further ensure that the
Mortgaged Property is administered so that it constitutes "foreclosure
property" as defined in the Code, that the sale of such Mortgaged Property does
not result in the receipt by any REMIC of any income from non-permitted assets
as described in the Code and that no REMIC derives any "net income from
foreclosure property" as defined in the Code.
HAZARD INSURANCE
Each Mortgage Loan that is secured by a first- or second-lien mortgage or
deed of trust, as applicable, on the related Mortgaged Property requires the
Mortgagor to maintain a hazard insurance policy for the corresponding Mortgaged
Property in an amount that is at least equal to the least of (i) the
outstanding principal balance owing on the Mortgage Loan and any senior
mortgage loan on the property, (ii) the full insurable value of the related
Mortgage Property and (iii) the minimum amount required to compensate for
damage or loss on a replacement cost basis. Hazard insurance policies generally
insure against loss by fire and by hazards included within the term "extended
coverage" for the term of the corresponding Mortgage Loan. Upon acquisition by
the Sponsor of each Mortgage Loan, the Sponsor will have confirmed the
existence of such hazard insurance and required that it be named as a joint
loss-payee on the policy. In the event that the Mortgagor did not obtain such
hazard insurance prior to the close of escrow, the Originator obtains a hazard
insurance policy on behalf of the borrower and deducts the cost of such policy
from the net funds paid to the borrower. However, if the Mortgagor obtains the
necessary insurance within 30 days from the close of escrow, the Originator
will refund a prorated portion of the cost of such Originator-obtained
insurance to the Mortgagor.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by
hazards such as fire, lightning, explosion and smoke. Other hazards may be
covered if specified in the policy. Although the policies are underwritten by
different insurers and therefore do not contain identical terms and conditions,
generally such policies do not cover physical
S-74
<PAGE>
damage resulting from the following: war, revolution, governmental actions,
floods and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), nuclear reactions, pollution, wet or dry rot, vermin,
rodents, insects or domestic animals, theft and, in certain cases, vandalism.
The foregoing list is merely indicative of certain kinds of uninsured risks and
is not intended to be all-inclusive. The existence of a hazard insurance policy
is verified upon origination of any Mortgage Loan meeting the criteria set
forth above and the Servicer will maintain a record and monitor scheduled
expirations of the related coverage, except with respect to policies that have
no stated scheduled expiration. In the event the Servicer is made aware of any
such expiration or cancellation, the Servicer will generally force-place hazard
insurance covering loss by fire and by hazards included within the term
"extended coverage."
The Servicer will be required under the Pooling and Servicing Agreement to
maintain on property acquired in foreclosure, or by deed in lieu of
foreclosure, hazard insurance with extended coverage in an amount that is at
least equal to the full insurable value of such property. The Pooling and
Servicing Agreement will provide that the Servicer may satisfy this obligation
by maintaining a blanket policy insuring against hazard losses on the Mortgage
Loans issued by an insurer acceptable to the Rating Agencies and the
Certificate Insurer. If such blanket policy contains a deductible clause, the
Pooling and Servicing Agreement requires the Servicer to deposit in the
Collection Account in respect of the related Distribution Date amounts that
would have been deposited therein but for such clause. Generally, the Servicer
will maintain no other policies of insurance on the Mortgage Loans or the
Mortgaged Properties.
SERVICING AND OTHER COMPENSATION; PAYMENT OF EXPENSES
A servicing fee (the "Monthly Servicing Fee") will be the primary
compensation to be paid to the Servicer in respect of its servicing activities
and will be paid to the Servicer on each Deposit Date out of collections of
interest for the related Mortgage Loan Group received on or in respect of the
related Mortgage Loans for the related Collection Period. The Monthly Servicing
Fee will equal one-twelfth (1/12) of the product of (a) the applicable
Servicing Fee Rate and (b) the Aggregate Principal Balance of the Mortgage
Loans in the related Mortgage Loan Group at the beginning of such Collection
Period. The "Servicing Fee Rate" for each Mortgage Loan Group will be 0.50% per
annum for each Collection Period. Assumption fees, late payment charges,
charges for checks returned for insufficient funds, and extension and other
administrative charges (excluding Prepayment Charges), to the extent collected
from Mortgagors, will be retained by the Servicer as additional servicing
compensation.
The Servicer will pay certain ongoing expenses associated with the Trust
and incurred by it in connection with its responsibilities as Servicer under
the Pooling and Servicing Agreement, including, among other things, the payment
of fees for any Sub-Servicers. In addition, the Servicer will be entitled to
reimbursement for certain expenses incurred by it in connection with Liquidated
Mortgage Loans and the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Certificateholders to receive any
related insurance proceeds or Net Liquidation Proceeds. We refer you to "--
Monthly Advances; Servicing Advances; Compensating Interest and Interest
Shortfalls" in this Prospectus Supplement.
S-75
<PAGE>
MONTHLY ADVANCES; SERVICING ADVANCES; COMPENSATING INTEREST; AND INTEREST
SHORTFALLS
Not later than the close of business on the Deposit Date prior to each
Distribution Date, the Servicer will determine the interest component (net of
the Monthly Servicing Fee) of any payment due during the related Collection
Period and not yet received. If the Servicer reasonably believes that the
delinquent interest payment (net of the Monthly Servicing Fee) will be
recoverable from subsequent collections on the related Mortgage Loan, the
Pooling and Servicing Agreement requires the Servicer to advance such amount (a
"Monthly Advance") on the Deposit Date prior to each Distribution Date either
out of its own funds or to a limited extent from collections on other Mortgage
Loans received since the end of the related Collection Period. To the extent
the Servicer utilizes such collections to advance any portion of such
delinquent interest payments, the Pooling and Servicing Agreement requires the
Servicer to reimburse the Trust prior to the next succeeding Deposit Date or on
such earlier date it receives late collections or Net Liquidation Proceeds from
the related Mortgage Loan. The Servicer will be entitled to reimbursement of a
Monthly Advance made from its own funds from collections, including late
collections, insurance proceeds and Net Liquidation Proceeds, on the related
Mortgage Loan in respect of which such Monthly Advance was made. The Servicer's
right to reimbursement described in the immediately preceding sentence is prior
to any other distributions or from Monthly Excess Cashflow Amounts as provided
in the Pooling and Servicing Agreement.
To the extent that the Servicer has made an advance of delinquent interest
payments that the Servicer reasonably believes will not be recoverable from
subsequent collections on the related Mortgage Loan, the Servicer will be
entitled to reimbursement for such advance from collections on any Mortgage
Loans in the related Mortgage Loan Group prior to any other distributions of
such amounts.
In the course of performing its servicing obligations during any
Collection Period with respect to each Mortgage Loan Group, the Servicer will
advance all reasonable and customary "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations as it deems
appropriate and advisable under the circumstances ("Servicing Advances" and,
together with Monthly Advances, "Advances"), including, but not limited to, the
cost of (i) maintaining REO Properties; (ii) any enforcement of judicial
proceedings, including foreclosures; (iii) the management and liquidation of
any Mortgaged Property acquired in satisfaction of the related Mortgage Loan;
and (iv) payments in respect of real estate taxes and assessments and insurance
premiums. The Servicer will not be required to make any Servicing Advance to
the extent it reasonably believes that such Servicing Advance would not be
recoverable from collections or Net Liquidation Proceeds on the related
Mortgage Loan.
The Servicer may reimburse itself for a Servicing Advance to the extent
permitted by the related Mortgage Loan or, if not theretofore recovered from
the mortgagor on whose behalf the Servicing Advance was made, from Liquidation
Proceeds realized upon the liquidation of the related Mortgage Loan. In no case
may the Servicer recover Servicing Advances from the principal and interest
payments on any other Mortgage Loan.
With respect to each Mortgage Loan (i) as to which a prepayment in whole
or in part was received, (ii) that became a Liquidated Mortgage Loan or (iii)
that was
S-76
<PAGE>
otherwise charged off during the Collection Period related to a Distribution
Date, the Servicer will be required with respect to such Distribution Date to
remit to the Trustee, from amounts otherwise payable to the Servicer as the
Monthly Servicing Fee (calculated with a Servicing Fee Rate of 0.50% per annum)
for the related Mortgage Loan Group and Collection Period, an amount equal to
the excess, if any, of (a) 30 days' interest on the Principal Balance of each
such Mortgage Loan (immediately prior to such payment) at the related Mortgage
Interest Rate, net of the Servicing Fee Rate, less (b) the amount of interest
actually received on such Mortgage Loan during such Collection Period (each
such amount, a "Compensating Interest Payment") for distribution on the related
Class of Offered Certificates on such Distribution Date. The Servicer will not
be entitled to be reimbursed from collections on the Mortgage Loans or any
assets of the Trust for any Compensating Interest Payments made. If the Monthly
Servicing Fee (calculated with a Servicing Fee Rate of 0.50% per annum) for the
related Mortgage Loan Group in respect of any Collection Period is insufficient
to make the entire required Compensating Interest Payment, the resulting
shortfall (a "Prepayment Interest Shortfall") will reduce the amount of
interest due and payable on the related Class of Offered Certificates on such
Distribution Date and such reduction will not be recoverable thereafter.
In addition, the application of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), or similar legislation to any
Mortgage Loan may adversely affect, for an indeterminate period of time, the
ability of the Servicer to collect full amounts of interest on such Mortgage
Loan ("Relief Act Shortfalls"). We refer you to "Risk Factors -- Limitations on
Interest Payments and Foreclosures" in the Prospectus. Relief Act Shortfalls
will not be covered by the Certificate Insurance Policy.
CERTAIN MATTERS REGARDING SERVICER'S SERVICING OBLIGATIONS
The Pooling and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as the Servicer thereunder, except upon
determination that its duties thereunder are no longer permissible under
applicable law or regulation or are in material conflict by reason of
applicable law or regulation with any other of its activities carried on as of
the date of the Pooling and Servicing Agreement. No such resignation will
become effective until the Trustee or a successor servicer has assumed the
servicing obligations and duties of the Servicer under the Pooling and
Servicing Agreement.
The Pooling and Servicing Agreement will also provide that neither the
Servicer, nor any of its directors, officers, employees or agents, will be
liable to the Trustee, the Trust or the Certificateholders for any action taken
or for refraining from the taking of any action by the Servicer pursuant to the
Pooling and Servicing Agreement, or for errors in judgment; provided, however,
that neither the Servicer nor any such person will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or negligence in the performance of duties of the Servicer, or by reason
of reckless disregard of obligations and duties of the Servicer, thereunder.
In addition, the Pooling and Servicing Agreement will provide that the
Servicer will not be under any obligation to appear in, prosecute or defend any
legal action that is not incidental to its duties to service the Mortgage Loans
under the Pooling and Servicing Agreement and that in its opinion may involve
it in any expense or liability.
S-77
<PAGE>
The Pooling and Servicing Agreement will provide that any corporation or
other entity (a) into which the Servicer may be merged or consolidated, (b)
that may result from any merger, conversion or consolidation to which the
Servicer shall be a party, or (c) that may succeed to all or substantially all
of the business of the Servicer, will, in any case where an assumption is not
effected by operation of law, execute an agreement of assumption to perform
every obligation of the Servicer under the Pooling and Servicing Agreement, and
will be the successor to the Servicer thereunder without the execution or
filing of any document or any further act by any of the parties to the Pooling
and Servicing Agreement; provided, however, that if the Servicer in any of the
foregoing cases is not the surviving entity, the surviving entity shall execute
an agreement of assumption to perform every obligation of the Servicer
thereunder and the Certificate Insurer shall have approved such successor
servicer and each of the Rating Agencies shall have confirmed its rating on the
Offered Certificates in connection therewith.
THE CERTIFICATE INSURER
The following information has been supplied by Financial Security
Assurance Inc. (the "Certificate Insurer") for inclusion in this Prospectus
Supplement.
GENERAL
The Certificate Insurer is a monoline insurance company incorporated in
1984 under the laws of the State of New York. The Certificate Insurer is
licensed to engage in financial guaranty insurance business in all 50 states,
the District of Columbia and Puerto Rico and the U.S. Virgin Islands.
The Certificate Insurer and its subsidiaries are engaged in the business
of writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. Financial guaranty insurance provides
a guaranty of scheduled payments of an issuer's securities -- thereby enhancing
the credit rating of those securities -- in consideration for the payment of a
premium to the insurer. The Certificate Insurer and its subsidiaries
principally insure asset-backed, collateralized and municipal securities.
Asset-backed securities are typically supported by residential mortgage loans,
consumer or trade receivables, securities or other assets having an
ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities include general obligation bonds, special revenue bonds
and other special obligations of state and local governments. The Certificate
Insurer insures both newly-issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy the
Certificate Insurer's underwriting criteria.
The Certificate Insurer is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"). Holdings is an indirect subsidiary of
Dexia S.A., a publicly held Belgian corporation. Dexia S.A., through its bank
subsidiaries, is primarily engaged in the business of public finance in France,
Belgium and other European countries. No shareholder of Holdings or the
Certificate Insurer is obligated to pay any debts of the Certificate Insurer or
any claim under any insurance policy issued by the Certificate Insurer or to
make any additional contribution to the capital of the Certificate Insurer.
S-78
<PAGE>
The principal executive offices of the Certificate Insurer are located at
350 Park Avenue, New York 10022, and its telephone number at that location is
(212) 826-0100.
REINSURANCE
Under an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by the Certificate Insurer or
any of its domestic or Bermuda operating insurance company subsidiaries are
generally reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, the Certificate
Insurer reinsures a portion of its liabilities under certain of its financial
guaranty insurance policies with other reinsurers under various quota share
treaties and on a transaction-by-transaction basis. This reinsurance is used by
the Certificate Insurer as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit the
Certificate Insurer's obligations under any financial guaranty insurance
policy.
RATING OF CLAIMS-PAYING ABILITY
The Certificate Insurer's insurance financial strength is rated "Aaa" by
Moody's. The Certificate Insurer's insurer financial strength is rated "AAA" by
S&P and Standard & Poor's (Australia) Pty. Ltd. The Certificate Insurer's
insurance financial strength is rated "AAA" by Fitch. Such ratings reflect only
the views of the respective rating agencies, are not recommendations to buy,
sell or hold securities and are subject to revision or withdrawal at any time
by such rating agencies. We refer you to "Rating of the Offered Certificates"
in this Prospectus Supplement.
CAPITALIZATION
The following table sets forth the capitalization of the Certificate
Insurer and its subsidiaries as of June 30, 2000, on the basis of accounting
principles generally accepted in the United States of America:
<TABLE>
<CAPTION>
JUNE 30, 2000
---------------
(IN THOUSANDS)
<S> <C>
Deferred Premium Revenue (net of prepaid reinsurance premiums) ...... $ 574,825
----------
Surplus Notes ....................................................... 120,000
----------
Minority Interest ................................................... 34,054
----------
Shareholder's Equity:
Common Stock ...................................................... 15,000
Additional Paid-In Capital ........................................ 841,036
Accumulated Other Comprehensive Income (net of deferred
income taxes) .................................................... 662
Accumulated Earnings .............................................. 520,869
----------
Total Shareholder's Equity .......................................... 1,377,567
----------
Total Deferred Premium Revenue, Surplus Notes, Minority Interest
and Shareholder's Equity .......................................... $2,106,446
==========
</TABLE>
For further information concerning the Certificate Insurer, see the
Consolidated Financial Statements of Financial Security Assurance Inc. and
Subsidiaries, and the
S-79
<PAGE>
notes thereto, incorporated by reference in this Prospectus Supplement. The
Certificate Insurer's financial statements are included as exhibits to the
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the
Securities and Exchange Commission by Holdings and may be reviewed at the EDGAR
website maintained by the Securities and Exchange Commission and at Holdings's
website, http://www.FSA.com. Copies of the statutory quarterly and annual
statements filed with the State of New York Insurance Department by the
Certificate Insurer are available upon request to the State of New York
Insurance Department.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described under "Incorporation of Certain
Documents by Reference" in the Prospectus, the financial statements of the
Certificate Insurer included in or as exhibits to the following documents that
have been filed with the Securities and Exchange Commission by Holdings, are
hereby incorporated by reference in this Prospectus Supplement: (a) the Annual
Report on Form 10-K for the year ended December 31, 1999 and (b) the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000.
All financial statements of the Certificate Insurer and its subsidiaries
included in documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, Subsequent to the
date of this Prospectus Supplement and prior to the termination of the offering
of the Offered Certificates shall be deemed to be incorporated by reference
into this Prospectus Supplement and to be a part hereof from the respective
dates of filing such documents.
The Sponsor has informed the Certificate Insurer that the Sponsor will
provide without charge to any person to whom this Prospectus Supplement is
delivered, upon oral or written request of such person, a copy of any or all of
the foregoing financial statements incorporated by reference. Requests for such
copies should be directed to General Counsel, Aames Capital Corporation, 350
South Grand Avenue, Los Angeles, California 90071; telephone number (323)
210-5000.
The Sponsor hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the financial
statements of the Certificate Insurer included in or as an exhibit to the
Annual Report of Holdings filed pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act that is incorporated by reference in the
Registration Statement of which this Prospectus Supplement forms a part shall
be deemed to be a new registration statement relating to the Offered
Certificates, and the offering of the Offered Certificates at that time shall
be deemed to be the initial bona fide offering thereof.
INSURANCE REGULATION
The Certificate Insurer is licensed and subject to regulation as a
financial guaranty insurance corporation under the laws of the State of New
York, its state of domicile. In addition, the Certificate Insurer and its
insurance subsidiaries are subject to regulation by insurance laws of the
various other jurisdictions in which they are licensed to do business. As a
financial guaranty insurance corporation licensed to do business in the State
of New York, the Certificate Insurer is subject to Article 69 of the New York
Insurance Law, which, among other things, limits the business of each such
insurer to
S-80
<PAGE>
financial guaranty insurance and related lines, requires that each such insurer
maintain a minimum surplus to policyholders, establishes contingency, loss and
unearned premium reserve requirements for each such insurer, and limits the
size of individual transactions, or single risks, and the volume of
transactions, or aggregate risks, that may be underwritten by each such
insurer. Other provisions of the New York Insurance Law, applicable to non-life
insurance companies such as the Certificate Insurer, regulate, among other
things, permitted investments, payment of dividends, transactions with
affiliates, mergers, consolidations, acquisitions or sales of assets and
incurrence of liability for borrowings.
THE PMI INSURER
Mortgage Guaranty Insurance Corporation, the PMI Insurer, with its
principal offices in Milwaukee, Wisconsin, is a monoline private mortgage
insurance company. The PMI Insurer provides mortgage guaranty insurance
coverage on residential mortgage loans. The PMI Insurer is a wholly-owned
subsidiary of MGIC Investment Corporation. The PMI Insurer is licensed in 50
states and the District of Columbia to offer such insurance and is approved as
a private mortgage insurer by Fannie Mae and Freddie Mac.
Currently, the PMI Insurer has a rating on its claims-paying ability of
"AA+" from S&P, "AA+" from Fitch and "Aa2" from Moody's. The rating agency
issuing the claims-paying ability rating can withdraw or change its rating at
any time. The PMI Insurer's business is subject to a number of risks that could
materially and adversely affect its claims-paying ability. Certain of such
risks are described under the caption "Risk Factors" in Item 2 of MGIC
Investment Corporation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000 filed with the Securities and Exchange Commission.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
One or more elections will be made to treat the assets of the Trust (other
than the Supplemental Interest Reserve Fund) as a REMIC or REMICs for federal
income tax purposes. The Offered Certificates, the Class P Certificates and the
Class C Certificates will represent regular interests in a REMIC, and the Class
R Certificates will represent the residual interest in each REMIC. We refer you
to "Certain Federal Income Tax Consequences" in the Prospectus. In addition, as
described below, the Class A-V Certificates will represent an undivided
beneficial ownership interest in an interest rate cap agreement.
The Offered Certificates generally will be treated as newly originated
debt instruments for federal income tax purposes. Beneficial owners of the
Offered Certificates will be required to report income on such Certificates in
accordance with the accrual method of accounting. It is anticipated that the
Offered Certificates will be issued without original issue discount for federal
income tax purposes. Certificateholders are urged to consult their tax advisors
with respect to the tax consequences of holding the Offered Certificates.
The Prepayment Assumptions that are to be used in determining whether the
Fixed Rate Group Certificates, the Class A-V1 Certificates and Class A-V2
Certificates are issued with original issue discount and the rate of accrual of
original issue discount are
S-81
<PAGE>
110% of the related Prepayment Assumption applicable to the Fixed Rate Group
and 100% of the related Prepayment Assumption applicable to the Adjustable Rate
Group I and Adjustable Rate Group II, respectively. No representation is made
as to the actual rate at which the Mortgage Loans will prepay. We refer you to
"Certain Federal Income Tax Consequences -- Taxation of Certificates" in the
Prospectus.
CLASS A-V1 AND CLASS A-V2 CERTIFICATES
The Class A-V1 and Class A-V2 Certificates, except to the extent of any
related Supplemental Interest Amount, will be treated as regular interests in a
REMIC under section 860G of the Code (respectively, the "Class A-V1 Regular
Interests" and "Class A-V2 Regular Interests"). Accordingly, the portion of the
Class A-V1 and Class A-V2 Certificates representing the Class A-V1 Regular
Interests and Class A-V2 Regular Interests will be treated as (i) assets
described in section 7701(a)(19)(C) of the Code, and (ii) "real estate assets"
within the meaning of section 856(c)(4)(A) of the Code, in each case to the
extent described in the Prospectus. Interest on such portion of the Class A-V1
and Class A-V2 Certificates will be treated as interest on obligations secured
by mortgages on real property within the meaning of section 856(c)(3)(B) of the
Code to the same extent that such portion of the Class A-V1 and Class A-V2
Certificates is treated as real estate assets. We refer you to "Certain Federal
Income Tax Consequences" in the Prospectus.
The right to receive any Supplemental Interest Amount will not be (i) a
regular interest in a REMIC under section 860G of the Code, (ii) an asset
described in section 7701(a)(19)(C) of the Code, or (iii) a "real estate asset"
within the meaning of section 856(c)(4)(A) of the Code. Further, the
Supplemental Interest Amount will not be considered interest on obligations
secured by mortgages on real property within the meaning of section
856(c)(3)(B) of the Code.
Each holder of Class A-V1 and Class A-V2 Certificates is deemed to own an
undivided beneficial ownership interest in two assets: (i) the Class A-V1
Regular Interests and Class A-V2 Regular Interests, and (ii) an interest rate
cap contract (a "Cap Agreement") under which the related Supplemental Interest
Amount is paid. The Cap Agreement with respect to each of the Class A-V1 and
Class A-V2 Certificates is not included in any REMIC. The treatment of amounts
received by a Class A-V1 or Class A-V2 Certificateholder under such
Certificateholder's right to receive the related Supplemental Interest Amount
will depend upon the portion of such Certificateholder's purchase price
allocable thereto. Under the REMIC regulations, each Class A-V1 and Class A-V2
Certificateholder must allocate its purchase price for the Class A-V1 and Class
A-V2 Certificates between its undivided interest in the Class A-V1 Regular
Interests and Class A-V2 Regular Interests and Class A-V2 Regular Interests and
its undivided interest in the related Cap Agreement in accordance with the
relative fair market values of each property right. No representation is or
will be made as to such relative fair market values. Generally, payments made
to the Class A-V1 and Class A-V2 Certificates under the related Cap Agreement
will be included in income based on, and the purchase price allocated to the
related Cap Agreement may be amortized in accordance with, the regulations
relating to notional principal contracts.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans and certain
other
S-82
<PAGE>
retirement plans and arrangements, such as individual retirement accounts, as
well as on collective investment funds and separate accounts in which such
plans or arrangements are invested (all of which are hereinafter referred to as
a "Plan") and on persons who are fiduciaries with respect to such Plans. Any
Plan fiduciary that proposes to cause a Plan to acquire any of the Offered
Certificates will be required to determine whether such an investment is
permitted under the governing Plan instruments and is prudent and appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. In addition, ERISA and the Code prohibit
certain transactions involving the assets of a Plan and "parties in interest"
(as defined in ERISA) or "disqualified persons" (within the meaning of the
Code) in certain specified relationships to the Plan.
Therefore, a Plan fiduciary considering an investment in the Offered
Certificates should also consider whether such an investment might constitute
or give rise to a prohibited transaction under ERISA or the Code. Any Plan
fiduciary that proposes to cause a Plan to acquire any of the Offered
Certificates should consult with its counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership
of Offered Certificates.
The U.S. Department of Labor ("DOL") has granted to Greenwich Capital
Markets, Inc. an individual administrative exemption (Prohibited Transaction
Exemption ("PTE") 90-59) (the "Exemption"). The Exemption generally exempts
from the application of certain of the prohibited transaction provisions of
Section 406 of ERISA, and the excise taxes imposed on such prohibited
transactions by Section 4975(a) and (b) of the Code, transactions related to
the purchase, sale and holding of pass-through certificates underwritten by the
Underwriters, such as the Offered Certificates, and the servicing and operation
of asset pools such as the Trust, provided that certain conditions are
satisfied.
Among the conditions that must be satisfied for the Exemption to apply in
this transaction are the following:
(1) The Plan investing in the Offered Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933, as amended;
(2) The acquisition of the Offered Certificates by a Plan is on terms
(including the price for the Offered Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(3) The rights and interests evidenced by the Offered Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other Offered Certificates of the Trust;
(4) The Offered Certificates acquired by the Plan have received a rating
at the time of such acquisition that is one of the three highest generic
rating categories from either Moody's, Fitch or S&P. In addition, (i) the
corpus of 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
rating categories of S&P, Moody's or Fitch for at least one year prior to
the Plan's acquisition of certificates; and (iii) certificates evidencing
interests in such other investment pools must have been purchased by
investors other than Plans for at least one year prior to any Plan's
acquisition of certificates;
S-83
<PAGE>
(5) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below); and
(6) The sum of all payments made to and retained by the Underwriters in
connection with the distribution of the Offered Certificates represents not
more than reasonable compensation for underwriting the Offered
Certificates; the sum of all payments made to and retained by the Sponsor
pursuant to the assignment of the loans to the Trust represents not more
than the fair market value of such loans; the sum of all payments made to
and retained by the Servicer represents not more than reasonable
compensation for such person's services under the Pooling and Servicing
Agreement and reimbursement of such person's reasonable expenses in
connection therewith.
Moreover, the Exemption provides relief from certain self-dealing conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust holding receivables on which
the fiduciary (or its affiliate) is an obligor on the receivables held in the
trust; provided that, among other requirements, (i) in the case of an
acquisition in connection with the initial issuance of certificates, at least
fifty percent of each class of certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is
an obligor with respect to five percent or less of the fair market value of the
obligations contained in the trust; (iii) the Plan's investment in certificates
of any class does not exceed twenty-five percent of all of the certificates of
that class outstanding at the time of the acquisition; and (iv) immediately
after the acquisition, no more than twenty-five percent of the assets of Plans
with respect to which such person is a fiduciary are invested in certificates
representing an interest in one or more trusts containing assets sold or
serviced by the same entity. The Exemption does not apply to Plans sponsored by
the Sponsor, the Underwriters, the Trustee, the Servicer, any obligor with
respect to Mortgage Loans included in the Trust constituting more than five
percent of the aggregate unamortized principal balance of the assets in the
Trust, or any affiliate of such parties (the "Restricted Group").
It is expected that the Exemption will apply to the acquisition and
holding of the Offered Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors will be met. A
fiduciary of a Plan contemplating purchasing any such Certificate must make its
own determination that the conditions set forth in the Exemption will be
satisfied with respect thereto. As of the date hereof, there is no single
Mortgage Loan included in the Trust that constitutes more than five percent of
the aggregate unamortized principal balance of the assets of the Trust.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption
or any other prohibited transaction exemption issued by the DOL and the
potential consequences in their specific circumstances prior to making an
investment in the Offered Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment prudence
and diversification an investment in the Offered Certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio. We refer you to "ERISA
Considerations" in the Prospectus.
S-84
<PAGE>
USE OF PROCEEDS
The Sponsor intends to use the net proceeds to be received from the sale
of the Offered Certificates to pay off certain indebtedness incurred in
connection with the acquisition of the Mortgage Loans, to repay warehouse
facilities (including certain amounts owing to affiliates of the Underwriters)
and to pay other expenses associated with the pooling of the Mortgage Loans and
the issuance of the Certificates.
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will NOT constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 (SMMEA).
Accordingly, many institutions with legal authority to invest in comparably
rated securities may not be legally authorized to invest in the Offered
Certificates. No representation is made in this Prospectus Supplement as to
whether the Offered Certificates constitute legal investments for any entity
under any applicable statute, law, rule, regulation or order. You are urged to
consult with your counsel concerning the status of the Offered Certificates as
legal investments for you prior to investing in the Offered Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement and the related Pricing Agreement, (collectively, the "Underwriting
Agreement") among the Sponsor and the underwriters named below (the
"Underwriters"), the Sponsor has agreed to sell to the Underwriters, and each
of the Underwriters has severally agreed to purchase from the Sponsor the
principal amount of Offered Certificates set forth below opposite their
respective names.
<TABLE>
<CAPTION>
UNDERWRITER CLASS A-1F CLASS A-2F CLASS A-3F
----------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Greenwich Capital
Markets, Inc. ........ $50,131,200 $25,200,000 $24,000,000
Lehman Brothers Inc. $ 6,266,400 $ 3,151,000 $ 3,000,000
Morgan Stanley &
Co. Incorporated ..... $ 6,266,400 $ 3,151,000 $ 3,000,000
----------- ----------- -----------
Total ............... $62,664,000 $31,500,000 $30,000,000
=========== =========== ===========
<CAPTION>
UNDERWRITER CLASS A-4F CLASS A-5F CLASS A-6F CLASS A-V1 CLASS A-V2
----------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Greenwich Capital
Markets, Inc. ........ $34,000,000 $22,572,800 $11,200,000 $ 98,941,280 $ 98,941,280
Lehman Brothers Inc. $ 4,250,000 $ 2,821,600 $ 1,400,000 $ 12,367,660 $ 12,367,660
Morgan Stanley &
Co. Incorporated ..... $ 4,250,000 $ 2,821,600 $ 1,400,000 $ 12,367,660 $ 12,367,660
----------- ----------- ----------- ------------ ------------
Total ............... $42,500,000 $28,216,000 $14,000,000 $123,676,600 $123,676,600
=========== =========== =========== ============ ============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase the entire principal
amount of the Offered Certificates.
S-85
<PAGE>
The Sponsor has been advised that the Underwriters propose initially to
offer the Offered Certificates to some dealers at the price less a selling
concession not to exceed 0.18%, and that the underwriters may allow and the
dealers may reallow a reallowance discount not to exceed 0.12%.
After the initial public offering, the public offering prices, concessions
and discounts may be changed.
The Sponsor has been advised by the Underwriters that they presently
intend to make a market in the Offered Certificates. However, no underwriter is
obligated to do so, any market-making may be discontinued at any time, and
there can be no assurance that an active public market for any class of Offered
Certificates will develop or if one does develop, that it will continue for the
life of the applicable class or that it will provide Certificateholders with a
sufficient level of liquidity of investment.
Until the distribution of the Offered Certificates is completed, rules of
the Securities and Exchange Commission may limit the ability of the
Underwriters and some selling group members to bid for and purchase the Offered
Certificates. As an exception to these rules, the Underwriters are permitted to
engage in particular transactions that stabilize the prices of the Offered
Certificates. These transactions consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the Offered Certificates.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of these purchases.
Neither the Sponsor nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the related Offered
Certificates. In addition, neither the seller nor any of the Underwriters makes
any representation that the Underwriters will engage in these transactions or
that the transactions, once commenced, will not be discontinued without notice.
The Underwriting Agreement provides that the Sponsor will indemnify the
Underwriters against particular civil liabilities, including liabilities under
the Securities Act of 1933, as amended.
Each of the Underwriters has represented that: (i) it has not offered or
sold and will not offer or sell, prior to the date six months after their date
of issuance, any Offered Certificates to persons in the United Kingdom, except
to persons whose activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances that have not resulted in and will not
result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Offered Certificates in, from
or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of the Offered Certificates to a
person who is of a kind
S-86
<PAGE>
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1997 or is a person to whom the document can
lawfully be issued or passed on.
The Sponsor or its affiliates may apply all or any portion of the net
proceeds of this offering to the repayment of debt, including "warehouse" debt
secured by the Mortgage Loans (prior to their sale to the Trust). One or more
of the Underwriters (or their respective affiliates) has acted as a "warehouse
lender" to the Sponsor or its affiliates, and may receive a portion of such
proceeds as repayment of such warehouse debt.
EXPERTS
The consolidated balance sheets of Financial Security Assurance, Inc. and
its subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1999, incorporated by
reference in this Prospectus Supplement, have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Sponsor by Stroock & Stroock & Lavan LLP, New York, New York. Brown &
Wood LLP, New York, New York, will act as counsel for the Underwriters.
RATING OF THE OFFERED CERTIFICATES
It is a condition to the issuance of each Class of Offered Certificates
that each such Class shall be rated "Aaa" by Moody's Investors Service, Inc.
("Moody's"), "AAA" by Fitch, Inc. ("Fitch") and "AAA" by Standard and Poor's
Rating Service, a division of The McGraw-Hill Companies, Inc. ("S&P" and,
together with Moody's and Fitch, the "Rating Agencies").
Explanations of the significance of such ratings may be obtained from
Moody's, 99 Church Street, New York, New York 10007, Fitch, One State Street
Plaza, New York, New York 10004, and S&P, 25 Broadway, New York, New York
10004. Each rating will be the view only of the assigning Rating Agency.
The ratings on the Offered Certificates are based in substantial part on
the claims-paying ability of the Certificate Insurer. Any change in the ratings
of the Certificate Insurer by the Rating Agencies may result in a change in the
ratings of the Offered Certificates.
The ratings assigned by the Rating Agencies to mortgage pass-through
certificates address the likelihood of the receipt of all distributions on the
related mortgage loans by the related Certificateholders under the agreements
pursuant to which such certificates are issued. The ratings take into
consideration the credit quality of the related mortgage pool, including any
credit support providers, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on such mortgage pool
is adequate to make payments required by such certificates. The ratings on such
certificates do not, however, constitute a statement regarding frequency of
prepayments on the related mortgage loans.
S-87
<PAGE>
There is no assurance that any rating assigned to the Offered Certificates
will continue for any period of time or that such ratings will not be revised
or withdrawn. Any such revision or withdrawal of such ratings may have an
adverse effect on the market price or liquidity of the Offered Certificates.
The ratings of 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.
There can be no assurance as to whether any other rating agency will rate
the Offered Certificates, or, if one does, what rating will be assigned by such
other rating agency. A rating on the Offered Certificates by another rating
agency, if assigned at all, may be lower than the ratings assigned to the
Offered Certificates by Moody's, Fitch or S&P.
S-88
<PAGE>
INDEX OF PRINCIPAL TERMS
Accounts................................................................ S-49
Accrued Certificate Interest............................................ S-22
Additional Mortgage Loans............................................... S-41
Adjustable Rate Group I.................................................. S-4
Adjustable Rate Group I Available Funds Cap............................. S-26
Adjustable Rate Group I Certificates..................................... S-4
Adjustable Rate Group I Principal Distribution Amount................... S-22
Adjustable Rate Group II................................................. S-5
Adjustable Rate Group II Certificates.................................... S-4
Adjustable Rate Group II Available Funds Cap............................ S-27
Adjustable Rate Group II Principal Distribution Amount.................. S-22
Advances................................................................ S-76
Affiliated Originators.................................................. S-67
Aggregate Principal Balance............................................. S-41
Agreement............................................................... S-36
Available Funds......................................................... S-22
Available Funds Shortfall............................................... S-22
Basic Principal Amount.................................................. S-22
Book-Entry Certificates.................................................. S-4
Business Day...................................................... S-36, S-49
Cap Agreement........................................................... S-82
Cede.................................................................... S-30
Certificate Account..................................................... S-49
Certificate Group........................................................ S-4
Certificate Insurer..................................................... S-78
Certificate Insurer Premium............................................. S-23
Certificate Principal Balance........................................... S-23
Certificate Register.................................................... S-20
Certificateholder....................................................... S-20
Certificateowners....................................................... S-30
Change Date............................................................. S-53
CI...................................................................... S-31
Class A-6F Lockout Distribution Amount.................................. S-23
Class A-6F Lockout Percentage........................................... S-23
Class A-6F Lockout Pro Rata Distribution Amount......................... S-23
Class A-V1 Formula Pass-Through Rate.................................... S-26
Class A-V1 Regular Interests............................................ S-82
Class A-V2 Formula Pass-Through Rate.................................... S-27
Class A-V2 Regular Interests............................................ S-82
Clean-up Call Date...................................................... S-32
Clearstream, Luxembourg................................................. S-30
Closing Date............................................................. S-3
Code.................................................................... S-19
Collection Account...................................................... S-49
Collection Period....................................................... S-23
Combined Loan-to-Value Ratio............................................ S-43
Compensating Interest Payment........................................... S-77
S-89
<PAGE>
Countrywide............................................................. S-70
Coverage Deficit........................................................ S-35
CPR..................................................................... S-58
Cut-off Date............................................................. S-3
Cut-off Date Pool Balance............................................... S-32
DBC..................................................................... S-31
Defective Mortgage Loan................................................. S-48
Deficiency Amount....................................................... S-36
Definitive Certificate.................................................. S-31
Deposit Date............................................................ S-49
Designations............................................................. S-4
Distribution Date....................................................... S-20
Distribution Dates....................................................... S-3
DOL..................................................................... S-83
DTC..................................................................... S-30
ERISA................................................................... S-82
event of default........................................................ S-39
Exemption............................................................... S-83
Extra Principal Distribution Amount..................................... S-24
Final Scheduled Distribution Date.................................. S-4, S-55
Fitch................................................................... S-87
Fixed Rate Group Certificates............................................ S-4
Fixed Rate Group......................................................... S-4
Fixed Rate Group Available Funds Cap.................................... S-26
Fixed Rate Group Principal Distribution Amount.......................... S-24
Global Securities........................................................ B-1
Group Factor............................................................ S-30
Guaranteed Principal Amount............................................. S-36
Holder.................................................................. S-20
Holdings................................................................ S-78
Hybrid Loans............................................................ S-14
Index................................................................... S-53
Insurance Agreement..................................................... S-39
Insured Payment......................................................... S-36
Interest Carry Forward Amount........................................... S-24
Interest Shortfall...................................................... S-24
Issuer................................................................... S-3
Liquidation Proceeds.................................................... S-24
Maximum Rates........................................................... S-44
MGT/EOC................................................................. S-32
Minimum Rates........................................................... S-44
Monthly Advance......................................................... S-76
Monthly Excess Cashflow Amount.......................................... S-24
Monthly Servicing Fee................................................... S-75
Moody's................................................................. S-87
Mortgage Files.......................................................... S-47
Mortgage Interest Rate.................................................. S-43
Mortgage Loan Group................................................ S-4, S-41
S-90
<PAGE>
Mortgage Loan Schedule.................................................. S-47
Mortgage Loans.......................................................... S-41
Mortgage Pool........................................................... S-41
Mortgaged Property...................................................... S-41
Net Liquidation Proceeds................................................ S-24
Net Loan Rate........................................................... S-52
New CI.................................................................. S-31
Offered Certificates..................................................... S-5
Order................................................................... S-37
Originators............................................................. S-67
Overcollateralization Amount............................................ S-24
Overcollateralization Release Amount.................................... S-24
Paying Agent............................................................ S-19
Permitted Investments................................................... S-49
Plan.................................................................... S-83
PMI Insurer............................................................. S-39
PMI Insurer Premium..................................................... S-24
PMI Mortgage Loans...................................................... S-39
PMI Policy.............................................................. S-39
Pooling and Servicing Agreement......................................... S-19
Preference Amount....................................................... S-36
prepayment.............................................................. S-58
Prepayment Assumption................................................... S-58
Prepayment Charges...................................................... S-22
Prepayment Interest Shortfall........................................... S-77
Prepayment Scenarios.................................................... S-58
Principal Distribution Amount........................................... S-24
PTE..................................................................... S-83
Purchase Price.......................................................... S-48
Qualified Replacement Mortgage.......................................... S-48
Rating Agencies......................................................... S-87
Realized Loss........................................................... S-33
Receipt................................................................. S-37
Received................................................................ S-37
Record Date............................................................. S-20
Record Dates............................................................. S-3
regular interests....................................................... S-19
Relief Act........................................................ S-25, S-77
Relief Act Shortfalls............................................. S-25, S-77
REMIC............................................................. S-10, S-19
REO..................................................................... S-69
Reserve Interest Rate................................................... S-28
residual interests...................................................... S-19
Restricted Group........................................................ S-84
Retained Certificates.................................................... S-5
S&P..................................................................... S-87
Servicer........................................................... S-3, S-19
Servicing Advances...................................................... S-76
S-91
<PAGE>
Servicing Fee Rate...................................................... S-75
Sponsor............................................................ S-3, S-19
Startup Day............................................................. S-19
Statistic Calculation Date............................................... S-3
Statistic Calculation Loans............................................. S-41
Sub-Servicer............................................................ S-73
Supplemental Interest Amount............................................ S-25
Supplemental Interest Reserve Fund...................................... S-28
Supplemental Interest Reserve Fund Deposit.............................. S-28
Target Deficiency....................................................... S-25
Targeted Overcollateralization Amount................................... S-25
Term of the Policy...................................................... S-37
Trust................................................................... S-19
Trust Insurance Proceeds................................................ S-25
Trustee............................................................ S-3, S-19
Trustee Fee............................................................. S-33
Unaffiliated Originators................................................ S-67
Underwriters............................................................ S-85
Underwriting Agreement.................................................. S-85
Weighted average life................................................... S-58
S-92
<PAGE>
ANNEX A
DESCRIPTION OF THE MORTGAGE POOL
The following is a description of certain terms of the Statistic
Calculation Loans in tabular form based on the Statistic Calculation Loans and
each Mortgage Loan Group as of the Statistic Calculation Date.
FIXED RATE GROUP
STATISTICAL CALCULATION DATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF STATISTICAL CALCULATION STATISTIC AGGREGATE AGGREGATE
DATE PRINCIPAL BALANCE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
$ 9,307.24 to $ 25,000.00 ......... 133 $ 2,550,003.16 1.60%
$ 25,000.01 to $ 50,000.00 ......... 814 30,824,942.06 19.36
$ 50,000.01 to $ 75,000.00 ......... 557 34,215,345.76 21.49
$ 75,000.01 to $100,000.00 ......... 299 26,079,180.26 16.38
$ 100,000.01 to $150,000.00 ......... 260 31,402,945.97 19.72
$ 150,000.01 to $200,000.00 ......... 97 16,593,126.71 10.42
$ 200,000.01 to $250,000.00 ......... 35 7,873,199.44 4.95
$ 250,000.01 to $300,000.00 ......... 20 5,453,340.25 3.43
$ 300,000.01 to $350,000.00 ......... 2 611,500.00 0.38
$ 350,000.01 to $400,000.00 ......... 5 1,888,200.00 1.19
$ 400,000.01 to $450,000.00 ......... 3 1,260,097.44 0.79
$ 450,000.01 to $453,182.28.......... 1 453,182.28 0.28
--- ---------------- ------
Total .......................... 2,226 $ 159,205,063.33 100.00%
===== ================ ======
</TABLE>
A-1
<PAGE>
FIXED RATE GROUP
MORTGAGE INTEREST RATES (1)
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF MORTGAGE STATISTIC AGGREGATE AGGREGATE
INTEREST RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
6.001% to 6.500% ......... 1 $ 380,000.00 0.24%
7.501% to 8.000% ......... 7 616,938.06 0.39
8.001% to 8.500% ......... 31 3,298,498.16 2.07
8.501% to 9.000% ......... 108 11,145,656.38 7.00
9.001% to 9.500% ......... 177 16,787,010.78 10.54
9.501% to 10.000% ......... 269 23,857,875.65 14.99
10.001% to 10.500% ......... 217 18,085,519.80 11.36
10.501% to 11.000% ......... 294 21,030,758.92 13.21
11.001% to 11.500% ......... 233 16,784,747.73 10.54
11.501% to 12.000% ......... 245 14,796,345.89 9.29
12.001% to 12.500% ......... 192 11,300,812.33 7.10
12.501% to 13.000% ......... 160 7,832,563.42 4.92
13.001% to 13.500% ......... 93 4,401,166.83 2.76
13.501% to 14.000% ......... 83 4,084,635.67 2.57
14.001% to 14.500% ......... 53 2,166,421.70 1.36
14.501% to 15.000% ......... 32 1,467,323.81 0.92
15.001% to 15.500% ......... 15 511,356.40 0.32
15.501% to 16.000% ......... 10 438,872.63 0.28
16.001% to 16.500% ......... 3 137,159.27 0.09
16.501% to 17.000% ......... 1 35,858.00 0.02
17.001% to 17.500% ......... 1 31,803.88 0.02
18.001% to 18.080% ......... 1 13,738.02 0.01
--- ---------------- ------
Total ................ 2,226 $ 159,205,063.33 100.00%
===== ================ ======
</TABLE>
----------
(1) The lender has acquired mortgage insurance on certain mortgage loans
included in the preceding table. The mortgage interest rates for such
mortgage loans are shown at the mortgage rates inclusive of any premium
for the related mortgage insurance coverage. As of the statistic
calculation date, the weighted average mortgage rate of the statistic
calculation loans net of the related premiums for such mortgage insurance
is expected to be approximately 10.796% per annum.
FIXED RATE GROUP
ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
RANGE OF NUMBER OF CALCULATION DATE CALCULATION DATE
ORIGINAL TERMS TO STATISTIC AGGREGATE AGGREGATE
MATURITY (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
0 to 60 .......... 1 $ 9,307.24 0.01%
109 to 120 .......... 23 817,134.03 0.51
121 to 132 .......... 1 17,267.40 0.01
133 to 144 .......... 1 75,249.11 0.05
169 to 180 .......... 469 23,149,494.44 14.54
229 to 240 .......... 96 4,782,270.16 3.00
289 to 300 .......... 1 67,950.89 0.04
349 to 360 .......... 1,634 130,286,390.06 81.84
----- ---------------- ------
Total ............. 2,226 $ 159,205,063.33 100.00%
===== ================ ======
</TABLE>
A-2
<PAGE>
FIXED RATE GROUP
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
RANGE OF NUMBER OF CALCULATION DATE CALCULATION DATE
REMAINING TERMS TO STATISTIC AGGREGATE AGGREGATE
MATURITY (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
53 to 60 .......... 1 $ 9,307.24 0.01%
109 to 120 .......... 23 817,134.03 0.51
121 to 132 .......... 1 17,267.40 0.01
133 to 144 .......... 1 75,249.11 0.05
157 to 168 .......... 1 35,965.29 0.02
169 to 180 .......... 468 23,113,529.15 14.52
229 to 240 .......... 96 4,782,270.16 3.00
289 to 300 .......... 1 67,950.89 0.04
349 to 360 .......... 1,634 130,286,390.06 81.84
----- ---------------- ------
Total ............. 2,226 $ 159,205,063.33 100.00%
===== ================ ======
</TABLE>
FIXED RATE GROUP
COMBINED LOAN-TO-VALUE RATIOS (1)
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF COMBINED STATISTIC AGGREGATE AGGREGATE
LOAN-TO-VALUE RATIOS CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
6.67% to 10.00% ......... 4 $ 63,674.88 0.04%
10.01% to 15.00% ......... 6 93,101.32 0.06
15.01% to 20.00% ......... 18 540,666.91 0.34
20.01% to 25.00% ......... 12 331,604.97 0.21
25.01% to 30.00% ......... 18 762,113.43 0.48
30.01% to 35.00% ......... 34 1,272,399.86 0.80
35.01% to 40.00% ......... 42 2,065,160.74 1.30
40.01% to 45.00% ......... 54 2,666,081.84 1.67
45.01% to 50.00% ......... 71 4,051,062.03 2.54
50.01% to 55.00% ......... 64 4,171,418.17 2.62
55.01% to 60.00% ......... 110 5,788,168.37 3.64
60.01% to 65.00% ......... 218 14,744,617.93 9.26
65.01% to 70.00% ......... 308 20,710,780.53 13.01
70.01% to 75.00% ......... 394 28,669,374.96 18.01
75.01% to 80.00% ......... 603 52,246,692.43 32.82
80.01% to 85.00% ......... 136 10,330,475.18 6.49
85.01% to 90.00% ......... 111 8,717,343.90 5.48
90.01% to 95.00% ......... 16 1,409,210.05 0.89
95.01% to 100.00% ......... 7 571,115.83 0.36
--- ---------------- ------
Total ................... 2,226 $ 159,205,063.33 100.00%
===== ================ ======
</TABLE>
----------
(1) At the date of origination.
A-3
<PAGE>
FIXED RATE GROUP
OCCUPANCY STATUS
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
OCCUPANCY STATUS CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
Owner Occupied/Primary Residence ............... 2,011 $ 145,890,090.42 91.64%
Non-Owner Occupied/Investment Property ......... 203 12,595,637.50 7.91
Second Home .................................... 12 719,335.41 0.45
----- ----------------- ------
Total .................................... 2,226 $ 159,205,063.33 100.00%
===== ================= ======
</TABLE>
FIXED RATE GROUP
TYPE OF MORTGAGED PROPERTY
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
PROPERTY TYPE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Single Family Residence ............... 2,036 $ 144,023,134.33 90.46%
Two- to Four-Family Residence ......... 141 11,966,161.48 7.52
Condominium Unit ...................... 34 2,487,943.51 1.56
Manufactured Housing .................. 15 727,824.01 0.46
----- ----------------- ------
Total ........................... 2,226 $ 159,205,063.33 100.00%
===== ================= ======
</TABLE>
FIXED RATE GROUP
ORIGINATORS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINATOR CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Affiliated:
Retail ....................... 1,502 $ 106,780,336.20 67.07%
Broker Network ............... 595 42,196,427.07 26.50
National Loan Center ......... 120 9,261,514.12 5.82
Unaffiliated .................. 9 966,785.94 0.61
----- ----------------- ------
Total ................... 2,226 $ 159,205,063.33 100.00%
===== ================= ======
</TABLE>
A-4
<PAGE>
FIXED RATE GROUP
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
STATE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
Arizona ...................... 55 $ 4,181,712.01 2.63%
Arkansas ..................... 7 532,313.72 0.33
California ................... 287 30,390,791.48 19.09
Colorado ..................... 19 1,333,258.27 0.84
Connecticut .................. 13 1,113,365.30 0.70
District of Columbia ......... 5 508,951.27 0.32
Florida ...................... 194 12,903,731.51 8.11
Georgia ...................... 43 3,114,738.09 1.96
Hawaii ....................... 16 2,387,201.76 1.50
Idaho ........................ 6 665,838.71 0.42
Illinois ..................... 80 5,944,336.99 3.73
Indiana ...................... 39 2,387,776.53 1.50
Iowa ......................... 48 2,745,823.63 1.72
Kansas ....................... 14 905,255.36 0.57
Kentucky ..................... 11 570,651.72 0.36
Louisiana .................... 45 2,271,738.09 1.43
Maryland ..................... 15 1,217,911.21 0.76
Massachusetts ................ 26 2,953,975.72 1.86
Michigan ..................... 154 8,538,199.33 5.36
Minnesota .................... 41 4,239,460.73 2.66
Mississippi .................. 13 729,962.47 0.46
Missouri ..................... 78 4,166,942.81 2.62
Montana ...................... 13 846,692.84 0.53
Nebraska ..................... 6 276,660.05 0.17
Nevada ....................... 30 2,523,581.28 1.59
New Jersey ................... 14 1,148,956.30 0.72
New Mexico ................... 8 622,186.90 0.39
New York ..................... 149 12,588,676.35 7.91
North Carolina ............... 44 3,226,227.53 2.03
North Dakota ................. 1 47,783.37 0.03
Ohio ......................... 109 5,788,645.55 3.64
Oklahoma ..................... 47 2,424,162.89 1.52
Oregon ....................... 21 1,681,643.93 1.06
Pennsylvania ................. 55 3,485,173.09 2.19
Rhode Island ................. 6 388,460.49 0.24
South Carolina ............... 23 1,130,209.13 0.71
Tennessee .................... 51 3,087,661.92 1.94
Texas ........................ 360 20,625,579.92 12.96
Utah ......................... 7 665,594.59 0.42
Virginia ..................... 18 1,079,516.33 0.68
Washington ................... 33 2,717,139.32 1.71
West Virginia ................ 11 465,308.51 0.29
Wisconsin .................... 10 532,442.07 0.33
Wyoming ...................... 1 48,824.26 0.03
--- ---------------- ------
Total .................. 2,226 $ 159,205,063.33 100.00%
===== ================ ======
</TABLE>
A-5
<PAGE>
FIXED RATE GROUP
PRIORITY OF LIEN
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE POOL
PRIORITY CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
First Lien ........... 2,150 $ 156,644,933.35 98.39%
Second Lien .......... 76 2,560,129.98 1.61
----- ----------------- ------
Total: ............. 2,226 $ 159,205,063.33 100.00%
===== ================= ======
</TABLE>
FIXED RATE GROUP
PREPAYMENT PENALTY TERM
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE PRINCIPAL AGGREGATE POOL
ORIGINAL PREPAY PENALTY TERM CALCULATION LOANS BALANCE PRINCIPAL BALANCE
------------------------------ ------------------- --------------------- ------------------
<S> <C> <C> <C>
0 ........................... 755 $ 46,475,333.03 29.19%
6 ........................... 2 122,925.00 0.08
12 ........................... 153 12,436,020.66 7.81
24 ........................... 3 231,217.56 0.15
36 ........................... 194 13,392,279.63 8.41
42 ........................... 38 4,057,260.73 2.55
60 ........................... 1,081 82,490,026.72 51.81
----- ---------------- ------
Total .................. 2,226 $ 159,205,063.33 100.00%
===== ================ ======
</TABLE>
FIXED RATE GROUP
DOCUMENTATION TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE PRINCIPAL AGGREGATE POOL
DOCUMENTATION TYPE CALCULATION LOANS BALANCE PRINCIPAL BALANCE
------------------------------ ------------------- --------------------- ------------------
<S> <C> <C> <C>
Full Documentation ........... 1,810 $ 128,718,957.94 80.85%
Light Documentation .......... 202 15,623,087.84 9.81
Stated Documentation ......... 214 14,863,017.55 9.34
----- ----------------- ------
Total .................. 2,226 $ 159,205,063.33 100.00%
===== ================= ======
</TABLE>
A-6
<PAGE>
FIXED RATE GROUP
CREDIT GRADE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE PRINCIPAL AGGREGATE POOL
CREDIT GRADE CALCULATION LOANS BALANCE PRINCIPAL BALANCE
--------------------- ------------------- --------------------- ------------------
<S> <C> <C> <C>
A ................... 326 $ 27,436,962.80 17.23%
A+ .................. 68 5,767,875.94 3.62
A- .................. 529 43,387,867.39 27.25
B ................... 455 31,228,006.92 19.61
B+ .................. 181 13,171,633.08 8.27
B- .................. 75 5,429,172.59 3.41
C ................... 325 17,642,281.98 11.08
C+ .................. 102 6,908,357.77 4.34
C- .................. 86 4,135,689.25 2.60
D ................... 79 4,097,215.61 2.57
--- ---------------- ------
Total ............. 2,226 $ 159,205,063.33 100.00%
===== ================ ======
</TABLE>
FIXED RATE GROUP
FICO SCORE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE PRINCIPAL AGGREGATE POOL
FICO SCORE CALCULATION LOANS BALANCE PRINCIPAL BALANCE
----------------------- ------------------- --------------------- ------------------
<S> <C> <C> <C>
Not Available ......... 31 $ 1,360,566.48 0.85%
400 -- 449 ............ 1 13,847.27 0.01
450 -- 499 ............ 10 518,662.20 0.33
500 -- 549 ............ 419 24,639,769.53 15.48
550 -- 599 ............ 919 65,948,859.60 41.42
600 -- 609 ............ 150 10,974,617.37 6.89
610 -- 619 ............ 134 10,536,922.66 6.62
620 -- 629 ............ 126 10,560,581.59 6.63
630 -- 639 ............ 86 6,586,580.70 4.14
640 -- 649 ............ 90 7,232,510.70 4.54
650 -- 659 ............ 66 4,824,124.56 3.03
660 -- 669 ............ 47 4,152,836.99 2.61
670 -- 679 ............ 25 1,938,302.23 1.22
680 -- 689 ............ 22 1,571,322.33 0.99
690 -- 699 ............ 22 2,121,777.55 1.33
700 -- 719 ............ 34 2,850,785.97 1.79
720 -- 739 ............ 20 1,550,653.33 0.97
740 -- 759 ............ 16 1,012,972.38 0.64
760 -- 779 ............ 3 550,932.64 0.35
780 -- 799 ............ 4 212,837.25 0.13
800 -- 804 ............ 1 45,600.00 0.03
--- ---------------- ------
Total ............... 2,226 $ 159,205,063.33 100.00%
===== ================ ======
</TABLE>
A-7
<PAGE>
ADJUSTABLE RATE GROUP I
STATISTICAL CALCULATION DATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF STATISTICAL CALCULATION STATISTIC AGGREGATE AGGREGATE
DATE PRINCIPAL BALANCE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
$ 19,991.13 to $ 25,000.00 ......... 9 $ 215,176.06 0.22%
$ 25,000.01 to $ 50,000.00 ......... 208 8,258,087.37 8.56
$ 50,000.01 to $ 75,000.00 ......... 241 15,016,079.04 15.57
$ 75,000.01 to $100,000.00 ......... 184 16,124,983.07 16.72
$100,000.01 to $150,000.00 ......... 212 25,723,960.87 26.68
$150,000.01 to $200,000.00 ......... 99 16,996,811.31 17.63
$200,000.01 to $250,000.00 ......... 51 11,472,100.94 11.90
$250,000.01 to $300,000.00 ......... 7 1,909,731.05 1.98
$300,000.01 to $350,000.00 ......... 1 350,000.00 0.36
$350,000.01 to $351,733.69 ......... 1 351,733.69 0.36
--- --------------- ------
Total ........................ 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP I
MORTGAGE INTEREST RATES (1)
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF MORTGAGE STATISTIC AGGREGATE AGGREGATE
INTEREST RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
7.001% to 7.500% ......... 1 $ 224,495.94 0.23%
7.501% to 8.000% ......... 7 706,987.65 0.73
8.001% to 8.500% ......... 10 1,452,136.28 1.51
8.501% to 9.000% ......... 64 7,446,731.23 7.72
9.001% to 9.500% ......... 76 8,937,319.87 9.27
9.501% to 10.000% ......... 127 14,170,337.32 14.70
10.001% to 10.500% ......... 108 11,932,413.73 12.38
10.501% to 11.000% ......... 167 16,364,535.99 16.97
11.001% to 11.500% ......... 111 10,048,653.53 10.42
11.501% to 12.000% ......... 119 9,800,033.78 10.16
12.001% to 12.500% ......... 81 6,023,333.45 6.25
12.501% to 13.000% ......... 47 3,391,445.91 3.52
13.001% to 13.500% ......... 36 2,481,044.22 2.57
13.501% to 14.000% ......... 23 1,331,765.02 1.38
14.001% to 14.500% ......... 15 872,391.05 0.90
14.501% to 15.000% ......... 15 861,667.57 0.89
15.001% to 15.500% ......... 4 300,622.73 0.31
16.001% to 16.500% ......... 1 46,500.00 0.05
18.001% to 18.200% ......... 1 26,248.13 0.03
--- --------------- ------
Total ................ 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
----------
(1) The lender has acquired mortgage insurance on certain mortgage loans
included in the preceding table. The mortgage interest rates for such
mortgage loans are shown at the mortgage rates inclusive of any premium
for the related mortgage insurance coverage. As of the statistic
calculation date, the weighted average mortgage rate of the statistic
calculation loans net of the related premiums for such mortgage insurance
is expected to be approximately 10.372% per annum.
A-8
<PAGE>
ADJUSTABLE RATE GROUP I
ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
RANGE OF NUMBER OF CALCULATION DATE CALCULATION DATE
ORIGINAL TERMS TO STATISTIC AGGREGATE AGGREGATE
MATURITY (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
169 to 180 .......... 14 $ 918,367.51 0.95%
229 to 240 .......... 1 76,044.82 0.08
349 to 360 .......... 998 95,424,251.07 98.97
--- -------------- ------
Total ............. 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP I
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
RANGE OF NUMBER OF CALCULATION DATE CALCULATION DATE
REMAINING TERMS TO STATISTIC AGGREGATE AGGREGATE
MATURITY (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
173 to 180 .......... 14 $ 918,367.51 0.95%
229 to 240 .......... 1 76,044.82 0.08
349 to 360 .......... 998 95,424,251.07 98.97
--- -------------- ------
Total ............. 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP I
COMBINED LOAN-TO-VALUE RATIOS (1)
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF COMBINED STATISTIC AGGREGATE AGGREGATE
LOAN-TO-VALUE RATIOS CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
15.38% to 20.00% ......... 1 $ 29,993.14 0.03%
20.01% to 25.00% ......... 3 233,761.47 0.24
25.01% to 30.00% ......... 1 29,990.28 0.03
30.01% to 35.00% ......... 4 229,661.01 0.24
35.01% to 40.00% ......... 7 387,798.78 0.40
40.01% to 45.00% ......... 12 722,709.75 0.75
45.01% to 50.00% ......... 17 1,249,442.34 1.30
50.01% to 55.00% ......... 9 643,103.07 0.67
55.01% to 60.00% ......... 37 2,851,760.06 2.96
60.01% to 65.00% ......... 85 7,050,856.45 7.31
65.01% to 70.00% ......... 111 9,785,358.42 10.15
70.01% to 75.00% ......... 222 20,000,302.46 20.74
75.01% to 80.00% ......... 247 25,101,313.30 26.03
80.01% to 85.00% ......... 82 8,395,138.06 8.71
85.01% to 90.00% ......... 92 10,750,348.92 11.15
90.01% to 95.00% ......... 82 8,826,709.89 9.15
95.01% to 98.80% ......... 1 130,416.00 0.14
--- -------------- ------
Total .................. 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
----------
(1) At the date of origination.
A-9
<PAGE>
ADJUSTABLE RATE GROUP I
OCCUPANCY STATUS
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
OCCUPANCY STATUS CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
Owner Occupied/Primary Residence ............... 942 $ 90,891,546.30 94.27%
Non-Owner Occupied/Investment Property ......... 68 5,087,185.58 5.28
Second Home .................................... 3 439,931.52 0.46
--- ---------------- ------
Total .................................... 1,013 $ 96,418,663.40 100.00%
===== ================ ======
</TABLE>
ADJUSTABLE RATE GROUP I
TYPE OF MORTGAGED PROPERTY
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
PROPERTY TYPE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Single Family Residence ................ 900 $ 85,603,872.96 88.78%
Two- to Four- Family Residence ......... 57 6,355,764.76 6.59
Condominium Unit ....................... 44 3,668,032.33 3.80
Manufactured Housing ................... 12 790,993.35 0.82
--- ---------------- ------
Total ............................ 1,013 $ 96,418,663.40 100.00%
===== ================ ======
</TABLE>
ADJUSTABLE RATE GROUP I
ORIGINATORS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINATOR CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Affiliated:
Retail ....................... 274 $ 23,717,401.33 24.60%
National Loan Center ......... 15 1,456,979.36 1.51
Broker Network ............... 706 69,173,397.45 71.74
Unaffiliated .................. 18 2,070,885.26 2.15
--- ---------------- ------
Total ................... 1,013 $ 96,418,663.40 100.00%
===== ================ ======
</TABLE>
A-10
<PAGE>
ADJUSTABLE RATE GROUP I
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF STATISTIC STATISTIC
STATISTIC CALCULATION DATE CALCULATION DATE
CALCULATION AGGREGATE AGGREGATE
STATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------ ------------- ------------------- ------------------
<S> <C> <C> <C>
Arizona ................ 27 $ 2,813,448.72 2.92%
Arkansas ............... 10 627,846.99 0.65
California ............. 167 23,762,860.20 24.65
Colorado ............... 20 2,383,227.00 2.47
Connecticut ............ 15 1,439,576.04 1.49
Florida ................ 130 10,876,642.68 11.28
Georgia ................ 19 1,812,031.09 1.88
Hawaii ................. 12 2,365,075.85 2.45
Idaho .................. 2 152,800.00 0.16
Illinois ............... 48 4,420,595.30 4.58
Indiana ................ 28 1,797,171.94 1.86
Iowa ................... 20 1,243,257.40 1.29
Kansas ................. 2 170,555.45 0.18
Kentucky ............... 18 1,173,029.91 1.22
Louisiana .............. 12 935,282.70 0.97
Maryland ............... 10 1,270,216.48 1.32
Massachusetts .......... 4 344,043.32 0.36
Michigan ............... 50 3,335,530.97 3.46
Minnesota .............. 41 4,552,903.81 4.72
Mississippi ............ 5 287,560.99 0.30
Missouri ............... 47 2,816,220.99 2.92
Montana ................ 8 707,924.98 0.73
Nebraska ............... 10 669,236.25 0.69
Nevada ................. 10 1,178,526.09 1.22
New Hampshire .......... 3 273,997.55 0.28
New Jersey ............. 3 243,194.12 0.25
New Mexico ............. 9 856,226.03 0.89
New York ............... 17 1,973,983.14 2.05
North Carolina ......... 21 1,613,866.31 1.67
Ohio ................... 46 3,602,128.89 3.74
Oklahoma ............... 9 811,434.24 0.84
Oregon ................. 7 695,514.49 0.72
Pennsylvania ........... 25 1,542,493.79 1.60
Rhode Island ........... 1 74,257.53 0.08
South Carolina ......... 21 1,659,864.10 1.72
Tennessee .............. 14 1,159,143.45 1.20
Texas .................. 46 3,767,729.85 3.91
Utah ................... 8 750,350.65 0.78
Virginia ............... 14 904,019.18 0.94
Washington ............. 32 3,501,483.73 3.63
West Virginia .......... 6 459,150.00 0.48
Wisconsin .............. 16 1,394,261.20 1.45
--- --------------- ------
Total ................ 1,013 $ 96,418,663.40 100.0%
===== =============== ======
</TABLE>
A-11
<PAGE>
ADJUSTABLE RATE GROUP I
RANGE OF GROSS MARGINS
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF STATISTIC STATISTIC
STATISTIC CALCULATION DATE CALCULATION DATE
RANGE OF CALCULATION AGGREGATE AGGREGATE
GROSS MARGINS LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------------------- ------------- ------------------- ------------------
<S> <C> <C> <C>
3.440% -- 3.500% ......... 1 $ 47,000.00 0.05%
3.501% -- 4.000% ......... 14 1,299,685.78 1.35
4.001% -- 4.500% ......... 16 1,747,585.37 1.81
4.501% -- 5.000% ......... 57 5,980,604.57 6.20
5.001% -- 5.500% ......... 124 11,681,451.85 12.12
5.501% -- 6.000% ......... 272 25,512,686.64 26.46
6.001% -- 6.500% ......... 302 30,844,865.20 31.99
6.501% -- 7.000% ......... 124 11,671,396.35 12.10
7.001% -- 7.500% ......... 55 4,114,083.25 4.27
7.501% -- 8.000% ......... 33 2,207,345.90 2.29
8.001% -- 8.500% ......... 8 802,940.64 0.83
8.501% -- 8.990% ......... 7 509,017.85 0.53
--- --------------- ------
Total .................. 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP I
RANGE OF MAXIMUM MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF STATISTIC STATISTIC
RANGE OF MAXIMUM STATISTIC CALCULATION DATE CALCULATION DATE
MORTGAGE CALCULATION AGGREGATE AGGREGATE
INTEREST RATES LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------- ------------- ------------------- ------------------
<S> <C> <C> <C>
13.001% -- 13.500% ......... 2 $ 458,432.99 0.48%
13.501% -- 14.000% ......... 7 706,987.65 0.73
14.001% -- 14.500% ......... 9 1,218,199.23 1.26
14.501% -- 15.000% ......... 64 7,446,731.23 7.72
15.001% -- 15.500% ......... 75 8,786,478.68 9.11
15.501% -- 16.000% ......... 126 14,088,329.73 14.61
16.001% -- 16.500% ......... 109 12,084,676.23 12.53
16.501% -- 17.000% ......... 167 16,360,372.27 16.97
17.001% -- 17.500% ......... 111 10,041,135.70 10.41
17.501% -- 18.000% ......... 120 9,835,773.54 10.20
18.001% -- 18.500% ......... 81 6,079,861.52 6.31
18.501% -- 19.000% ......... 47 3,391,445.91 3.52
19.001% -- 19.500% ......... 36 2,481,044.22 2.57
19.501% -- 20.000% ......... 23 1,331,765.02 1.38
20.001% -- 20.500% ......... 15 872,391.05 0.90
20.501% -- 21.000% ......... 15 861,667.57 0.89
21.001% -- 21.500% ......... 4 300,622.73 0.31
22.001% -- 22.500% ......... 1 46,500.00 0.05
24.001% -- 24.200% ......... 1 26,248.13 0.03
--- --------------- ------
Total ................ 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
A-12
<PAGE>
ADJUSTABLE RATE GROUP I
RANGE OF MINIMUM MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF MINIMUM STATISTIC AGGREGATE AGGREGATE
MORTGAGE INTEREST RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
7.001% to 7.500% ......... 2 $ 458,432.99 0.48%
7.501% to 8.000% ......... 7 706,987.65 0.73
8.001% to 8.500% ......... 9 1,218,199.23 1.26
8.501% to 9.000% ......... 64 7,446,731.23 7.72
9.001% to 9.500% ......... 76 8,937,319.87 9.27
9.501% to 10.000% ......... 128 14,246,382.14 14.78
10.001% to 10.500% ......... 108 11,932,413.73 12.38
10.501% to 11.000% ......... 166 16,288,491.17 16.89
11.001% to 11.500% ......... 111 10,048,653.53 10.42
11.501% to 12.000% ......... 119 9,800,033.78 10.16
12.001% to 12.500% ......... 81 6,023,333.45 6.25
12.501% to 13.000% ......... 47 3,391,445.91 3.52
13.001% to 13.500% ......... 36 2,481,044.22 2.57
13.501% to 14.000% ......... 23 1,331,765.02 1.38
14.001% to 14.500% ......... 15 872,391.05 0.90
14.501% to 15.000% ......... 15 861,667.57 0.89
15.001% to 15.500% ......... 4 300,622.73 0.31
16.001% to 16.500% ......... 1 46,500.00 0.05
18.001% to 18.200% ......... 1 26,248.13 0.03
--- --------------- ------
Total ................ 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP I
PRODUCT TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
PRODUCT: CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
2 Yr Fixed/6 Mo LIBOR ARM ......... 362 $ 40,863,584.53 42.38%
3 Yr Fixed/6 Mo LIBOR ARM ......... 642 54,672,957.35 56.70
6 Mo LIBOR ARM .................... 9 882,121.52 0.91
--- ---------------- ------
Total ............................. 1,013 $ 96,418,663.40 100.00%
===== ================ ======
</TABLE>
A-13
<PAGE>
ADJUSTABLE RATE GROUP I
PREPAYMENT PENALTY TERM
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINAL PREPAY PENALTY TERM: CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
0 ............................. 143 $ 13,464,708.98 13.96%
12 ............................ 2 129,238.23 0.13
24 ............................ 165 22,328,446.65 23.16
36 ............................ 536 44,644,003.03 46.30
42 ............................ 29 3,138,946.53 3.26
60 ............................ 138 12,713,319.98 13.19
--- ---------------- ------
Total ................... 1,013 $ 96,418,663.40 100.00%
===== ================ ======
</TABLE>
ADJUSTABLE RATE GROUP I
DOCUMENTATION TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
DOCUMENTATION TYPE: CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
Full Documentation ........... 764 $ 71,597,219.60 74.26%
Light Documentation .......... 50 4,661,362.06 4.83
Stated Documentation ......... 199 20,160,081.74 20.91
--- ---------------- ------
Total .................. 1,013 $ 96,418,663.40 100.00%
===== ================ ======
</TABLE>
ADJUSTABLE RATE GROUP I
CREDIT GRADE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
CREDIT GRADE: CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
A ................... 179 $ 19,801,111.89 20.54%
A+ .................. 12 939,848.66 0.97
A-- ................. 275 27,932,712.45 28.97
B ................... 252 24,372,542.42 25.28
B+ .................. 24 2,349,921.48 2.44
B-- ................. 15 1,210,928.49 1.26
C ................... 145 11,998,912.75 12.44
C+ .................. 16 1,698,656.97 1.76
C-- ................. 44 2,689,576.35 2.79
D ................... 51 3,424,451.94 3.55
--- ---------------- ------
Total ............. 1,013 $ 96,418,663.40 100.00%
===== ================ ======
</TABLE>
A-14
<PAGE>
ADJUSTABLE RATE GROUP I
MONTH OF NEXT CHANGE DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
MONTH OF NEXT CHANGE DATE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
September-00 .............. 1 $ 148,533.36 0.15%
October-00 ................ 2 217,023.59 0.23
November-00 ............... 1 53,061.95 0.06
December-00 ............... 2 120,804.86 0.13
January-01 ................ 2 284,922.43 0.30
February-01 ............... 1 57,775.33 0.06
September-01 .............. 1 55,007.21 0.06
October-01 ................ 6 540,062.68 0.56
November-01 ............... 3 371,598.48 0.39
December-01 ............... 6 696,960.06 0.72
January-02 ................ 9 785,952.51 0.82
February-02 ............... 11 1,096,390.13 1.14
March-02 .................. 10 966,932.81 1.00
April-02 .................. 15 1,880,567.20 1.95
May-02 .................... 25 2,761,803.93 2.86
June-02 ................... 85 8,737,045.47 9.06
July-02 ................... 90 11,767,101.22 12.20
August-02 ................. 98 10,891,162.83 11.30
September-02 .............. 4 435,128.40 0.45
October-02 ................ 1 109,399.76 0.11
November-02 ............... 2 219,291.21 0.23
December-02 ............... 4 542,109.43 0.56
January-03 ................ 16 1,344,061.27 1.39
February-03 ............... 8 755,402.74 0.78
March-03 .................. 13 1,189,719.82 1,23
April-03 .................. 28 2,390,679.57 2.48
May-03 .................... 17 1,257,831.81 1.30
June-03 ................... 101 8,118,955.80 8.42
July-03 ................... 146 10,772,542.54 11.17
August-03 ................. 271 24,802,695.00 25.72
September-03 .............. 34 3,048,140.00 3.16
--- --------------- ------
Total ................... 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
A-15
<PAGE>
ADJUSTABLE RATE GROUP I
FICO SCORE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
FICO SCORE: ------------------- ------------------- ------------------
<S> <C> <C> <C>
Not Available ......... 9 $ 715,198.57 0.74%
450 -- 499 ............ 7 534,441.47 0.55
500 -- 549 ............ 249 21,190,333.08 21.98
550 -- 599 ............ 452 43,806,273.58 45.43
600 -- 609 ............ 62 6,180,252.95 6.41
610 -- 619 ............ 66 6,884,865.53 7.14
620 -- 629 ............ 40 3,536,100.73 3.67
630 -- 639 ............ 38 3,304,938.67 3.43
640 -- 649 ............ 23 2,440,638.18 2.53
650 -- 659 ............ 21 2,515,140.71 2.61
660 -- 669 ............ 15 2,017,105.93 2.09
670 -- 679 ............ 7 652,159.13 0.68
680 -- 689 ............ 5 593,655.50 0.62
690 -- 699 ............ 3 652,258.69 0.68
700 -- 719 ............ 8 499,841.59 0.52
720 -- 739 ............ 4 485,260.00 0.50
740 -- 759 ............ 1 68,000.00 0.07
760 -- 779 ............ 1 200,000.00 0.21
780 -- 786 ............ 2 142,199.09 0.15
--- --------------- ------
Total ............... 1,013 $ 96,418,663.40 100.00%
===== =============== ======
</TABLE>
A-16
<PAGE>
ADJUSTABLE RATE GROUP II
STATISTICAL CALCULATION DATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF STATISTICAL CALCULATION DATE STATISTIC AGGREGATE AGGREGATE
PRINCIPAL BALANCE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
$ 14,993.94 to $ 25,000.00 ............ 22 $ 460,096.43 0.48%
$ 25,000.01 to $ 50,000.00 ............ 185 7,055,518.47 7.32
$ 50,000.01 to $ 75,000.00 ............ 180 11,125,126.15 11.54
$ 75,000.01 to $100,000.00 ............ 136 11,892,490.59 12.33
$100,000.01 to $150,000.00 ............ 171 21,275,299.14 22.06
$150,000.01 to $200,000.00 ............ 55 9,465,905.50 9.82
$200,000.01 to $250,000.00 ............ 28 6,233,769.65 6.46
$250,000.01 to $300,000.00 ............ 35 9,751,699.36 10.11
$300,000.01 to $350,000.00 ............ 26 8,646,049.95 8.97
$350,000.01 to $400,000.00 ............ 11 4,227,123.14 4.38
$400,000.01 to $450,000.00............. 3 1,318,519.62 1.37
$450,000.01 to $500,000.00............. 8 3,908,305.75 4.05
$500,000.01 to $544,000.00............. 2 1,066,700.00 1.11
--- --------------- ------
Total ........................... 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP II
MORTGAGE INTEREST RATES (1)
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF MORTGAGE STATISTIC AGGREGATE AGGREGATE
INTEREST RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
7.490% to 7.500% ......... 1 $ 88,867.23 0.09%
7.501% to 8.000% ......... 4 799,684.12 0.83
8.001% to 8.500% ......... 31 4,490,225.97 4.66
8.501% to 9.000% ......... 57 8,836,876.80 9.16
9.001% to 9.500% ......... 77 11,797,961.37 12.24
9.501% to 10.000% ......... 94 14,810,019.17 15.36
10.001% to 10.500% ......... 94 11,652,580.64 12.08
10.501% to 11.000% ......... 112 12,712,748.23 13.18
11.001% to 11.500% ......... 84 8,215,578.40 8.52
11.501% to 12.000% ......... 106 9,217,969.41 9.56
12.001% to 12.500% ......... 53 4,295,593.66 4.45
12.501% to 13.000% ......... 43 3,350,244.23 3.47
13.001% to 13.500% ......... 28 2,022,653.91 2.10
13.501% to 14.000% ......... 28 1,634,417.71 1.69
14.001% to 14.500% ......... 19 838,556.00 0.87
14.501% to 15.000% ......... 11 660,427.83 0.68
15.001% to 15.500% ......... 11 499,518.52 0.52
15.501% to 16.000% ......... 8 460,180.55 0.48
16.001% to 16.300% ......... 1 42,500.00 0.04
--- --------------- ------
Total ................ 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
----------
(1) The lender has acquired mortgage insurance on certain mortgage loans
included in the preceding table. The mortgage interest rates for such
mortgage loans are shown at the mortgage rates inclusive of any premium
for the related mortgage insurance coverage. As of the statistic
calculation date, the weighted average mortgage rate of the statistic
calculation loans net of the related premiums for such mortgage insurance
is expected to be approximately 10.266% per annum.
A-17
<PAGE>
ADJUSTABLE RATE GROUP II
ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
RANGE OF NUMBER OF CALCULATION DATE CALCULATION DATE
ORIGINAL TERMS TO STATISTIC AGGREGATE AGGREGATE
MATURITY (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
0 to 120 .......... 1 $ 27,844.80 0.03%
169 to 180 .......... 15 805,077.47 0.83
229 to 240 .......... 1 255,600.00 0.27
349 to 360 .......... 845 95,338,081.48 98.87
--- --------------- ------
Total ............. 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP II
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
RANGE OF NUMBER OF CALCULATION DATE CALCULATION DATE
REMAINING TERMS TO STATISTIC AGGREGATE AGGREGATE
MATURITY (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
119 to 120 .......... 1 $ 27,844.80 0.03%
169 to 180 .......... 15 805,077.47 0.83
229 to 240 .......... 1 255,600.00 0.27
349 to 360 .......... 845 95,338,081.48 98.87
--- --------------- ------
Total ............. 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP II
COMBINED LOAN-TO-VALUE RATIOS (1)
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF COMBINED STATISTIC AGGREGATE AGGREGATE
LOAN-TO-VALUE RATIOS CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
13.32% to 15.00% ......... 1 $ 66,541.66 0.07%
15.01% to 20.00% ......... 1 24,963.55 0.03
20.01% to 25.00% ......... 6 226,643.57 0.24
25.01% to 30.00% ......... 3 725,194.23 0.75
30.01% to 35.00% ......... 8 601,243.14 0.62
35.01% to 40.00% ......... 7 450,329.50 0.47
40.01% to 45.00% ......... 10 657,274.87 0.68
45.01% to 50.00% ......... 13 950,277.85 0.99
50.01% to 55.00% ......... 20 2,184,868.38 2.27
55.01% to 60.00% ......... 28 2,375,679.05 2.46
60.01% to 65.00% ......... 86 7,539,605.02 7.82
65.01% to 70.00% ......... 112 12,727,840.59 13.20
70.01% to 75.00% ......... 193 22,087,150.70 22.91
75.01% to 80.00% ......... 196 23,566,171.86 24.44
80.01% to 85.00% ......... 60 6,353,077.46 6.59
85.01% to 90.00% ......... 77 10,468,177.70 10.86
90.01% to 95.00% ......... 41 5,421,564.62 5.62
--- --------------- ------
Total .................. 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
----------
(1) At the date of origination.
A-18
<PAGE>
ADJUSTABLE RATE GROUP II
OCCUPANCY STATUS
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
OCCUPANCY STATUS CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
Owner Occupied/Primary Residence ............... 825 $ 93,666,891.68 97.14%
Non-Owner Occupied/Investment Property ......... 34 2,543,907.36 2.64
Second Home .................................... 3 215,804.71 0.22
--- ---------------- ------
Total .................................... 862 $ 96,426,603.75 100.00%
=== ================ ======
</TABLE>
ADJUSTABLE RATE GROUP II
TYPE OF MORTGAGED PROPERTY
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
PROPERTY TYPE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Condominium Unit ....................... 24 $ 3,580,882.40 3.71%
Manufactured Housing ................... 6 469,363.51 0.49
Single Family Residence ................ 791 87,308,645.68 90.54
Two- to Four-Family Residence .......... 41 5,067,712.16 5.26
--- --------------- ------
Total ............................ 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP II
ORIGINATORS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINATOR CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Affiliated:
Broker Network ............... 639 $ 73,073,009.03 75.78%
National Loan Center ......... 12 1,520,540.44 1.58
Retail ....................... 181 18,056,813.68 18.73
Unaffiliated .................. 30 3,776,240.60 3.92
--- ---------------- ------
Total ................... 862 $ 96,426,603.75 100.00%
=== ================ ======
</TABLE>
A-19
<PAGE>
ADJUSTABLE RATE GROUP II
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
STATE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
Arizona ...................... 29 $ 3,122,031.92 3.24%
Arkansas ..................... 3 166,856.96 0.17
California ................... 160 31,225,520.85 32.38
Colorado ..................... 25 3,893,141.85 4.04
Connecticut .................. 15 1,813,649.77 1.88
District of Columbia ......... 2 129,883.86 0.13
Florida ...................... 100 9,194,099.26 9.53
Georgia ...................... 13 2,011,638.11 2.09
Hawaii ....................... 11 1,853,961.92 1.92
Idaho ........................ 1 59,970.49 0.06
Illinois ..................... 38 3,627,864.56 3.76
Indiana ...................... 22 1,248,488.34 1.29
Iowa ......................... 11 665,360.87 0.69
Kansas ....................... 7 544,799.28 0.56
Kentucky ..................... 16 809,425.01 0.84
Louisiana .................... 11 663,930.71 0.69
Maine ........................ 1 73,854.01 0.08
Maryland ..................... 8 822,690.71 0.85
Massachusetts ................ 11 1,799,279.97 1.87
Michigan ..................... 58 3,950,445.00 4.10
Minnesota .................... 22 2,883,152.90 2.99
Mississippi .................. 2 191,180.78 0.20
Missouri ..................... 30 1,964,369.44 2.04
Montana ...................... 6 374,385.66 0.39
Nebraska ..................... 4 191,914.55 0.20
Nevada ....................... 1 87,920.00 0.09
New Hampshire ................ 2 224,496.17 0.23
New Jersey ................... 7 1,284,376.48 1.33
New Mexico ................... 9 950,098.11 0.99
New York ..................... 23 1,577,065.79 1.64
North Carolina ............... 10 812,160.09 0.84
Ohio ......................... 49 4,287,987.33 4.45
Oklahoma ..................... 7 282,732.34 0.29
Oregon ....................... 5 473,470.56 0.49
Pennsylvania ................. 24 1,301,487.42 1.35
Rhode Island ................. 3 151,978.55 0.16
South Carolina ............... 21 1,253,312.32 1.30
Tennessee .................... 19 1,737,673.17 1.80
Texas ........................ 21 2,422,175.49 2.51
Utah ......................... 13 1,516,483.61 1.57
Virginia ..................... 8 656,226.77 0.68
Washington ................... 25 3,596,315.40 3.73
West Virginia ................ 2 69,750.00 0.07
Wisconsin .................... 7 458,997.37 0.48
--- --------------- ------
Total .................. 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
A-20
<PAGE>
ADJUSTABLE RATE GROUP II
RANGE OF GROSS MARGINS
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF STATISTIC AGGREGATE AGGREGATE
GROSS MARGINS CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
2.945% to 3.000% ......... 1 $ 27,844.80 0.03%
3.001% to 3.500% ......... 1 88,500.00 0.09
3.501% to 4.000% ......... 11 1,353,369.27 1.40
4.001% to 4.500% ......... 16 2,307,108.55 2.39
4.501% to 5.000% ......... 60 7,653,744.07 7.94
5.001% to 5.500% ......... 117 14,918,289.52 15.47
5.501% to 6.000% ......... 223 25,971,665.60 26.93
6.001% to 6.500% ......... 211 25,795,703.05 26.75
6.501% to 7.000% ......... 107 9,558,047.08 9.91
7.001% to 7.500% ......... 71 5,382,413.83 5.58
7.501% to 8.000% ......... 25 2,136,004.03 2.22
8.001% to 8.500% ......... 4 370,048.56 0.38
8.501% to 9.000% ......... 5 305,086.38 0.32
9.001% to 9.500% ......... 9 516,279.01 0.54
9.501% to 9.750% ......... 1 42,500.00 0.04
--- --------------- ------
Total ................ 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP II
RANGE OF MAXIMUM MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
RANGE OF MAXIMUM NUMBER OF CALCULATION DATE CALCULATION DATE
MORTGAGE STATISTIC AGGREGATE AGGREGATE
INTEREST RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
13.490% to 13.500% ......... 1 $ 88,867.23 0.09%
13.501% to 14.000% ......... 4 799,684.12 0.83
14.001% to 14.500% ......... 30 4,414,318.37 4.58
14.501% to 15.000% ......... 56 8,678,249.53 9.00
15.001% to 15.500% ......... 78 11,873,868.97 12.31
15.501% to 16.000% ......... 91 14,366,796.63 14.90
16.001% to 16.500% ......... 91 11,344,664.77 11.77
16.501% to 17.000% ......... 116 13,314,598.04 13.81
17.001% to 17.500% ......... 86 8,231,909.74 8.54
17.501% to 18.000% ......... 105 8,889,469.41 9.22
18.001% to 18.500% ......... 54 4,587,178.19 4.76
18.501% to 19.000% ......... 44 3,678,744.23 3.82
19.001% to 19.500% ......... 28 2,022,653.91 2.10
19.501% to 20.000% ......... 28 1,634,417.71 1.69
20.001% to 20.500% ......... 19 838,556.00 0.87
20.501% to 21.000% ......... 11 660,427.83 0.68
21.001% to 21.500% ......... 11 499,518.52 0.52
21.501% to 22.000% ......... 8 460,180.55 0.48
22.001% to 22.300% ......... 1 42,500.00 0.04
--- --------------- ------
Total ................ 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
A-21
<PAGE>
ADJUSTABLE RATE GROUP II
RANGE OF MINIMUM MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF MINIMUM STATISTIC AGGREGATE AGGREGATE
MORTGAGE INTEREST RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
7.490% to 7.500% ......... 1 $ 88,867.23 0.09%
7.501% to 8.000% ......... 4 799,684.12 0.83
8.001% to 8.500% ......... 31 4,490,225.97 4.66
8.501% to 9.000% ......... 57 8,836,876.80 9.16
9.001% to 9.500% ......... 77 11,797,961.37 12.24
9.501% to 10.000% ......... 94 14,810,019.17 15.36
10.001% to 10.500% ......... 94 11,652,580.64 12.08
10.501% to 11.000% ......... 112 12,712,748.23 13.18
11.001% to 11.500% ......... 84 8,215,578.40 8.52
11.501% to 12.000% ......... 106 9,217,969.41 9.56
12.001% to 12.500% ......... 53 4,295,593.66 4.45
12.501% to 13.000% ......... 43 3,350,244.23 3.47
13.001% to 13.500% ......... 28 2,022,653.91 2.10
13.501% to 14.000% ......... 28 1,634,417.71 1.69
14.001% to 14.500% ......... 19 838,556.00 0.87
14.501% to 15.000% ......... 11 660,427.83 0.68
15.001% to 15.500% ......... 11 499,518.52 0.52
15.501% to 16.000% ......... 8 460,180.55 0.48
16.001% to 16.300% ......... 1 42,500.00 0.04
--- --------------- ------
Total ................ 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
A-22
<PAGE>
ADJUSTABLE RATE GROUP II
PRODUCT TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
PRODUCT: CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
2 Yr Fixed/6 Mo LIBOR ARM ......... 346 $ 46,569,960.32 48.30%
3 Yr Fixed/6 Mo LIBOR ARM ......... 509 48,965,726.12 50.78
6 Mo LIBOR ARM .................... 7 890,917.31 0.92
--- ---------------- ------
Total ............................. 862 $ 96,426,603.75 100.00%
=== ================ ======
</TABLE>
ADJUSTABLE RATE GROUP II
PREPAYMENT PENALTY TERM
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINAL PREPAY PENALTY TERM: CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
0 ............................ 152 $ 16,381,063.83 16.99%
6 ............................ 3 155,043.33 0.16
12 ............................ 4 625,385.21 0.65
24 ............................ 158 27,734,662.92 28.76
36 ............................ 404 36,435,351.58 37.79
42 ............................ 16 2,214,253.03 2.30
60 ............................ 125 12,880,843.85 13.36
--- ---------------- ------
862 $ 96,426,603.75 100.00%
=== ================ ======
</TABLE>
ADJUSTABLE RATE GROUP II
DOCUMENTATION TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
DOCUMENTATION TYPE: CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
Full Documentation ........... 663 $ 69,174,009.80 71.74%
Light Documentation .......... 47 5,411,385.46 5.61
Stated Documentation ......... 152 21,841,208.49 22.65
--- ---------------- ------
Total ........................ 862 $ 96,426,603.75 100.00%
=== ================ ======
</TABLE>
A-23
<PAGE>
ADJUSTABLE RATE GROUP II
MONTH OF NEXT CHANGE DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
MONTH OF NEXT CHANGE DATE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
November-00 ............... 1 $ 59,959.29 0.06%
December-00 ............... 4 609,358.02 0.63
January-01 ................ 2 221,600.00 0.23
October-01 ................ 4 402,711.74 0.42
December-01 ............... 4 691,562.29 0.72
January-02 ................ 7 875,723.31 0.91
February-02 ............... 5 746,464.35 0.77
March-02 .................. 12 1,673,909.46 1.74
April-02 .................. 11 1,239,076.81 1.28
May-02 .................... 23 4,649,640.11 4.82
June-02 ................... 81 9,360,689.06 9.71
July-02 ................... 117 16,965,760.19 17.59
August-02 ................. 77 9,620,073.00 9.98
September-02 .............. 5 344,350.00 0.36
November-02 ............... 1 127,428.11 0.13
December-02 ............... 1 42,393.30 0.04
January-03 ................ 8 746,089.50 0.77
February-03 ............... 10 1,020,751.76 1.06
March-03 .................. 17 1,631,444.47 1.69
April-03 .................. 17 1,906,018.61 1.98
May-03 .................... 24 1,946,927.16 2.02
June-03 ................... 86 7,664,515.33 7.95
July-03 ................... 114 11,681,847.75 12.11
August-03 ................. 215 20,672,035.13 21.44
September-03 .............. 16 1,526,275.00 1.58
--- --------------- ------
Total ................... 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
ADJUSTABLE RATE GROUP II
CREDIT GRADE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
CREDIT GRADE: CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
A ............. 136 $ 20,793,742.69 21.56%
A+ ............ 18 2,348,652.64 2.44
A- ............ 224 27,659,495.67 28.68
B ............. 215 23,563,367.94 24.44
B+ ............ 9 1,212,600.00 1.26
B- ............ 5 664,600.00 0.69
C ............. 138 11,437,501.78 11.86
C+ ............ 10 1,422,483.57 1.48
C- ............ 57 3,890,252.63 4.03
D ............. 50 3,433,906.83 3.56
--- ---------------- ------
Total ......... 862 $ 96,426,603.75 100.00%
=== ================ ======
</TABLE>
A-24
<PAGE>
ADJUSTABLE RATE GROUP II
FICO SCORE
<TABLE>
<CAPTION>
PERCENTAGE OF
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
FICO SCORE: CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Not Available ......... 8 $ 558,773.05 0.58%
450 -- 499 ............ 1 254,418.31 0.26
500 -- 549 ............ 234 21,053,498.04 21.83
550 -- 599 ............ 357 40,161,636.01 41.65
600 -- 609 ............ 58 7,588,589.46 7.87
610 -- 619 ............ 50 5,815,308.70 6.03
620 -- 629 ............ 46 5,910,445.82 6.13
630 -- 639 ............ 23 3,977,362.66 4.12
640 -- 649 ............ 23 3,459,759.92 3.59
650 -- 659 ............ 15 1,611,606.28 1.67
660 -- 669 ............ 7 1,209,189.25 1.25
670 -- 679 ............ 11 1,115,831.19 1.16
680 -- 689 ............ 7 761,284.68 0.79
690 -- 699 ............ 6 793,831.23 0.82
700 -- 719 ............ 5 372,330.96 0.39
720 -- 739 ............ 4 405,608.47 0.42
740 -- 759 ............ 5 1,037,355.13 1.08
760 -- 779 ............ 1 206,874.59 0.21
780 -- 782 ............ 1 132,900.00 0.14
--- --------------- ------
Total ................. 862 $ 96,426,603.75 100.00%
=== =============== ======
</TABLE>
A-25
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ANNEX B
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except under limited circumstances, the globally offered Mortgage
Pass-Through Certificates, Series 2000-1 (the "Global Securities") will be
available only in book-entry form. Investors in the Global Securities may hold
the Global Securities through any of DTC, Euroclear or Clearstream, Luxembourg.
The Global Securities will be tradable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Euroclear and Clearstream, Luxembourg will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Mortgage Pass-Through Certificates
issues.
Secondary cross-market trading between Euroclear or Clearstream,
Luxembourg and DTC participants holding Certificates will be effected on a
delivery-against-payment basis through the respective depositaries of Euroclear
and Clearstream, Luxembourg and as DTC participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless the holders meet established requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, Euroclear and
Clearstream, Luxembourg will hold positions on behalf of their participants
through their respective depositaries, which in turn will hold the positions in
accounts as DTC participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior Mortgage Pass-Through Certificates
issues. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Euroclear or
Clearstream, Luxembourg accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global Securities will
be credited to the securities custody accounts on the settlement date against
payment in same-day funds
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and sellers'
accounts are located to ensure that settlement can be made on the desired value
date.
B-1
<PAGE>
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to prior Home
Equity Loan Asset-Backed Certificates issues in same-day funds.
Trading between Euroclear and/or Clearstream, Luxembourg Participants.
Secondary market trading between Euroclear participants or Clearstream,
Luxembourg participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC Seller and Euroclear or Clearstream, Luxembourg
Purchaser. When Global Securities are to be transferred from the account of a
DTC participant to the account of a Euroclear participant or a Clearstream,
Luxembourg participant, the purchaser will send instructions to Euroclear or
Clearstream, Luxembourg through a Euroclear participant or Clearstream,
Luxembourg participant at least one business day prior to settlement. Euroclear
or Clearstream, Luxembourg will instruct the respective depositary, as the case
may be, to receive the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date, on the basis of either the
actual number of days in the accrual period and a year assumed to consist of
360 days or a 360-day year of 12 30-day months as applicable to the related
class of Global Securities. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. Payment will then be made by the respective depositary of the
DTC participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Euroclear participant's or Clearstream, Luxembourg
participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Euroclear or Clearstream,
Luxembourg cash debt will be valued instead as of the actual settlement date.
Euroclear participants and Clearstream, Luxembourg participants will need
to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
preposition funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Euroclear or
Clearstream, Luxembourg. Under this approach, they may take on credit exposure
to Euroclear or Clearstream, Luxembourg until the Global Securities are
credited to their accounts one day later.
As an alternative, if Euroclear or Clearstream, Luxembourg has extended a
line of credit to them, Euroclear participants or Clearstream, Luxembourg
participants can elect not to preposition funds and allow that credit line to
be drawn upon the finance settlement. Under this procedure, Euroclear
participants or Clearstream, Luxembourg participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during
B-2
<PAGE>
that one-day period may substantially reduce or offset the amount of the
overdraft charges, although this result will depend on each Euroclear
participant's or Clearstream, Luxembourg participant's particular cost of
funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities to
the respective European depositary for the benefit of Euroclear participants or
Clearstream, Luxembourg participants. The sale proceeds will be available to
the DTC Seller on the settlement date. Thus, to the DTC participants a
cross-market transaction will settle no differently than a trade between two
DTC participants.
Trading between Euroclear or Clearstream, Luxembourg Seller and DTC
Purchaser. Due to time zone differences in their favor, Euroclear participants
and Clearstream, Luxembourg participants may employ their customary procedures
for transactions in which Global Securities are to be transferred by the
respective clearing system, through the respective depositary, to a DTC
participant. The seller will send instructions to Euroclear or Clearstream,
Luxembourg through a Euroclear participant or Clearstream, Luxembourg
participant at least one business day prior to settlement. In these cases
Euroclear or Clearstream, Luxembourg will instruct the respective depositary,
as appropriate, to deliver the Global Securities to the DTC participant's
account against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment to and excluding the
settlement date on the basis of either the actual number of days in the accrual
period and a year assumed to consist of 360 days or a 360-day year of 12 30-day
months as applicable to the related class of Global Securities. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment will
then be reflected in the account of the Euroclear participant or Clearstream,
Luxembourg participant the following day, and receipt of the cash proceeds in
the Euroclear participant's or Clearstream, Luxembourg participant's account
would be back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Euroclear participant or
Clearstream, Luxembourg participant have a line of credit with its respective
clearing system and elect to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in
the Euroclear participant's or Clearstream, Luxembourg participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Euroclear or Clearstream, Luxembourg and
that purchase Global Securities from DTC participants for delivery to Euroclear
participants or Clearstream, Luxembourg participants should note that these
trades would automatically fail on the sale side unless affirmative action were
taken. At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through Euroclear or Clearstream, Luxembourg for one day
(until the purchase side of the day trade is reflected in their Euroclear
or Clearstream, Luxembourg accounts) in accordance with the clearing
system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the Global
Securities sufficient
B-3
<PAGE>
time to be reflected in their Euroclear or Clearstream, Luxembourg account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the Euroclear
participant or Clearstream, Luxembourg participant
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg or Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% (or in some cases 31%)
U.S. withholding tax that generally applies to payments of interest on
registered debt issued by U.S. persons, unless (1) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between the
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (2) the beneficial owner takes one of
the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. persons (Form W-8 BEN). Beneficial owners of Global
Securities that are non-U.S. persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 BEN. If the information shown on
Form W-8 BEN changes, a new Form W-8 BEN must be filed within 30 days of the
change.
Exemption for non-U.S. persons with effectively connected income (Form
W-8ECI). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form W-8ECI.
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form W-8 BEN). Non-U.S. persons that are beneficial owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
W-8 BEN.
Exemption for U.S. persons (Form W-9). U.S. persons can obtain a complete
exemption from the withholding tax by filing Form W-9.
U.S. Federal Income Tax Reporting Procedure. The Global Securities holder
files by submitting the appropriate form to the person through whom he holds
(e.g., the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Forms W-8 BEN and W-8ECI are generally effective
for three calendar years.
U.S. Person. As used in this prospectus supplement the term "U.S. person"
means a beneficial owner of a Class A Certificate that is for United States
federal income tax purposes
o a citizen or resident of the United States,
o a corporation or partnership created or organized in or under the laws of
the United States or of any State thereof or the District of Columbia,
B-4
<PAGE>
o an estate the income of which is subject to United States federal income
taxation regardless of its source, or
o a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust.
As used in this prospectus supplement, the term "non-U.S. person" means a
beneficial owner of a Class A Certificate that is not a U.S. person.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities or
with the application of the extensive withholding regulations that are
generally effective with respect to payments made after December 31, 2000 which
have detailed rules regarding the determination of beneficial ownership.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
B-5
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS
DATED SEPTEMBER 8, 2000
$1,331,730,000
ASSET-BACKED CERTIFICATES AND BONDS
(EACH ISSUABLE IN SERIES)
AAMES CAPITAL CORPORATION
AAMES CAPITAL ACCEPTANCE CORP.
(INCLUDING CERTAIN LIMITED PURPOSE ENTITIES FORMED
BY AAMES CAPITAL ACCEPTANCE CORP. FROM TIME TO TIME IN
CONNECTION WITH THE ISSUANCE OF SERIES OF ASSET-BACKED BONDS)
This Prospectus relates to Asset-Backed Certificates (the "Certificates")
and Asset-Backed Bonds (the "Bonds" and, together with the Certificates, the
"Securities"), each issuable in series (each, a "Series"), that may be sold
from time to time by Aames Capital Corporation ("ACC" or the "Sponsor"), Aames
Capital Acceptance Corp. ("ACAC") or a special purpose entity formed in
connection with a Series of Certificates or Bonds (together with ACC and ACAC,
the "Transferors") on terms determined at the time of sale and described in the
related Prospectus Supplement. As specified in the related Prospectus
Supplement, the Securities of each Series will be either Certificates that will
evidence a beneficial undivided interest in assets deposited in a trust fund
(each, a "Trust") by a Transferor pursuant to a Pooling and Servicing Agreement
(each, a "Pooling and Servicing Agreement") to be entered into among the
related Transferor, ACC or such other entity identified in the related Pooling
and Servicing Agreement, as servicer (the "Servicer"), and the trustee
specified in the related Prospectus Supplement (the "Trustee"), or Bonds that
will be secured by a trust estate (each, a "Trust Estate") comprised of assets
pledged to the related Trustee by either ACAC or a separate entity formed by
ACAC solely for the purpose of issuing the Bonds of the related Series (either
such entity, as applicable, the "Bond Issuer") pursuant to an Indenture (each,
an "Indenture") to be entered into at the date the related Series of Bonds is
issued.
(continued on next page)
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING HEREIN
UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 23 BEFORE PURCHASING ANY
SECURITIES.
BONDS OF A SERIES WILL CONSTITUTE NON-RECOURSE OBLIGATIONS OF THE RELATED
BOND ISSUER. CERTIFICATES OF A SERIES WILL EVIDENCE INTERESTS ONLY IN THE
RELATED TRUST. EXCEPT AS OTHERWISE SET FORTH HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT, THE SECURITIES WILL NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE SERVICER, ANY ORIGINATOR, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING MORTGAGE LOANS
WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR ANY OTHER PERSON OR
ENTITY, EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES OF ANY
SERIES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
<PAGE>
(continued from previous page)
The primary assets of each Trust or Trust Estate, as applicable, will
consist of one or more pools (each, a "Mortgage Pool") of mortgage loans
(collectively, the "Mortgage Loans") secured by first or junior liens on one-
to four-family residential properties. The Mortgage Loans will be acquired by
the related Transferor, either directly or indirectly, from one or more
affiliated or unaffiliated entities (the "Originators"). A Trust or Trust
Estate, as applicable, may include, in addition to the Mortgage Loans, if
specified in the related Prospectus Supplement, (i) funds on deposit in one or
more prefunding accounts and/or capitalized interest accounts and (ii)
financial guaranty insurance policies, cash accounts, letters of credit,
limited guaranty insurance policies, third party guarantees or other forms of
credit enhancement, to the extent described in the related Prospectus
Supplement. Amounts on deposit in a prefunding account for any Series will be
applied for the acquisition of additional Mortgage Loans during the related
funding period specified in the related Prospectus Supplement in the manner
specified therein.
Each Series of Certificates will be issued in one or more classes (each, a
"Class"). Each Class of Certificates will evidence a beneficial interest of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Mortgage Loans in the related Trust. A Series of Certificates
may include one or more senior Classes that receive certain preferential
treatment with respect to one or more other Classes of Certificates of such
Series. One or more Classes of Certificates of a Series may be entitled to
receive distributions of principal, interest or any combination thereof prior
to one or more other Classes of Certificates of such Series or after the
occurrence of specified events, or may be required to absorb one or more types
of losses prior to one or more other Classes of Certificates, in each case as
specified in the related Prospectus Supplement. Each Series of Bonds will be
issued in a single Class.
Distributions or payments, as applicable, to holders of Securities
("Securityholders") will be made on certain dates specified in the related
Prospectus Supplement (each, a "Distribution Date," with respect to
Certificates, or a "Payment Date," with respect to Bonds), which may occur at
monthly, quarterly, semi-annually or at such other intervals as are specified
therein.
Bonds of a Series will constitute non-recourse obligations of the related
Bond Issuer. Certificates of a Series will evidence interests only in the
related Trust. Except as otherwise set forth herein and in the related
Prospectus Supplement, the Securities will not represent an obligation of or
interest in the Servicer, any Originator or any of their respective affiliates
or any other person. Unless otherwise specified in the related Prospectus
Supplement, the obligations of a Transferor with respect to a Series of
Securities will be limited to those arising in respect of certain
representations and warranties on the Mortgage Loans. The principal obligations
of the Servicer with respect to the related Series of Securities will be
limited to obligations pursuant to certain representations and warranties and
to its contractual servicing obligations under the Pooling and Servicing
Agreement, with respect to Certificates, or a servicing agreement (each, a
"Servicing Agreement") to be entered into among ACC, the related Servicer, the
related Bond Issuer and the Trustee, with respect to Bonds, including any
obligation it may have to advance delinquent payments on the Mortgage Loans in
the related Trust or Trust Estate, as applicable.
THE YIELD ON THE SECURITIES OF A GIVEN SERIES MAY BE AFFECTED BY, AMONG
OTHER THINGS, THE RATE OF PAYMENT OF PRINCIPAL (INCLUDING PREPAYMENTS) OF THE
MORTGAGE LOANS IN THE RELATED TRUST OR TRUST ESTATE, AS APPLICABLE, AND THE
TIMING OF RECEIPT OF SUCH PAYMENTS AS DESCRIBED HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT. A TRUST MAY BE SUBJECT TO EARLY TERMINATION UNDER THE
CIRCUMSTANCES DESCRIBED HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. THE
BONDS OF ANY SERIES MAY BE SUBJECT TO OPTIONAL REDEMPTION UNDER THE
CIRCUMSTANCES DESCRIBED HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. SEE
"RISK FACTORS -- YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS" AND "MATURITY,
PREPAYMENT AND YIELD CONSIDERATIONS" HEREIN.
If specified in a Prospectus Supplement relating to a Series of
Certificates, one or more elections may be made to treat each Trust or
specified portions thereof as a "real estate mortgage investment conduit"
("REMIC") for federal income tax purposes.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Method of Distribution" herein and under "Underwriting" in the related
Prospectus Supplement. Prior to issuance, there will have been no market for
the Securities of any Series, and there can be no assurance that a secondary
market for the Securities will develop or, if it does develop, that it will
continue.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES COVERED BY SUCH PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO
DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS SUPPLEMENT
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder, among other things, will set forth with respect to such Series of
Securities: (i) a description of such Securities; (ii) the rate of interest,
the "Certificate Rate" or "Bond Rate" or other applicable rate (or the manner
of determining such rate) and authorized denominations of such Securities;
(iii) certain information concerning the Mortgage Loans and financial guaranty
insurance policies, cash accounts, letters of credit, limited guaranty
insurance policies, third party guarantees or other forms of credit
enhancement, if any, relating to one or more Mortgage Pools or all or part of
the related Securities; (iv) in the case of Certificates, the specified
interest of each Class of Certificates in, and manner and priority of, the
distributions on the Mortgage Loans; (v) in the case of Certificates,
information as to the nature and extent of subordination with respect to such
Certificates, if any; (vi) the Distribution Dates or Payment Dates, as
applicable; (vii) the amount, if any, deposited in the related Prefunding
Account, the length of the related Funding Period or the Revolving Period and
the criteria for determining which additional Mortgage Loans may become assets
of the related Trust or Trust Estate, as applicable; (viii) in the case of
Certificates, the circumstances, if any, under which the related Trust may be
subject to early termination; (ix) in the case of Bonds, the circumstances, if
any, under which such Bonds may be subject to redemption; (x) in the case of
Certificates, whether a REMIC election will be made and the designation of the
regular and residual interest therein; and (xi) additional information with
respect to the plan of distribution of such Securities.
AVAILABLE INFORMATION
The Transferors have filed a Registration Statement under the Securities
Act of 1933, as amended (the "1933 Act"), with the Securities and Exchange
Commission (the "Commission") with respect to the Securities. The Registration
Statement and amendments thereof and the exhibits thereto may be inspected at
the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Seven World
Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Electronic filings made through the Electronic Data Gathering Analysis and
Retrieval System are publicly available through the Commission's Web Site
(http://www.sec.gov).
No person has been authorized to give any information or to make any
representation regarding the Series of Securities referred to in the
accompanying Prospectus Supplement other than those contained or incorporated
by reference in this Prospectus and such Prospectus Supplement with respect to
such Series and, if given or made, such information or representations must not
be relied upon. This Prospectus and the accompanying Prospectus Supplement do
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the Securities offered hereby and thereby nor an offer of
the Securities to any person in any state or other jurisdiction in which such
offer would be unlawful. The delivery of this Prospectus at any time does not
imply that information herein is correct as of any time subsequent to its date.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with the Commission relating to the Trust or Trust
Estate, as applicable, referred to in the accompanying Prospectus Supplement
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), after the date of this Prospectus and
prior to the termination of any offering of the related Securities or relating
to the terms or collateral with respect to such offering shall be deemed to be
incorporated by reference in this Prospectus and to be part of this Prospectus
from the date of the filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for all purposes of this Prospectus to the
extent that a statement contained herein (or in the accompanying Prospectus
Supplement) or in any other subsequently filed document that also is or is
deemed to be incorporated by reference modifies or replaces such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Trustee or Transferor with respect to any Series of Securities will
provide without charge to each person to whom this Prospectus is delivered, on
the written or oral request of such person, a copy of any or all of the
documents referred to above that may be incorporated by reference in this
Prospectus (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates). Such requests should be
directed to the Corporate Trust Office of the Trustee specified in the
accompanying Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, no
information that relates to any Series of Securities other than the Series
referred to in the accompanying Prospectus Supplement shall be deemed to be
incorporated by reference in this Prospectus.
REPORTS TO SECURITYHOLDERS
Monthly and annual reports concerning any Securities and the related
assets included in the Trust or Trust Estate, as applicable, will be sent by
the Trustee to all related Securityholders. See "Description of the Securities
-- Reports to Securityholders" herein. If the Securities of a Series are to be
issued in book-entry form, such reports will be sent to the Securityholder of
record, and beneficial owners of such Securities will have to rely on the
procedures described herein under "Description of the Securities -- Form of
Securities -- Book-Entry Registration" to obtain such reports.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY ............................................. 7
RISK FACTORS ........................................ 23
Limited Liquidity ................................ 23
Limited Assets; Limited Obligations .............. 23
Nature of the Security for Mortgage
Loans ......................................... 23
Risks Associated with Prepayment of the
Mortgage Loans ................................ 27
Environmental Statutes Affecting Security
Interests ..................................... 28
Risks Associated With Certain Origination
Fees .......................................... 28
Legal Considerations ............................. 28
Yield, Maturity and Prepayment
Considerations ................................ 30
Limitations on Interest Payments and
Foreclosures .................................. 32
Security Rating .................................. 32
Book-Entry Registration .......................... 33
THE TRUSTS AND TRUST ESTATES ........................ 34
The Mortgage Loans -- General .................... 34
Negative Amortization ............................ 36
Forward Commitments; Prefunding
Accounts; Capitalized Interest
Accounts ...................................... 37
USE OF PROCEEDS ..................................... 39
AAMES CAPITAL ACCEPTANCE
CORP. ............................................ 39
AAMES CAPITAL CORPORATION ........................... 40
General .......................................... 40
Mortgage Loan Delinquency and
Foreclosure Experience ........................ 40
THE ORIGINATORS ..................................... 42
Underwriting Guidelines .......................... 42
Credit Scores .................................... 46
Documentation .................................... 46
Representations by Originators and the
Transferors ................................... 47
DESCRIPTION OF THE SECURITIES ....................... 49
General .......................................... 49
Form of Securities ............................... 50
Distributions and Payments on
Securities .................................... 55
Revolving Period and Amortization
Period; Transferor Interest ................... 58
Reports to Securityholders ....................... 59
CREDIT ENHANCEMENT .................................. 62
Subordination .................................... 62
Overcollateralization Feature .................... 63
Reserve Accounts ................................. 63
Financial Guaranty Insurance Policies ............ 64
Mortgage Pool Insurance Policies ................. 65
Special Hazard Insurance Policies ................ 65
Bankruptcy Bonds ................................. 66
Cross Support .................................... 66
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Other Insurance, Guarantees and Similar
Instruments or Agreements ..................... 67
Maintenance of Credit Enhancement ................ 67
MATURITY, PREPAYMENT AND
YIELD CONSIDERATIONS ............................. 69
THE POOLING AND SERVICING
AGREEMENT ........................................ 72
Assignment of Mortgage Loans ..................... 72
Payments on the Mortgage Loans ................... 75
Investment of Accounts ........................... 76
Permitted Investments ............................ 76
Monthly Advances and Compensating
Interest ...................................... 77
Realization upon Defaulted Mortgage
Loans ......................................... 78
General Servicing Procedures ..................... 79
Sub-Servicers .................................... 79
Servicing and Other Compensation and
Payment of Expenses ........................... 79
Maintenance of Hazard Insurance .................. 80
Enforcement of Due-on-Sale Clauses ............... 81
Voting ........................................... 81
Amendments ....................................... 82
Certificate Events of Default .................... 83
Rights upon Certificate Events
of Default .................................... 83
Termination; Optional Termination ................ 84
Evidence as to Compliance ........................ 84
Indemnification of Officers and Directors
of the Transferors ............................ 85
The Trustee ...................................... 85
THE INDENTURE ....................................... 87
General .......................................... 87
Modification of Indenture ........................ 87
Bond Events of Default ........................... 88
Rights upon Bond Events of Default ............... 88
List of Bondholders .............................. 89
Annual Compliance Statement ...................... 90
Trustee's Annual Report .......................... 90
Satisfaction and Discharge of Indenture .......... 90
Redemption of Bonds .............................. 90
Reports by Trustee to Bondholders ................ 90
Limitation on Suits .............................. 90
CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS AND RELATED
MATTERS .......................................... 91
Nature of the Mortgage Loans ..................... 91
Foreclosure/Repossession ......................... 91
Rights of Redemption ............................. 93
Certain Provisions of California Deeds of
Trust ......................................... 93
Anti-deficiency Legislation and Other
Limitations on Lenders ........................ 94
Enforceability of Due-on-Sale Clauses ............ 95
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Prepayment Charges .............................. 95
Applicability of Usury Laws ..................... 95
Soldiers' and Sailors' Civil Relief Act ......... 96
Environmental Considerations .................... 96
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES .................................... 97
Taxation of Certificates ........................ 97
General ......................................... 97
Taxation of Debt Certificates (Including
Regular Certificates) ........................ 98
Taxation of Certificates as to Which a
REMIC Election Has Been Made ................. 106
Tax Status as a Grantor Trust ................... 113
Tax Characterization of the Trust as a
Partnership; Tax Consequences to
Holders of the Certificates Issued by a
Partnership .................................. 116
Certain Certificates Treated as
Indebtedness ................................. 121
</TABLE>
<TABLE>
<S> <C>
Taxation of Bonds ............................... 123
Miscellaneous Tax Aspects ....................... 123
Tax Treatment of Foreign Investors .............. 124
STATE TAX CONSIDERATIONS ........................... 126
ERISA CONSIDERATIONS ............................... 126
Plan Asset Regulations .......................... 126
Prohibited Transaction Class Exemption .......... 127
LEGAL INVESTMENT
CONSIDERATIONS .................................. 129
SMMEA ........................................... 129
FFIEC Policy Statement .......................... 129
General ......................................... 130
METHOD OF DISTRIBUTION ............................. 130
LEGAL MATTERS ...................................... 131
FINANCIAL INFORMATION .............................. 131
RATING ............................................. 131
INDEX OF PRINCIPAL TERMS ........................... 133
</TABLE>
6
<PAGE>
SUMMARY
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related
Prospectus Supplement. Reference is made to the Index of Principal Terms for
the location in this Prospectus of the definitions of certain capitalized terms
not otherwise defined in this Summary.
SECURITIES OFFERED.......... Up to $1,000,000 aggregate principal amount of
Asset-Backed Certificates (the "Certificates")
and Asset-Backed Bonds (the "Bonds" and, together
with the Certificates, the "Securities"),
issuable in series (each, a "Series").
THE TRANSFERORS............. Aames Capital Corporation, a California
corporation ("ACC"), and a wholly owned
subsidiary of Aames Financial Corporation
("AFC"), Aames Capital Acceptance Corp., a
Delaware corporation ("ACAC") and a wholly owned
limited purpose finance subsidiary of AFC or a
special purpose entity formed in connection with
a Series of Certificates or Bonds (together with
ACC and ACAC, the "Transferors"). The principal
offices of ACAC and ACC are located in Los
Angeles, California. See "Aames Capital
Corporation" and "Aames Capital Acceptance Corp."
herein.
THE SERVICER................ ACC or such other entity identified in the
applicable Pooling and Servicing Agreement, as
Servicer (the "Servicer"). See "The Pooling and
Servicing Agreement -- General Servicing
Procedures" herein.
SUB-SERVICERS............... The Servicer may appoint one or more mortgage
servicing institutions (each, a "Sub-Servicer")
to service and administer the Mortgage Loans in a
Mortgage Pool if so indicated in the related
Prospectus Supplement.
THE TRUSTEE................. The trustee (the "Trustee") for each Series of
Securities will be specified in the related
Prospectus Supplement.
THE SECURITIES.............. Each Series of Certificates will be issued at
the direction of the related Transferor by a
separate trust fund (each, a "Trust"), created
pursuant to an agreement (each, a "Pooling and
Servicing Agreement") among the related
Transferor, the Servicer and the Trustee. Each
Certificate will represent an interest of the
type described in the related Prospectus
Supplement in the assets of the related Trust.
The Certificates of any Series may be issued in
one or more classes (each, a
7
<PAGE>
"Class"), as specified in the related Prospectus
Supplement. A Series of Certificates may include
one or more Classes of senior Certificates
(collectively, the "Senior Certificates") that
receive certain preferential treatment specified
in the related Prospectus Supplement with
respect to one or more Classes of subordinate
Certificates (collectively, the "Subordinated
Certificates"). Holders of Certificates are
referred to herein as "Certificateholders."
Each Series of Bonds will be non-recourse
obligations of either ACAC or a separate entity
(which may be organized as a trust, partnership,
limited liability company or corporation) formed
by ACAC solely for the purpose of issuing the
Bonds of the related Series (either such entity,
as applicable, the "Bond Issuer"). The Bond
Issuer will be identified and described in the
Prospectus Supplement relating to a Series of
Bonds and will not have, nor be expected in the
future to have, any significant assets available
for payments on such Series of Bonds, other than
the assets included in the related Trust Estate.
Each Series of Bonds will be issued pursuant to
an indenture (each, an "Indenture") between the
related Bond Issuer and the related Trustee, and
the assets included in the trust estate (each, a
"Trust Estate") pledged to secure such Series
will be the sole source of payments on the
Bonds. The Bonds of any Series will be issuable
in a single class. Holders of Bonds are referred
to herein as "Bondholders" and, together with
Certificateholders, as "Securityholders."
The assets of each Trust or Trust Estate, as
applicable, will consist primarily of the
Mortgage Loans. Certain Series of Securities may
be covered by a Financial Guaranty Insurance
Policy, a Mortgage Pool Insurance Policy, a
Special Hazard Insurance Policy, a Bankruptcy
Bond or other insurance policies, cash accounts,
letters of credit, limited guaranty insurance
policies, third party guarantees or other forms
of credit enhancement, as described herein and
in the related Prospectus Supplement. See
"Credit Enhancement" herein.
Each Class of Certificates within a Series will
evidence the interests specified in the related
Prospectus Supplement, which may (i) include the
right to receive distri-
8
<PAGE>
butions allocable only to principal, only to
interest or to any combination thereof; (ii)
include the right to receive distributions only
of prepayments of principal throughout the lives
of the Certificates or during specified periods;
(iii) be subordinated in the right to receive
distributions of scheduled payments of
principal, prepayments of principal, interest or
any combination thereof to one or more other
Classes of Certificates of such Series
throughout the lives of the Certificates or
during specified periods or may be subordinated
with respect to certain losses or delinquencies;
(iv) include the right to receive such
distributions only after the occurrence of
events specified in the related Prospectus
Supplement; (v) include the right to receive
distributions in accordance with a schedule or
formula or on the basis of collections from
designated portions of the assets in the related
Trust; (vi) include, as to Certificates entitled
to distributions allocable to interest, the
right to receive interest at a fixed rate or an
adjustable rate; and (vii) include, as to
Certificates entitled to distributions allocable
to interest, the right to distributions
allocable to interest only after the occurrence
of events specified in the related Prospectus
Supplement and, in each case, may accrue
interest until such events occur, as specified
in such Prospectus Supplement. The timing and
amount of such distributions may vary among
Classes as specified in the related Prospectus
Supplement.
Unless otherwise specified in the related
Prospectus Supplement, the Securities will be
issuable in fully registered form, in the
minimum denominations set forth in such
Prospectus Supplement. See "Description of the
Securities" herein.
THE MORTGAGE LOANS.......... The primary assets of each Trust or Trust
Estate, as applicable, will consist of one or
more pools (each, a "Mortgage Pool") of first and
junior lien mortgage loans or deeds of trust (the
"Mortgage Loans"), including any note or other
instrument of indebtedness (each, a "Mortgage
Note").
The Mortgage Pool for a given Series of
Securities will be transferred pursuant to the
related Pooling and Servicing Agreement or
Indenture, as applicable. The Mortgage Loans
will be secured by one- to four-family
residential properties, including townhouses,
condomini-
9
<PAGE>
ums and manufactured housing (which is
permanently affixed to and treated as real
property under local law), but excluding
cooperatives and mobile homes. To the extent
provided in the related Prospectus Supplement,
additional Mortgage Loans may be periodically
added as assets of the related Trust or Trust
Estate, as applicable, or may be removed from
time to time if certain asset tests are met, all
as described in the related Prospectus
Supplement.
The Mortgage Loans will not be insured or
guaranteed by any governmental agency.
The Mortgage Loans to be included in any
Mortgage Pool will be described in the related
Prospectus Supplement. The Mortgage Loans will
have interest payable thereon at (i) fixed rates
specified in the related Prospectus Supplement,
(ii) adjustable rates computed as specified in
the related Prospectus Supplement or (iii)
graduated or other variable rates described in
the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus
Supplement, each Mortgage Loan will require
monthly payment of principal and interest.
Scheduled payments of principal on any Mortgage
Loan may be computed (i) on a level debt service
basis that will result in full amortization over
the stated term of such Mortgage Loan, (ii) in
the case of a Balloon Loan, on the basis of an
assumed amortization schedule that is
significantly longer than the original term of
maturity of such Mortgage Loan and will require
payment of a substantial amount of principal at
the stated maturity specified in the related
Mortgage Note or (iii) on such other basis as is
specified in the related Prospectus Supplement.
If so specified in the Prospectus Supplement
relating to a Series of Certificates, the
Mortgage Pool may be divided into two or more
groups based on certain characteristics of the
related Mortgage Loans (such as type or amount
of Mortgage Rate, remaining term to maturity or
type of Mortgaged Property) and amounts
received, collected or recovered in respect of
any such group will be the primary source from
which distributions on certain Classes of
Certificates will be derived.
10
<PAGE>
The property securing a Mortgage Loan (each, a
"Mortgaged Property") may be located in any one
of the fifty states or the District of Columbia.
Unless otherwise specified in the related
Prospectus Supplement, all of the Mortgage Loans
will be covered by Standard Hazard Insurance
Policies insuring against certain losses due to
fire and other causes.
The Prospectus Supplement for each Series of
Securities will specify with respect to all
Mortgage Loans included in each related Mortgage
Pool, among other things, (i) the aggregate
outstanding principal balance and the average
outstanding principal balance of the Mortgage
Loans in such Mortgage Pool as of the date
specified in the Prospectus Supplement (the
"Cut-off Date"), (ii) the largest principal
balance of any of the Mortgage Loans, (iii) the
types of Mortgaged Properties securing the
Mortgage Loans, (iv) the original terms to
maturity of the Mortgage Loans, (v) the weighted
average term to maturity of the Mortgage Loans
as of the Cut-off Date and the range of the
terms to maturity, (vi) the ranges of the
Combined Loan-to-Value Ratios at origination,
(vii) the weighted average Mortgage Rate and
ranges of Mortgage Rates borne by the Mortgage
Loans and (viii) the geographic distribution of
the Mortgaged Properties on a state-by-state
basis.
REVOLVING PERIOD AND
AMORTIZATION PERIOD;
TRANSFEROR INTEREST........ If the Prospectus Supplement relating to a
Series of Certificates so provides, there may be
a period commencing on the date of issuance of a
Class or Classes of such Certificates and ending
on the date set forth in the related Prospectus
Supplement (the "Revolving Period") during which
no principal payments will be made to one or more
Classes of Certificates of the related Series as
are identified in such Prospectus Supplement. All
collections of principal otherwise allocated to
such Class or Classes of Certificates may be (i)
utilized by the Trust during such period to
acquire additional Mortgage Loans that satisfy
the criteria described in the related Prospectus
Supplement, (ii) held in an account and invested
in Eligible Investments for later distribution to
Certificateholders, (iii) applied to those Class
or Classes of Certificates, if any, of the same
or different
11
<PAGE>
Series as specified in the related Prospectus
Supplement as then are in amortization or (iv)
otherwise applied as specified in the related
Prospectus Supplement.
An "Amortization Period" is the period, if any,
specified as such in the Prospectus Supplement
relating to a Series of Certificates during
which an amount of principal is payable to
holders of one or more Classes of such Series of
Certificates. If so specified in the related
Prospectus Supplement, during an Amortization
Period all or a portion of principal collections
on the Mortgage Loans may be applied as
specified above for a Revolving Period and, to
the extent not so applied, will be distributed
to the Class or Classes of Certificates of the
same or different Series as specified in the
related Prospectus Supplement as then being
entitled to payments of principal. In addition,
if so specified in the related Prospectus
Supplement, amounts deposited in certain
accounts for the benefit of one or more Classes
of Certificates may be released from time to
time or on a specified date and applied as a
payment of principal on such Class or Classes of
Certificates. The related Prospectus Supplement
will set forth the circumstances that will
result in the commencement of an Amortization
Period.
Each Trust that has a Revolving Period may also
issue to the related Transferor a certificate
evidencing an undivided beneficial interest (the
"Transferor Interest") in the Trust not
represented by the other Certificates issued by
such Trust. As further described in the
Prospectus Supplement relating to a Series of
Certificates, the value of such Transferor
Interest will fluctuate as the amount of the
assets of the Trust fluctuates and the
outstanding amount of the Certificates of the
related Series of Certificates is reduced.
FORWARD COMMITMENTS;
PREFUNDING ACCOUNTS AND
CAPITALIZED INTEREST
ACCOUNTS............... If so specified in the related Prospectus
Supplement, the related Pooling and Servicing
Agreement or Indenture, as applicable, may
contain provisions pursuant to which the related
Transferor will agree to transfer additional
Mortgage Loans into the related Mortgage Pool
for a specified period of time (the "Funding
Period") following the date on which the related
Secu-
12
<PAGE>
rities are issued (such provisions being
referred to herein as a "Forward Commitment").
Any Forward Commitment will require that any
Mortgage Loans so transferred conform to the
requirements specified in the related Pooling
and Servicing Agreement or Indenture, as
applicable. If a Forward Commitment is to be
utilized, unless otherwise specified in the
related Prospectus Supplement, a deposit will be
made to a segregated account (each, a
"Prefunding Account") in an amount equal to all
or a portion of the proceeds received by the
related Transferor in connection with the sale
of the Securities of the related Series (such
amount, the "Prefunding Amount"). Subsequently,
the additional Mortgage Loans will be conveyed
by the related Transferor to the related Trust
in exchange for cash from the related Prefunding
Account in one or more transfers. The related
Pooling and Servicing Agreement or Indenture, as
applicable, will require that, if any of the
Prefunding Amount is not applied to acquire
additional Mortgage Loans by the end of the
Funding Period, then any amounts remaining on
deposit in the Prefunding Account will be
released from the Prefunding Account and
distributed or paid, as applicable, in reduction
of the principal balance of the related
Securities as specified in the related
Prospectus Supplement.
If a Prefunding Account is established, a
segregated account (each, a "Capitalized
Interest Account") may also be established for
the related Series. On the closing date for such
Series, all or a portion of the proceeds
received by the related Transferor in connection
with the sale of the Securities of the related
Series may be deposited in the Capitalized
Interest Account and used to fund the excess, if
any, of (x) the sum of (i) the amount of
interest accrued on the Securities of such
Series specified in the related Prospectus
Supplement and, (ii) if specified in the related
Prospectus Supplement, certain fees or expenses
during the Funding Period such as Trustee fees
and credit enhancement fees, over (y) the amount
of interest available therefor from the Mortgage
Loans included in the original Mortgage Pool. If
so specified in the related Prospectus
Supplement, amounts on deposit in the
Capitalized Interest Account may be released to
the related Transferor prior to the end of the
Funding Period subject to
13
<PAGE>
the satisfaction of certain tests specified in
the related Prospectus Supplement. Any amounts
on deposit in the Capitalized Interest Account
at the end of the Funding Period that are not
necessary for such purposes will be distributed
to the person specified in the related
Prospectus Supplement.
CREDIT ENHANCEMENT.......... The Mortgage Loans included in a Trust or Trust
Estate, as applicable, the Securities of the
related Series or, in the case of Certificates,
one or more Classes of Certificates of the
related Series may have the benefit of one or
more types of credit enhancement, as described in
the related Prospectus Supplement. The protection
against losses afforded by any such credit
support will be limited. Such credit enhancement
may include one or more of the following types or
another type of credit enhancement as specified
in the Prospectus Supplement:
A. SUBORDINATED
CERTIFICATES................ In the case of a Series of Certificates, the
rights of the holders of any Subordinated
Certificates of such Series to receive
distributions with respect to the related Trust
will be subordinated to the rights of the holders
of the Senior Certificates of the same Series to
receive distributions to the extent described in
the related Prospectus Supplement. This
subordination is intended to enhance the
likelihood of regular receipt by holders of
Senior Certificates of the full amount of
payments which such holders would be entitled to
receive if there had been no losses; however,
there can be no assurance that the Senior
Certificates will receive the full amount of
payments to which they are entitled as a result
of such subordination or the existence of the
Reserve Accounts described below. The protection
afforded to the holders of Senior Certificates
through subordination may be accomplished by the
preferential right of such Certificateholders to
receive, prior to any distribution being made in
respect of the related Subordinated Certificates,
the amounts of principal and interest due to them
on each Distribution Date out of the funds
available for distribution on such date in the
related Certificate Account to the extent
described in the related Prospectus Supplement.
The protection afforded to the holders of Senior
Certificates through subordination also may be
accomplished by allocating certain types of
losses or delinquencies to the related
14
<PAGE>
Subordinated Certificates to the extent
described in the related Prospectus Supplement.
If so specified in the related Prospectus
Supplement, a Subordinated Class of Certificates
may be senior to other Classes of Certificates
with respect to the right to receive certain
types of payments or with respect to allocation
of certain losses or delinquencies. If so
specified in the related Prospectus Supplement,
subordination may apply only in the event of
certain types of losses not covered by other
forms of credit enhancement, such as hazard
losses not covered by Standard Hazard Insurance
Policies or losses due to the bankruptcy of the
borrower under a Mortgage Loan (the "Mortgagor")
not covered by a Bankruptcy Bond. The related
Prospectus Supplement will set forth information
concerning the amount of subordination of a
Class or Classes of Subordinated Certificates in
a Series, the circumstances in which such
subordination will be applicable and the manner,
if any, in which the amount of subordination
will decrease over time.
B. RESERVE ACCOUNT.......... If so specified in the related Prospectus
Supplement, one or more reserve or spread
accounts (each, a "Reserve Account") may be
established and maintained, in whole or in part,
by the deposit therein of distributions allocable
to the holders of the Securities of the related
Series or, in the case of Certificates, specified
Classes of the Certificates of the related Series
for a specified time or until a specified level
is reached. The related Prospectus Supplement
will set forth information concerning the manner
of funding any Reserve Account and the conditions
under which amounts in any such Reserve Account
will be used to make distributions or payments to
holders of such Securities or released to holders
of Securities, the Servicer, the related
Transferor or another entity, as applicable.
C. FINANCIAL GUARANTY INSURANCE
POLICY.................... If so specified in the related Prospectus
Supplement, a financial guaranty insurance policy
or policies (each, a "Financial Guaranty
Insurance Policy") may be obtained and maintained
for Securities of the related Series or, in the
case of Certificates, specified Classes of the
Certificates of the related Series. A Financial
Guaranty Insurance Policy generally will
unconditionally and irrevocably guarantee that
the full amount of
15
<PAGE>
principal and interest distributable or payable,
as applicable, to Securityholders on any
Distribution Date or Payment Date, as
applicable, as well as any other amounts
specified in the related Prospectus Supplement
(the "Insured Amount"), will be available for
distribution or payment, as applicable, to
Securityholders on such date. The terms of any
such Financial Guaranty Insurance Policy will be
described in the related Prospectus Supplement.
D. MORTGAGE POOL INSURANCE
POLICY.................... If so specified in the related Prospectus
Supplement, a mortgage pool insurance policy or
policies (each, a "Mortgage Pool Insurance
Policy") may be obtained and maintained for all
or certain of the Mortgage Loans in the related
Mortgage Pool, limited in scope, covering losses
on the related Mortgage Loans up to a maximum
amount. The terms of any such Mortgage Pool
Insurance Policy will be described in the related
Prospectus Supplement.
E. SPECIAL HAZARD INSURANCE
POLICY.................... If so specified in the related Prospectus
Supplement, certain physical risks with respect
to the related Mortgaged Properties that would
not otherwise be insured against by Standard
Hazard Insurance Policies may be covered by a
special hazard insurance policy or policies
(each, a "Special Hazard Insurance Policy"). Each
Special Hazard Insurance Policy will be limited
in scope and will cover losses up to a maximum
amount. The terms of any such Special Hazard
Insurance Policy will be described in the related
Prospectus Supplement.
F. BANKRUPTCY BOND.......... If so specified in the related Prospectus
Supplement, a mortgagor bankruptcy bond or bonds
(each, a "Bankruptcy Bond") may be obtained to
cover certain losses resulting from a reduction
by a bankruptcy court of scheduled payments of
principal or interest on a Mortgage Loan or a
reduction by such court of the principal amount
of a Mortgage Loan. The level of coverage and
other terms of each Bankruptcy Bond will be
specified in the related Prospectus Supplement.
G. CROSS SUPPORT............ If so specified in the Prospectus Supplement
relating to a Series of Certificates, the
interests of separate Trusts or separate groups
of assets in a single Trust may be evidenced by
separate Classes of the related Series of
16
<PAGE>
Certificates. In such case, credit support may
be provided by a cross-support feature which
requires that distributions be made with respect
to certain Certificates evidencing interests in
one or more Trusts or asset groups prior to
distributions to other Certificates evidencing
interests in other Trusts or asset groups. If
specified in the related Prospectus Supplement,
the coverage provided by one or more other forms
of credit support, such as Reserve Accounts or
Financial Guaranty Insurance Policies, may apply
concurrently to two or more separate Trusts,
without priority among such Trusts, until the
credit support is exhausted. If applicable, the
Prospectus Supplement will identify the Trusts
or asset groups to which such credit support
relates and the manner of determining the amount
of the coverage provided thereby and of the
application of such coverage to the identified
Trusts or asset groups.
H. OTHER
CREDIT ENHANCEMENT.......... Other credit enhancement arrangements, including,
but not limited to, letters of credit or third
party guarantees, may be used to provide coverage
for certain risks of losses on the Mortgage Loans
in a given Trust or Trust Estate, as applicable.
These arrangements may be in addition to or in
lieu of any forms of credit support described in
this Prospectus. The related Prospectus
Supplement will describe any such arrangements,
including information as to the extent of
coverage and any conditions thereto or
limitations thereon. Any such arrangement must be
acceptable to each nationally recognized
statistical rating agency that is engaged by the
related Transferor to provide a rating for any
Securities of the related Series (each, a "Rating
Agency").
ADVANCES.................... Unless otherwise specified in the related
Prospectus Supplement, the Servicer and, if
applicable, each Sub-Servicer, will be obligated
each month (or at such other intervals specified
in the related Prospectus Supplement) to advance
amounts corresponding to all or a portion of
delinquent interest payments on such Mortgage
Loan until the date on which the related
Mortgaged Property is sold at a foreclosure sale
or the related Mortgage Loan is otherwise
liquidated or charged off. See "The Pooling and
Servicing Agreement -- Monthly Advances and
Compensating Interest" herein.
17
<PAGE>
COMPENSATING INTEREST....... Unless otherwise specified in the related
Prospectus Supplement, with respect to each
Mortgage Loan as to which a prepayment is
received, that becomes a Liquidated Mortgage Loan
or is otherwise charged-off during the Collection
Period related to a Distribution Date or Payment
Date, as applicable, the Servicer will be
required with respect to such date to remit to
the Trustee, from amounts otherwise payable to
the Servicer as servicing compensation, an amount
generally representing the excess of 30 days of
interest on the principal balance of such
Mortgage Loan prior to such prepayment,
liquidation or charge-off over the amount of
interest actually received on the related
Mortgage Loan during the applicable Collection
Period. See "The Pooling and Servicing Agreement
-- Monthly Advances and Compensating Interest"
herein.
OPTIONAL TERMINATION WITH
RESPECT TO CERTIFICATES.... The related Transferor, the Servicer or certain
other entities specified in the Prospectus
Supplement relating to a Series of Certificates
may have the option to effect early retirement of
such Series of Certificates by acquiring the
Mortgage Loans in the Trust, subject to the
aggregate principal balance of the related
Mortgage Loans being less than the percentage
specified in the related Prospectus Supplement of
the aggregate principal balance of the Mortgage
Loans at the Cut-off Date for the related Series.
Typically, the related Transferor, the Servicer
or such other entity will cause the retirement of
a Series of Certificates when servicing of the
then remaining amount of Mortgage Loans becomes
inefficient. See "The Pooling and Servicing
Agreement -- Termination; Optional Termination"
herein.
REDEMPTION OF BONDS......... To the extent provided in the Prospectus
Supplement relating to a Series of Bonds, the
Bonds of any Series may be (i) redeemed at the
option of the related Bond Issuer or another
party specified in the related Prospectus
Supplement; or (ii) subject to special redemption
under certain circumstances. The circumstances
and terms under which the Bonds of a given Series
may be redeemed will be described in the related
Prospectus Supplement.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............... Investors are advised to consult their tax
advisors and to review "Certain Federal Income
Tax Consequences" herein and in the related
Prospectus Supplement.
18
<PAGE>
I. CERTIFICATES
A. REMIC................... If an election is to be made to treat the Trust
for a Series of Certificates as a REMIC for
federal income tax purposes, the related
Prospectus Supplement will specify which Class or
Classes thereof will be designated as regular
interests in the REMIC ("Regular Certificates")
and which Class of Certificates will be
designated as the residual interest in the REMIC
("Residual Certificates"). To the extent provided
herein and in the related Prospectus Supplement,
Certificates representing an interest in the
REMIC will be considered "real estate assets" for
purposes of Section 856(c)(4)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"),
and assets described in Section 7701(a)(19)(C) of
the Code.
For federal income tax purposes, Regular
Certificates generally will be treated as debt
obligations with payment terms equivalent to the
terms of such Certificates. Holders of Regular
Certificates will be required to report income
with respect to such Certificates under an
accrual method, regardless of their normal tax
accounting method. Original issue discount, if
any, on Regular Certificates will be includable
in the income of the Certificateholders thereof
as it accrues, in advance of receipt of the cash
attributable thereto, which rate of accrual will
be determined based on a reasonable assumed
prepayment rate. The Residual Certificates
generally will not be treated as evidences of
indebtedness for federal income tax purposes,
but instead, as representing rights to the
taxable income or net loss of the REMIC.
B. GRANTOR TRUST........... If so specified in the Prospectus Supplement
relating to a Series of Certificates, the Trust
for a Series of Certificates will be classified
as a grantor trust for federal income tax
purposes and not as an association taxable as a
corporation. Holders of Certificates of such
Series will be treated for such purposes, subject
to the possible application of the stripped bond
rules, as owners of undivided interests in the
related Mortgage Loans and generally will be
required to report as income their pro rata share
of the entire gross income (including amounts
paid as reasonable servicing compensation) from
the Mortgage Loans and will be en-
19
<PAGE>
titled, subject to certain limitations, to
deduct their pro rata share of expenses of the
Trust.
To the extent provided herein and in the related
Prospectus Supplement, Certificates of such
Series will represent "real estate assets" for
purposes of Section 856(c)(4)(A) of the Code and
"loans . . . secured by an interest in real
property" within the meaning of Section
7701(a)(19)(C)(v) of the Code.
C. CERTIFICATES TREATED AS
DEBT..................... If so specified in the Prospectus Supplement
relating to a Series of Certificates, a Trust may
issue Certificates that will be characterized as
indebtedness for federal income tax purposes of
the related Transferor secured by the related
Mortgage Loans. Each investor in an interest in
the Certificates of the related Series, by
acceptance of its interest therein, will agree to
treat such Certificates as debt for federal,
state and local income and franchise tax
purposes.
D. OWNER
TRUST CERTIFICATES.......... If so specified in the Prospectus Supplement
relating to a Series of Certificates, the Trust
for a Series of Certificates will be treated as a
partnership for federal income tax purposes (or
as a division of the sole Certificateholder if
there is a single Certificateholder for federal
income tax purposes). Each Certificateholder by
the acceptance of a Certificate of such Series
will agree to treat the related Trust as a
partnership in which such Certificateholder is a
partner for federal income and state tax purposes
if there is more than one Certificateholder for
federal income tax purposes (or, if there is
single Certificateholder, as a division of the
Certificateholder for federal income tax
purposes).
II. BONDS................... For federal income tax purposes, Bonds
generally will be treated as debt obligations of
the related Bond Issuer. Holders of Bonds will
not be required to report income with respect to
such Bonds (other than original issue discount,
if any) under an accrual method, unless the
Bondholders otherwise use the accrual method.
Bonds will not represent "real estate assets" for
purposes of Section 856(c)(4)(A) of the Code and
"loans . . . secured by an interest in real
property" within the meaning of Section
7701(a)(19)(C)(v) of the Code.
20
<PAGE>
ERISA CONSIDERATIONS........ Fiduciaries of employee benefit plans subject
to Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
should consider the ERISA fiduciary standards
before authorizing an investment by a plan in a
Series of Securities. In addition, fiduciaries of
employee benefit plans subject to Title I of
ERISA, as well as certain plans not subject to
ERISA but which are subject to Section 4975 of
the Code, such as individual retirement accounts
and Keogh plans covering only a sole proprietor
or partners (collectively, "Plan(s)"), should
consult with their legal counsel to determine
whether an investment in a Series of Securities
will cause the Mortgage Loans included in the
related Mortgage Pool to be considered plan
assets pursuant to the plan asset regulations set
forth in 29 C.F.R. Section 2510.3-101 (the "Plan
Asset Regulations"), thereby subjecting the Plan
to the prohibited transaction rules with respect
to the Mortgage Loans and the Trustee or the
Servicer to the fiduciary investment standards of
ERISA and the excise tax provisions of Section
4975 of the Code, and to determine whether a
prohibited transaction exemption granted by the
Department of Labor is applicable to the
purchase, sale, transfer or holding of a Series
of Securities. See "ERISA Considerations" herein.
RATING...................... At the date of issuance, the Securities offered
pursuant to the related Prospectus Supplement
will be rated in one of the four highest rating
categories by one or more Rating Agencies. See
"Rating" herein.
LEGAL INVESTMENT............ Unless otherwise indicated in the related
Prospectus Supplement, the Securities of any
Series will not constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
and, if so, will not be legal investments for
certain types of institutional investors under
SMMEA. Institutions whose investment activities
are subject to legal investment laws and
regulations or to review by certain regulatory
authorities may be subject to additional
restrictions on investment in Securities of the
related Series. Any such institution should
consult its own legal advisors in determining
whether and the extent to which a Series of
Securities constitutes legal investments for such
investors. See "Legal Investment Considerations"
herein.
21
<PAGE>
REGISTRATION OF SECURITIES... Unless otherwise specified in the related
Prospectus Supplement, the Securities will be
issued as physical securities ("Definitive
Securities") in fully registered form in the
denominations specified in the related Prospectus
Supplement. The Securities may be represented,
however, by a single certificate or bond, as
applicable, registered in the name of Cede & Co.
("Cede"), as nominee of The Depository Trust
Company ("DTC"), or another nominee if so
specified in the related Prospectus Supplement.
In such case, the beneficial owners thereof will
not be entitled to receive Definitive Securities
representing their respective interests, except
in certain circumstances described in the related
Prospectus Supplement. See "Description of the
Securities -- Form of Securities -- Book-Entry
Registration" herein.
22
<PAGE>
RISK FACTORS
LIMITED LIQUIDITY
Prior to issuance, there will have been no market for the Securities of
any Series. There can be no assurance that a secondary market for the
Securities will develop or, if a secondary market does develop, that it will
provide Securityholders with liquidity of investment or that it will continue
for the lives of the Securities. Unless otherwise indicated in the related
Prospectus Supplement, the Securities will not constitute "mortgage related
securities" under SMMEA, and certain investors may be subject to legal
restrictions that preclude their purchase of any such non-SMMEA Certificates.
In addition, with respect to a given Series of Certificates, certain Classes of
Certificates may be restricted as to transferability to certain entities if so
specified in the related Prospectus Supplement. Any restrictions on the
purchase or transferability of the Securities of a given Series may have a
negative effect on the development of a secondary market in such Securities.
LIMITED ASSETS; LIMITED OBLIGATIONS
Proceeds of the assets of any Trust or Trust Estate, as applicable,
including the Mortgage Loans, any Reserve Account and any Financial Guaranty
Insurance Policy or other form of credit enhancement, will be the sole source
of funds for the required distributions or payments, as applicable, on the
Securities of the related Series and there will be no recourse to the related
Transferor or any other entity in the event that such proceeds are insufficient
or otherwise unavailable to make any such required distributions or payments,
as applicable, on such Securities. The Certificates of any Series will
represent beneficial interests in the related Trust only. The Bonds of any
Series will be non-recourse obligations of the related Bond Issuer, and the
assets of the related Trust Estate will be the sole source of payments on the
Bonds. The Securities will not represent an interest in or obligation of the
Servicer, any Originator, the Trustee, any Sub-Servicer or any other person.
Neither the Securities nor the Mortgage Loans will be insured or guaranteed by
any governmental agency or instrumentality. Except as otherwise specified in
the related Prospectus Supplement, neither the Securities nor the underlying
Mortgage Loans will be guaranteed or insured by the related Transferor, the
Servicer, the related Originators, the Trustee, any Sub-Servicer or any of
their respective affiliates. The only obligations of the foregoing entities
with respect to the Securities or the Mortgage Loans will be the obligations
(if any) of the related Transferor pursuant to certain limited representations
and warranties made with respect to the Mortgage Loans, and the servicing
obligations of the Servicer and any Sub-Servicer under the related Agreement
(including their respective limited obligations to make certain advances in the
event of delinquencies on the Mortgage Loans, but only to the extent deemed
recoverable). Notwithstanding the foregoing, and as specified in the related
Prospectus Supplement, certain types of credit enhancement, such as a Financial
Guaranty Insurance Policy or a letter of credit, may constitute a full recourse
obligation of the provider of such credit enhancement.
NATURE OF THE SECURITY FOR MORTGAGE LOANS
Risks Associated with Any Decline in Value of Mortgaged Properties. An
overall decline in the market value of residential real estate, the general
condition of a Mortgaged Property or other factors, including acts of nature
such as hurricanes, floods, tornadoes or earthquakes, could adversely affect
the values of the Mortgaged Properties such that the
23
<PAGE>
outstanding balances of the Mortgage Loans, together with any other liens on
the Mortgaged Properties, equal or exceed the value of the Mortgaged
Properties. Such a decline could, in certain circumstances, result in the
interest in the Mortgaged Property held by the related Trust or Trust Estate,
as applicable, being extinguished. In addition, certain areas of the country
may from time to time experience significant declines in real estate values.
The related Transferor will not be able to quantify the impact of any such
declines in the value of any Mortgaged Properties or predict whether, to what
extent or how long such declines may continue. Because certain Mortgage Loans
may have been underwritten pursuant to standards that rely primarily on the
value of the related Mortgaged Properties rather than the creditworthiness of
the borrowers under such Mortgage Loans (each, a "Mortgagor"), the actual rates
of delinquencies, foreclosures and losses on such Mortgage Loans, particularly
in periods during which the value of the related Mortgaged Properties has
declined, could be higher than those historically experienced by the mortgage
lending industry in general.
Risks Associated with Junior Liens. Certain of the Mortgage Loans will be
home equity loans secured by junior liens (each, a "Junior Loan") subordinate
to the rights of the mortgagees under the related senior mortgages (each, a
"Senior Lien"). As a result, the proceeds from any liquidation, insurance or
condemnation proceedings will be available to satisfy the principal balance of
a Junior Loan only to the extent that the claims, if any, of each such Senior
Lien are satisfied in full, including any related foreclosure costs. In
addition, a junior mortgagee may not foreclose on the Mortgaged Property
securing the related Junior Loan unless it forecloses subject to the related
Senior Lien, in which case it must either pay the entire amount of each Senior
Lien to the applicable mortgagee at or prior to the foreclosure sale or
undertake the obligation to make payments on each Senior Lien in the event of a
default thereunder. Generally, a servicer will satisfy each such Senior Lien at
or prior to the foreclosure sale only to the extent it determines that any
amounts so paid will be recoverable from future payments and collections on the
Junior Loan or otherwise. No Trust or Trust Estate will have any source of
funds to satisfy any such Senior Lien or make payments due under any Senior
Lien. See "Certain Legal Aspects of the Mortgage Loans and Related Matters --
Foreclosure/Repossession" herein.
Risks Associated with Balloon Loans. Certain of the Mortgage Loans may
constitute "Balloon Loans." Balloon Loans are loans originated with a term to
stated maturity that is shorter than the period on which the corresponding
amortization schedule is based. As a result, upon the maturity of a Balloon
Loan, the Mortgagor will be required to make a "balloon payment" which will be
significantly larger than the previous monthly payments due on such Balloon
Loan. The ability of such Mortgagor to repay a Balloon Loan at maturity
frequently will depend on such Mortgagor's ability to refinance the Mortgage
Loan. The ability of a Mortgagor to refinance such a Mortgage Loan will be
affected by a number of factors, including the prevailing level of mortgage
rates at the time, the value of the related Mortgaged Property, the Mortgagor's
equity in the related Mortgaged Property, the financial condition of the
Mortgagor, the tax laws and general economic conditions at the time.
Although a low interest rate environment may facilitate the refinancing of
a Balloon Loan, the receipt and reinvestment by Securityholders of the proceeds
in such an environment may produce a lower return than that previously received
in respect of the related Mortgage Loan. Conversely, a high interest rate
environment may make it more
24
<PAGE>
difficult for the Mortgagor to accomplish a refinancing and may result in
delinquencies or defaults. None of the related Transferor, the Servicer, the
Originators, the Trustee or any other entity will be obligated to provide funds
to refinance any Balloon Loan.
Risks Associated with Bankruptcy of the Mortgagor. General economic
conditions and other factors (which may not affect real property values) have
an impact on the ability of Mortgagors to repay Mortgage Loans. Loss of
earnings, illness, divorce and other similar factors may lead to an increase in
delinquencies, defaults and bankruptcy filings by Mortgagors. In the event of
personal bankruptcy of a Mortgagor, a bankruptcy court may suspend or reduce
the payments of principal and interest to be paid with respect to the related
Mortgage Loan or permanently reduce the principal balance of such Mortgage
Loan, thus either delaying or permanently limiting the amount ultimately
received by the related Trust or Trust Estate in respect of such Mortgage Loan.
Moreover, if a bankruptcy court were to prevent the Trustee for the related
Trust or Trust Estate, as applicable, or the related Servicer from causing a
transfer of the related Mortgaged Property in connection with a foreclosure or
similar proceeding, any remaining balance on the related Mortgage Loan may not
be recoverable and the related Trust or Trust Estate may experience a loss to
the extent of any such remaining balance.
Risks Associated with Defaulted Mortgage Loans. Even assuming that the
Mortgaged Properties provide adequate security for the Mortgage Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Mortgage Loans and corresponding delays in the distribution or
payment of related proceeds to the related Securityholders could occur. An
action to foreclose on a Mortgaged Property securing a Mortgage Loan is
regulated by state statutes and rules and is subject to many of the same delays
and expenses as other lawsuits if defenses or counterclaims are interposed,
sometimes requiring several years to complete. Furthermore, in some states an
action to obtain a deficiency judgment is not permitted following a nonjudicial
sale of a Mortgaged Property. In the event of a default by a Mortgagor, these
restrictions, among other things, may impede the ability of the Servicer or any
Sub-Servicer to foreclose on or sell the Mortgaged Property or to obtain
Liquidation Proceeds (net of expenses) sufficient to repay all amounts due on
the related Mortgage Loan. The Servicer or any Sub-Servicer will be entitled to
deduct from Liquidation Proceeds all expenses reasonably incurred in attempting
to recover amounts due on the related Liquidated Mortgage Loan and not yet
repaid, including unreimbursed Monthly Advances and Servicing Advances,
payments to prior lienholders, legal fees and costs of legal action, real
estate taxes, and maintenance and preservation expenses. In the event that any
of the Mortgaged Properties fail to provide adequate security for the related
Mortgage Loans, and the credit enhancement for the related Series is not
available to cover resulting shortfalls, Securityholders could experience a
loss on their investment.
Liquidation expenses with respect to defaulted Mortgage Loans do not vary
directly with the outstanding principal balance of the Mortgage Loans at the
time of default. Therefore, assuming that the Servicer or any Sub-Servicer took
the same steps in realizing upon a defaulted Mortgage Loan having a small
remaining principal balance as it would in the case of a defaulted Mortgage
Loan having a larger principal balance, the amount realized after expenses of
liquidation would be smaller as a percentage of the outstanding principal
balance of the smaller Mortgage Loan than would be the case with a larger
Mortgage Loan. Because the average outstanding principal balances of Mortgage
Loans that are Junior Loans generally are smaller relative to the average
outstanding principal
25
<PAGE>
balances of Mortgage Loans that are first mortgage loans, realizations net of
liquidation expenses on defaulted Mortgage Loans that are Junior Loans may also
be smaller as a percentage of the principal amount of such Mortgage Loans than
would be the case if such mortgage loans were secured by first mortgages.
Risks Associated with Acquiring Additional Mortgage Loans. If a Pooling
and Servicing Agreement or Indenture provides for a Prefunding Account and the
principal balance of additional Mortgage Loans delivered by the related
Transferor during the related Funding Period is less than the Prefunding
Amount, the holders of the Securities of the related Series may receive a
prepayment of principal as and to the extent described in the related
Prospectus Supplement. In addition, if so specified in the Prospectus
Supplement relating to a Series of Certificates, an Amortization Period may
result from the failure of the related Transferor to assign additional Mortgage
Loans to the related Trust during the Revolving Period, thereby resulting in a
prepayment of the related Certificates. Any such principal prepayment may
adversely affect the yield to maturity of the related Securities. Because
prevailing interest rates are subject to fluctuation, there can be no assurance
that investors will be able to reinvest such a prepayment at yields equaling or
exceeding the yields on the related Securities. It is possible that the yield
on any such reinvestment will be lower, and may be significantly lower, than
the yield on the related Securities.
Each additional Mortgage Loan must satisfy the eligibility criteria
specified in the related Prospectus Supplement and related Pooling and
Servicing Agreement or Indenture, as applicable. Such eligibility criteria will
be determined in consultation with each Rating Agency (and/or any credit
enhancement provider for the related Series) prior to the issuance of such
Series and are designed to ensure that if such additional Mortgage Loans were
included as part of the initial Mortgage Loans, the credit quality thereof
would be consistent with the initial rating of the Securities of such Series.
At the time additional Mortgage Loans are transferred for inclusion in the
related Mortgage Pool, the related Transferor will certify that all conditions
precedent to the transfer of such additional Mortgage Loans, including the
satisfaction of specific eligibility criteria, have been satisfied. It is a
condition to the transfer of any additional Mortgage Loans by the related
Transferor for inclusion in the related Mortgage Pool that each Rating Agency,
after receiving prior notice of any such proposed transfer, shall not have
advised the related Transferor or the Trustee or any credit enhancement
provider for the related Series that the conveyance of such additional Mortgage
Loans will result in a qualification, modification or withdrawal of its then
current rating of the Securities of such Series. Following the transfer of
additional Mortgage Loans for inclusion in the related Mortgage Pool, the
aggregate characteristics of the Mortgage Loans then held in the related Trust
or Trust Estate, as applicable, may vary from those included in the original
Mortgage Pool. As a result, the additional Mortgage Loans may adversely affect
the performance of the related Securities. See "The Trusts and Trust Estates --
Forward Commitments; Prefunding Accounts; Capitalized Interest Accounts"
herein.
The ability of any Trust or Trust Estate, as applicable, to invest in
additional Mortgage Loans during the related Funding Period and, in the case of
a Series of Certificates, any Revolving Period, will be dependent upon the
ability of the related Transferor to acquire Mortgage Loans that satisfy the
prerequisites to transfer for inclusion in the related Mortgage Pool specified
in the related Prospectus Supplement. The ability of the related Transferor to
acquire such Mortgage Loans will be affected by a variety of social and
economic factors, including the prevailing level of market interest rates,
unemployment levels and consumer perceptions of general economic conditions.
26
<PAGE>
Risks Associated with Non-Owner Occupied Properties. Certain of the
Mortgaged Properties relating to Mortgage Loans may not be owner occupied. It
is possible that the rates of delinquencies, foreclosures and losses on
Mortgage Loans secured by non-owner occupied properties could be higher than
such rates on Mortgage Loans secured by the primary residence of the borrower.
RISKS ASSOCIATED WITH PREPAYMENT OF THE MORTGAGE LOANS
All of the Mortgage Loans may be prepaid in full or in part at any time,
generally upon the payment to the Servicer of a prepayment charge. The rate of
prepayments of the Mortgage Loans cannot be predicted and may be affected by a
wide variety of economic, social and other factors, including state and federal
income tax policies, interest rates, the availability of alternative financing
and homeowner mobility. Therefore, no assurance can be given as to the level of
prepayments that the Trust or the Trust Estate will experience. A number of
factors suggest that the prepayment behavior of the Mortgage Pool may be
significantly different from that of a pool of conventional first lien
residential mortgage loans with equivalent interest rates and maturities. One
such factor is that the principal balance of the average Mortgage Loan is
smaller than that of the average conventional first lien mortgage loan. A
smaller principal balance may be easier for a borrower to prepay than a larger
balance and, therefore, a higher prepayment rate may result for the Mortgage
Pool than for a pool of conventional first lien mortgage loans, irrespective of
the relative average interest rates and the general interest rate environment.
In addition, in order to refinance a first lien mortgage loan, the borrower
must generally repay any junior mortgage loans. However, a small principal
balance may make refinancing a Mortgage Loan at a lower interest rate less
attractive to the borrower as the perceived impact to the borrower of lower
interest rates on the size of the monthly payment may not be significant. Other
factors that might be expected to affect the prepayment rate of the Mortgage
Pool include general economic conditions, possible future changes affecting the
deductibility for federal income tax purposes of interest payments on mortgage
loans, the amounts of and interest rates on the underlying senior mortgage
loans and the tendency of borrowers to use first lien mortgage loans as
long-term financing for home purchase and junior mortgage loans as shorter-term
financing for a variety of purposes, including home improvement, education
expenses, debt consolidation and purchases of consumer durables such as
automobiles. Accordingly, the Mortgage Loans may experience higher rates of
prepayment than traditional first lien mortgage loans. See "Maturity,
Prepayment and Yield Considerations".
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancing of any related senior
mortgage loans), sales of Mortgaged Properties subject to "due-on-sale" clauses
as to which the Servicer exercises its rights thereunder and liquidations due
to default, as well as the receipt of proceeds from hazard, credit life and
disability insurance policies. In addition, repurchases or purchases of
Mortgage Loans in a Mortgage Loan Group required or permitted to be made by the
Sponsor, the Servicer and, under certain limited circumstances, as applicable,
the Certificate Insurer under the related Pooling and Servicing Agreement or
Servicing Agreement will have the same effect on Securityholders as a
prepayment of the related Mortgage Loans. Prepayments and such repurchases and
purchases will accelerate the receipt of distributions of monthly principal on
the Certificates or the Bonds, as applicable. See "The Pooling and Servicing
Agreement -- Assignment of Mortgage Loans" and "-- Termination; Optional
Termination" and "Certain Legal Aspects of the Mortgage Loans and Related
Matters --
27
<PAGE>
Enforceability of Due-on-Sale Clauses" herein. The Servicer's practice of
soliciting refinancings from existing borrowers under loans originated by
Affiliated Originators may have the effect of increasing the rate of
prepayment, due to refinancings, on the Mortgage Loans. See "Origination and
Servicing of the Mortgage Loans -- Servicing of the Mortgage Loans" herein.
ENVIRONMENTAL STATUTES AFFECTING SECURITY INTERESTS
A substantial portion of the Mortgage Loans are secured by Mortgaged
Properties located in states that may impose a statutory lien for associated
costs on property that is the subject of a clean-up action by the state on
account of hazardous wastes or hazardous substances released or disposed of on
the property. Such a lien generally will have priority over all subsequent
liens on the property, although in some states, including California, it will
not have priority over prior recorded liens, including the lien of a mortgage.
In addition, under federal environmental statutes and under the laws of many
states, including California, a secured party that takes a deed in lieu of
foreclosure, acquires a mortgaged property at a foreclosure sale or, prior to
foreclosure, has been involved in decisions or actions that may lead to
contamination of a property, may be liable for the costs of cleaning up a
contaminated site. These costs, which could be substantial, could be a
liability of the Trust or the Trust Estate, as applicable, and any such
liability may ultimately be borne by the Securityholders of the related Series
of Securities. This potential exposure will be minimized to some extent because
under the terms of the related Pooling and Servicing Agreement, Indenture or
Servicing Agreement, as applicable, the related Trustee and Servicer will not
be authorized to take any action that may be deemed participation in the
management of a contaminated Mortgaged Property. See "Certain Legal Aspects of
the Mortgage Loans and Related Matters -- Environmental Considerations" herein.
Any such liens or costs imposed in connection with a clean-up action by the
state may impede the ability of the Servicer to foreclose on or sell the
related Mortgaged Property or to obtain Net Liquidation Proceeds sufficient to
repay all amounts due on the related Mortgage Loan. Any resulting losses will
be covered by funds made available through operation of the
overcollateralization or cross-collateralization features described herein.
RISKS ASSOCIATED WITH CERTAIN ORIGINATION FEES
Fees earned on the origination of loans, placement of related insurance
and other services provided by the Sponsor and Affiliated Originators are often
paid by the borrower out of related loan proceeds. From time to time, in the
ordinary course of their businesses, originators of home equity loans have been
named in legal actions brought by mortgagors challenging the amount or method
of imposing or disclosing such fees. To date, no such action has been decided
against the Sponsor or any Affiliated Originator. If such an action against any
Originator with respect to any Mortgage Loan were successful, a court might
require that the principal balances of the related Mortgage Loans be reduced by
the amount of contested fees or charges. Any such reductions could result in
substantial Realized Losses during one or more Collection Periods, potentially
requiring accelerated distributions in reduction of the Principal Balances of
Bonds or Certificates.
LEGAL CONSIDERATIONS
State and Federal Regulations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures and require
licensing of the Originators, the
28
<PAGE>
Servicer and any Sub-Servicer. In addition, most states have other laws, public
policies and general principles of equity relating to the protection of
consumers, unfair and deceptive practices and practices which may apply to the
origination, servicing and collection of the Mortgage Loans. In California, for
example, a mortgage lender is subject to the California Fair Debt Collection
Practices Act which regulates practices used to effect collection on consumer
loans. See "Certain Legal Aspects of the Mortgage Loans and Related Matters"
herein.
The Mortgage Loans may also be subject to federal laws, including: (i) the
Truth in Lending Act and Regulation Z promulgated thereunder, which require
certain disclosures to the borrowers regarding the terms of the Mortgage Loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated thereunder,
which prohibit discrimination on the basis of age, race, color, sex, religion,
marital status, national origin, receipt of public assistance or the exercise
of any right under the Consumer Credit Protection Act, in the extension of
credit; (iii) the Real Estate Settlement Procedures Act and Regulation X
promulgated thereunder, which require certain disclosures to borrowers
regarding the settlement and servicing of the Mortgage Loans; (iv) the Fair
Credit Reporting Act, which regulates the use and reporting of information
related to the borrower's credit experience; and (v) the Federal Trade
Commission Preservation of Consumer's Claims and Defenses Rule, 16 C.F.R. Part
433, regarding the preservation of a consumer's rights.
The federal Soldiers' and Sailors' Civil Relief Act of 1940, as amended
(the "Relief Act"), may affect the ability of the Servicer to collect full
amounts of interest on certain Mortgage Loans and could interfere with the
ability of the Servicer to foreclose on certain properties. See "Certain Legal
Aspects of the Mortgage Loans and Related Matters -- Soldiers' and Sailors'
Civil Relief Act" herein.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act") which incorporates the Home Ownership and Equity Protection Act
of 1994. The Riegle Act amended the Truth in Lending Act, which in turn led to
certain additional provisions being added to Regulation Z, the implementing
regulation of the Truth in Lending Act. These provisions impose additional
disclosure and other requirements on creditors with respect to non-purchase
money mortgage loans with high interest rates or high up-front fees and
charges. In general, mortgage loans within the purview of the Riegle Act have
annual percentage rates over 10% greater than the yield on Treasury Securities
of comparable maturity and/or fees and points which exceed the greater of 8% of
the total loan amount or $400. The provisions of the Riegle Act apply on a
mandatory basis to all mortgage loans originated on or after October 1, 1995.
The provisions can impose specific statutory liabilities upon creditors who
fail to comply with their provisions and may affect the enforceability of the
related loans. In addition, any assignee of the creditor would generally be
subject to all claims and defenses that the consumer could assert against the
creditor, including, without limitation, the right to rescind the mortgage
loan.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these laws, policies and principles
may limit the ability of the Servicer, or any Sub-Servicer, to collect all or
part of the principal of or interest on the Mortgage Loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could subject
the Servicer, or any Sub-Servicer, to damages and administrative sanctions. If
the Servicer, or any Sub-Servicer, is unable to collect all or part of the
principal
29
<PAGE>
or interest on any Mortgage Loans because of a violation of the aforementioned
laws, public policies or general principles of equity, distributions or
payments to Securityholders of realized proceeds of the assets in the related
Trust or Trust Estate, as applicable, may be delayed, or such proceeds may not
be sufficient to repay all amounts owed to Securityholders. Furthermore,
depending upon whether damages and sanctions are assessed against the Servicer
or an Originator, such violations may have a material impact upon the financial
ability of the Servicer to continue to act in such capacity or the ability of a
Transferor to withdraw or replace Mortgage Loans if such violation breaches a
representation or warranty contained in the related Pooling and Servicing
Agreement or Indenture, as applicable.
YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Securities of any Series will be affected by
the amount and timing of principal payments on the related Mortgage Loans, the
manner of allocation of available funds and/or losses to such Securities, the
interest rates or amounts of interest payable on such Securities and the
purchase price paid for such Securities. In the case of a Series of
Certificates issued in Classes, the interaction of the foregoing factors may
have different effects on, and create different risks for, such Classes, and
the effects and/or risks for any one Class may vary over the life of such
Class. The related Prospectus Supplement may include additional prepayment
considerations with respect to the Securities of the related Series. Investors
should carefully consider the different consequences of such risks as may be
described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans may be prepaid in full or in part at any time; however, a
prepayment penalty or premium may still be imposed in connection therewith. The
rate of prepayments of the Mortgage Loans cannot be predicted and may be
affected by a wide variety of economic, social and other factors, including
prevailing interest rates, the availability of alternative financing and
homeowner mobility. Therefore, no assurance can be given as to the level of
prepayments that may be experienced on Mortgage Loans included in any Mortgage
Pool.
Although published statistical data regarding the effects of interest
rates on prepayment rates for Mortgage Loans of the type typically made or
acquired by the Originators is limited, a number of factors suggest that the
prepayment behavior of a pool including Mortgage Loans may be significantly
different from that of a pool composed entirely of conforming, non-conforming,
"jumbo" or government-insured (i.e., "traditional") first mortgage loans with
equivalent interest rates and maturities. One such factor is the smaller
average principal balance of Mortgage Loans that may result in a higher
prepayment rate than that of a traditional first mortgage loan with a larger
average balance, regardless of the interest rate environment. A small principal
balance, however, also may make refinancing Mortgage Loans at a lower interest
rate less attractive to the borrower relative to refinancing a larger balance
first mortgage loan, as the perceived impact to the borrower of lower interest
rates on the amount of the monthly payment for a Mortgage Loan may be less than
for a traditional first mortgage loan with a larger balance. Other factors that
might be expected to affect the prepayment rate of a pool of Mortgage Loans
include the amounts of, and interest rates on, the underlying Senior Liens, if
any, and the use of first mortgage loans as long-term financing for home
purchase and home equity loans as shorter-term financing for a variety of
purposes, including home improvement, education expenses and purchases of
consumer durables such as automobiles. Accordingly, Mortgage Loans may
experience a
30
<PAGE>
higher rate of prepayments than traditional first mortgage loans. In addition,
any future limitations on the deductibility of interest payments on the
Mortgage Loans for federal income tax purposes may further increase the rate of
prepayments on the Mortgage Loans.
In addition, certain of the Mortgage Loans comprising the Mortgage Pool
may have adjustable Mortgage Interest Rates ("ARM Loans"). As is the case with
conventional fixed-rate mortgage loans, ARM Loans may be subject to a greater
rate of principal prepayments in a declining interest rate environment. For
example, if prevailing interest rates fall appreciably, ARM Loans could be
subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed-rate mortgage loans at competitive
interest rates may encourage mortgagors to refinance their ARM Loans to "lock
in" a lower fixed interest rate. Conversely, if prevailing interest rates rise
appreciably, ARM Loans may prepay at lower rates than if prevailing interest
rates remain at or below those in effect at the time such ARM Loans were
originated. There can be no certainty as to the rate of prepayments on the ARM
Loans in stable or changing interest rate environments. See "Maturity,
Prepayment and Yield Considerations" herein.
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancings of any related Senior
Liens), sales of Mortgaged Properties subject to due-on-sale provisions and
liquidations due to default, as well as the receipt of proceeds from physical
damage, credit life and disability insurance policies. In addition, withdrawals
or reacquisitions of Mortgage Loans from a Trust or Trust Estate, as
applicable, required to be made under the related Pooling and Servicing
Agreement or Indenture will have the same effect on the Securityholders as a
prepayment of such Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, all of the Mortgage Loans contain due-on-sale
provisions, and the Servicer will be required to enforce such provisions unless
(i) such enforcement would materially increase the risk of default or
delinquency on, or materially decrease the security for, such Mortgage Loan or
(ii) such enforcement is not permitted by applicable law, in which case the
Servicer is authorized to permit the purchaser of the related Mortgaged
Property to assume the Mortgage Loan. Additionally, should any Originator
solicit refinancings from existing borrowers, the rate of prepayments on the
Mortgage Loans may increase due to any resulting refinancings.
Prepayments on the Mortgage Loans for a Series generally will result in a
faster rate of distributions or payments, as applicable, of principal on the
Securities. Thus, the prepayment experience of the Mortgage Loans will affect
the average life and yield to investors and the extent to which the Securities
of any Series are paid prior to the final scheduled Distribution Date or
Payment Date, as applicable, therefor. A Series of Certificates may include
Classes which pay "interest only" or are entitled to receive a
disproportionately high level of interest distributions compared to the amount
of principal to which such Classes are entitled (each, an "Interest Weighted
Class") or Classes which pay "principal only" or are entitled to receive a
disproportionately high level of principal distributions compared to the amount
of interest to which such Classes are entitled (each, a "Principal Weighted
Class"). A Series of Certificates may include an Interest Weighted Class
offered at a significant premium or a Principal Weighted Class offered at a
substantial discount. Yields on such Classes will be extremely sensitive to
prepayments on the Mortgage Loans for such Series. In general if the Securities
of any Series, including Certificates that represent an Interest Weighted
Class, are purchased at a premium and principal payments on the Mortgage Loans
occur at a rate faster than anticipated at the time of purchase, the investor's
actual yield to maturity could be significantly lower than that assumed at the
time of purchase. Where the
31
<PAGE>
amount of interest allocated with respect to an Interest Weighted Class of
Certificates is extremely disproportionate to principal, the related
Certificateholder could, under some such prepayment scenarios, fail to recoup
its original investment. Conversely, if the Securities of any Series, including
Certificates that represent a Principal Weighted Class, are purchased at a
discount and principal payments on the Mortgage Loans occur at a rate slower
than assumed at the time of purchase, the investor's actual yield to maturity
could be significantly lower than that originally anticipated. See "Maturity,
Prepayment and Yield Considerations" herein.
Any rating assigned to the Securities by a Rating Agency will reflect only
such Rating Agency's assessment of the likelihood that timely distributions or
payments, as applicable, will be made with respect to such Securities in
accordance with the related Pooling and Servicing Agreement or Indenture, as
applicable. Such rating will not constitute an assessment of the likelihood
that principal prepayments on the Mortgage Loans will be made by Mortgagors or
of the degree to which the rate of such prepayments might differ from that
originally anticipated. As a result, such rating will not address the
possibility that prepayment rates higher or lower than anticipated by an
investor may cause such investor to experience a lower than anticipated yield,
or that an investor purchasing an Interest Weighted Class of Certificates at a
significant premium might fail to recoup its initial investment.
Collections on the Mortgage Loans may vary due to the level of incidence
of delinquent payments and of prepayments. Collections on the Mortgage Loans
may also vary due to seasonal purchasing and payment habits of Mortgagors.
LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES
Generally, under the terms of the Relief Act or similar state legislation,
a mortgagor who enters military service after the origination of the related
mortgage loan (including a mortgagor who is a member of the National Guard or
is in reserve status at the time of the origination of the mortgage loan and is
later called to active duty) may not be charged interest (including fees and
charges) above an annual rate of 6% during the period of such mortgagor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could affect, for an indeterminate
period of time, the ability of the Servicer to collect full amounts of interest
on certain of the Mortgage Loans. In addition, the Relief Act imposes
limitations which would impair the ability of the Servicer to foreclose on an
affected Mortgage Loan during the Mortgagor's period of active duty status.
Thus, in the event that such a Mortgage Loan goes into default, there may be
delays and losses occasioned by the inability to realize upon the Mortgaged
Property in a timely fashion.
SECURITY RATING
Depending on the structure of the related transaction, the ratings
assigned to the Securities of a given Series the credit of which is enhanced
through external means, such as a letter of credit, Financial Guaranty
Insurance Policy, Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy or Bankruptcy Bond, may depend primarily on the creditworthiness of the
provider of such external credit enhancement device. Any reduction or
withdrawal of the rating assigned to the claims-paying ability of the credit
enhancement provider below the rating initially given to such Securities would
likely result in a reduction in the rating of such Securities and, in such
event, the market price of such Securities could be adversely affected. See
"Rating" herein.
32
<PAGE>
BOOK-ENTRY REGISTRATION
Effect on Liquidity. If so specified in the related Prospectus Supplement,
the Securities may initially be registered in book-entry form. Issuance of the
Securities in book-entry form may reduce the liquidity of such Securities in
the secondary market because investors may be unwilling to purchase Securities
for which they cannot obtain physical certificates.
Difficulty in Pledging. Because transactions in Securities, in most cases,
will be able to be effected only through Participants, Indirect Participants
and certain banks, the ability of a Securityholder to pledge Securities to
persons or entities that do not participate in the DTC system, or otherwise to
take actions in respect of such Securities, may be impaired because physical
certificates representing the Securities will not generally be available.
Potential Delays in Receipt of Distributions or Payments. Securityholders
may experience some delay in their receipt of distributions or payments, as
applicable, of interest on and principal of the Securities because
distributions may be required to be forwarded by the related Trustee to DTC
and, in such a case, DTC will be required to credit such distributions or
payments, as applicable, to the accounts of its Participants which thereafter
will be required to credit them to the accounts of the applicable
Securityholders either directly or indirectly through Indirect Participants.
See "Description of the Securities -- Form of Securities -- Book-Entry
Registration" herein.
33
<PAGE>
THE TRUSTS AND TRUST ESTATES
The Trust or Trust Estate, as applicable, for any Series of Securities
will include a Mortgage Pool that may consist of Mortgage Loans together with
payments in respect thereof and certain other accounts, obligations or
agreements, in each case as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the sole
source of distributions or payments, as applicable, in respect of the
Securities will be the assets included in the related Trust or Trust Estate, as
applicable. The Securities will not be entitled to payments in respect of any
other assets included in any other Trust or Trust Estate established by the
related Transferor or any of its affiliates.
The following is a brief description of the Mortgage Loans expected to be
included in the Trust or Trust Estate, as applicable, relating to a given
Series of Securities. The related Prospectus Supplement will set forth detailed
information respecting the Mortgage Loans proposed to be included in the
related Mortgage Pool. Information regarding the actual composition of the
Mortgage Loans in the related Mortgage Pool will be set forth in a report on
Form 8-K to be filed with the Commission within 15 days after the earlier of
the completion of such Mortgage Pool and the end of the Prefunding Period (the
"Detailed Description"). A schedule of the Mortgage Loans relating to such
Series will be attached to the related Pooling and Servicing Agreement or
Indenture, as applicable, delivered in connection with the issuance of the
Securities.
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Pool may be divided into two or more groups based on
certain characteristics of the related Mortgage Loans (such as type or amount
of Mortgage Rate, remaining term to maturity or type of Mortgaged Property) and
amounts received, collected or recovered in respect of any such group will be
the primary source from which distributions on certain Classes of Certificates
will be derived.
THE MORTGAGE LOANS -- GENERAL
The real properties (including condominiums and townhouses) which secure
repayment of the Mortgage Loans (the "Mortgaged Properties") may be located in
any one of the fifty states or the District of Columbia. Unless otherwise
specified in the related Prospectus Supplement, all of the Mortgage Loans will
be covered by standard hazard insurance policies ("Standard Hazard Insurance
Policies"). The existence and extent of any such coverage will be described in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Loans will not be insured or guaranteed by
any governmental agency or covered wholly or partially by primary mortgage
insurance policies.
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans in a Mortgage Pool will provide for payments to be made
monthly on due dates occurring throughout the month.
The Mortgage Loans to be included in any Mortgage Pool will be described
in the related Prospectus Supplement. The Mortgage Loans will have interest
payable thereon at (i) fixed rates specified in the related Prospectus
Supplement, (ii) adjustable rates computed as specified in the related
Prospectus Supplement or (iii) graduated or other variable rates described in
the related Prospectus Supplement. Unless otherwise specified in the related
34
<PAGE>
Prospectus Supplement, each Mortgage Loan will require monthly payment of
principal and interest. Scheduled payments of principal on any Mortgage Loan
may be computed (i) on a level debt service basis that will result in full
amortization over the stated term of such Mortgage Loan, (ii) in the case of a
Balloon Loan, on the basis of an assumed amortization schedule that is
significantly longer than the original term to maturity of such Mortgage Loan
and will require payment of a substantial amount of principal at the stated
maturity specified in the related Mortgage Note or (iii) on such other basis as
is specified in the related Prospectus Supplement.
Certain of the Mortgage Loans may have been originated pursuant to
underwriting standards that rely primarily on the value and adequacy of the
Mortgaged Property as collateral and, to a much lesser extent, on the
creditworthiness of the related Mortgagor. Accordingly, the rates of
delinquencies, foreclosures and losses on such Mortgage Loans, particularly in
periods during which the value of the related Mortgaged Properties has
declined, may be higher than those historically experienced by the mortgage
lending industry in general. See "The Originators -- Underwriting Guidelines"
herein.
Prepayments of principal may be subject to a prepayment fee, which may be
fixed for the life of the Mortgage Loan or may decline over time, and may be
prohibited for the life of the Mortgage Loan or for certain periods ("lockout
periods"). Certain Mortgage Loans may permit prepayments after expiration of
the applicable lockout period and may require the payment of a prepayment fee
in connection with any such subsequent prepayment. Other Mortgage Loans may
permit prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The Mortgage Loans may include due-on-sale clauses
which permit the mortgagee to demand payment of the entire Mortgage Loan in
connection with the sale or certain transfers of the related Mortgaged
Property. Other Mortgage Loans may be assumable by persons meeting the then
applicable underwriting standards of the applicable Originator.
The Prospectus Supplement for each Series of Securities will contain
information, as of the date of such Prospectus Supplement and to the extent
then specifically known to the related Transferor, with respect to the Mortgage
Loans contained in the related Mortgage Pool, including (i) the aggregate
outstanding principal balance and the average outstanding principal balance of
the Mortgage Loans as of the applicable Cut-off Date, (ii) the largest
principal balance and the smallest principal balance of any of the Mortgage
Loans, (iii) the types of Mortgaged Properties securing the Mortgage Loans,
(iv) the original terms to maturity of the Mortgage Loans, (v) the weighted
average term to maturity of the Mortgage Loans as of the related Cut-off Date
and the range of the terms to maturity, (vi) the ranges of Combined
Loan-to-Value Ratios at origination, (vii) the weighted average Mortgage Rate
and ranges of Mortgage Rates borne by the Mortgage Loans and (viii) the
geographical distribution of the Mortgaged Properties on a state-by-state
basis. If specific information respecting the Mortgaged Loans is not known to
the related Transferor at the time the related Securities 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 the Detailed Description.
The "Combined Loan-to-Value Ratio" of a Mortgage Loan at any given time is
the ratio, expressed as a percentage, determined by dividing (x) the sum of the
original principal balance of such Mortgage Loan, plus the current principal
balance of any Senior Lien on the related Mortgaged Property, by (y) the
Appraised Value of such Mortgaged Property.
35
<PAGE>
"Appraised Value" is the appraised value of a Mortgaged Property based upon the
lesser of (i) the appraisal or valuation made either at the time of the
origination of the related Mortgaged Loan or, in certain cases with respect to
Mortgage Loans acquired directly or indirectly by the related Transferor from
an Unaffiliated Originator, at or immediately prior to the date of acquisition
of the related Mortgage Loan, and (ii) in the case where there is no Senior
Lien to the Mortgage Loan and such Mortgage represents a purchase money
instrument, the sales price of the related Mortgaged Property at the time of
the origination of the related Mortgage Loan.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
balances of the Mortgage Loans (plus any additional financing by other lenders
secured by the same Mortgaged Properties) in a particular Mortgage Pool become
equal to or greater than the value of such Mortgaged Properties or if the
general condition of a Mortgaged Property declines, the actual rates of
delinquencies, foreclosures and losses on the related Mortgage Loans could be
higher than those now generally experienced in the mortgage lending industry.
Any overall decline in the market value of residential real estate, the general
condition of the Mortgaged Properties or other factors could adversely affect
the values of the Mortgaged Properties such that the outstanding principal
balance of such Mortgage Loans, together with any additional liens on the
Mortgaged Properties, equal or exceed the value of such Mortgaged Properties
and give rise to the consequences discussed in the preceding sentence.
Each Series of Bonds will be secured by the assets included in the related
Trust Estate that will have been pledged to the related Trustee by the related
Bond Issuer, and each Series of Certificates will represent a beneficial
interest in the assets included in the related Trust that will have been
transferred to the related Trustee by the related Transferor. The Servicer will
service the Mortgage Loans either directly, or through the Sub-Servicers,
pursuant to the related Pooling and Servicing Agreement or Servicing Agreement,
as applicable, and will receive a fee for such services. See "The Pooling and
Servicing Agreement -- General Servicing Procedures" herein. With respect to
Mortgage Loans serviced through a Sub-Servicer, the Servicer will remain liable
for its servicing obligations under the related Pooling and Servicing Agreement
or Servicing Agreement, as applicable, as if the Servicer alone were servicing
such Mortgage Loans.
The obligations of the Servicer with respect to the Mortgage Loans will
consist principally of its contractual servicing obligations, including its
obligations to make Servicing Advances and to enforce the obligations of the
Sub-Servicers, under the related Agreement, and its obligation to make certain
Monthly Advances in the event of delinquencies in payments on or with respect
to the Mortgage Loans in the amounts described under "The Pooling and Servicing
Agreement -- Monthly Advances and Compensating Interest" herein. The
obligations of the Servicer to make Monthly Advances may be subject to
limitations, to the extent provided herein and in the related Prospectus
Supplement.
NEGATIVE AMORTIZATION
If so specified in the related Prospectus Supplement, a Mortgage Pool may
include Mortgage Loans that provide for the temporary or permanent deferral of
all or any portion
36
<PAGE>
of one or more specified Monthly Payments in respect of interest either for an
initial period from the origination date of such Mortgage Loans or during the
term of such Mortgage Loans. The provisions governing such deferred payments of
interest may provide that such deferral will result in a decrease in the rate
of amortization of such Mortgage Loan such that in any month in which interest
is so deferred, the interest due during that period (the "Deferred Interest")
would be added to the principal balance of the related Mortgage Loan ("Negative
Amortization"). Each such Mortgage Loan will provide that all Deferred Interest
will bear interest at the Mortgage Loan rate until paid. Negative Amortization
may affect the overall rate of amortization of the Mortgage Loan and in the
aggregate may effect the payment and prepayment experience of the related
Mortgage Pool.
FORWARD COMMITMENTS; PREFUNDING ACCOUNTS; CAPITALIZED INTEREST ACCOUNTS
If so specified in the related Prospectus Supplement, the related Pooling
and Servicing Agreement or Indenture, as applicable, may contain provisions
permitting Forward Commitments pursuant to which the related Transferor will
agree to transfer additional Mortgage Loans into the related Mortgage Pool
during the Funding Period following the date on which the related Securities
are issued. The Forward Commitment may permit the transfer to the related Trust
or Trust Estate, as applicable, of additional Mortgage Loans that have not
completed the origination process by the date on which the Securities are to be
delivered to the Securityholders (the "Closing Date") or were otherwise not
available to be delivered by the related Transferor on such Closing Date. If a
Forward Commitment is to be utilized, unless otherwise specified in the related
Prospectus Supplement, a deposit will be made to a Prefunding Account in an
amount equal to all or a portion of the proceeds received in connection with
the sale of the Securities of the related Series (such amount, the "Prefunding
Amount"). Subsequently, additional Mortgage Loans will be conveyed by the
related Transferor for inclusion in the related Mortgage Pool in exchange for
cash from the related Prefunding Account in one or more transfers. The related
Pooling and Servicing Agreement or Indenture, as applicable, will require that,
if any portion of the Prefunding Amount is not applied to acquire additional
Mortgage Loans by the end of the Funding Period, any amounts remaining will be
released from the Prefunding Account and distributed or paid, as applicable, in
reduction of the principal balance of the related Securities as specified in
the related Prospectus Supplement.
Each additional Mortgage Loan must satisfy the eligibility criteria
specified in the related Prospectus Supplement and related Pooling and
Servicing Agreement or Indenture, as applicable. Such eligibility criteria will
be determined in consultation with each Rating Agency (and/or any credit
enhancement provider for the related Series) prior to the issuance of such
Series and are designed to ensure that if such additional Mortgage Loans were
included as part of the initial Mortgage Pool, the credit quality thereof would
be consistent with the initial rating of the Securities of such Series. At the
time additional Mortgage Loans are transferred for inclusion in the related
Mortgage Pool, the related Transferor will certify that all conditions
precedent to the transfer of such additional Mortgage Loans, including the
satisfaction of specific eligibility criteria, have been satisfied. It is a
condition to the transfer of any additional Mortgage Loans by the related
Transferor for inclusion in the related Mortgage Pool that each Rating Agency,
after receiving prior notice of such proposed transfer, shall not have advised
the related Transferor or the Trustee or any credit enhancement provider for
the related Series that the conveyance of such additional Mortgage Loans will
result in a qualification, modification or withdrawal of its
37
<PAGE>
then current rating of any Securities of such Series. Following the transfer of
additional Mortgage Loans to the related Trust or Trust Estate, as applicable,
the aggregate characteristics of the Mortgage Loans then held in such Trust or
Trust Estate may vary from those included in the original Mortgage Pool. As a
result, the additional Mortgage Loans may adversely affect the performance of
the related Securities.
If a Prefunding Account is established, a Capitalized Interest Account may
also be established for the related Series. On the Closing Date for such
Series, all or a portion of the proceeds received by the related Transferor in
connection with the sale of the Securities of the related Series may be
deposited in the Capitalized Interest Account and used to fund the excess, if
any, of the sum of (i) the amount of interest accrued on the Securities of such
Series specified in the related Prospectus Supplement and (ii) if specified in
the related Prospectus Supplement, certain fees or expenses during the Funding
Period such as Trustee fees and credit enhancement fees, over the amount of
interest available therefor from the Mortgage Loans in the related Mortgage
Pool. If so specified in the related Prospectus Supplement, amounts on deposit
in the Capitalized Interest Account may be released to the related Transferor
prior to the end of the Funding Period subject to the satisfaction of certain
tests specified in the related Prospectus Supplement. Any amounts on deposit in
the Capitalized Interest Account at the end of the Funding Period that are not
necessary for such purposes will be distributed to the person specified in the
related Prospectus Supplement.
38
<PAGE>
USE OF PROCEEDS
Each Transferor intends to use the net proceeds to be received from the
sale of the Securities of each Series to acquire the Mortgage Loans to be
deposited in the related Mortgage Pool, to establish any Reserve Account,
Prefunding Account or Capitalized Interest Account and to pay other expenses
connected with the pooling of Mortgage Loans and the issuance of Securities.
Any amounts remaining after such payments may be used for general corporate
purposes. The timing and amount of offerings of Securities by each Transferor
will be influenced by a number of factors, including volume of Mortgage Loans
acquired by such Transferor from time to time, prevailing interest rates,
availability of funds and general market conditions.
AAMES CAPITAL ACCEPTANCE CORP.
Aames Capital Acceptance Corp. ("ACAC") was incorporated under the laws of
the State of Delaware on February 4, 1997 and is a wholly owned limited purpose
finance subsidiary of AFC. ACAC's principal office is located at 350 South
Grand Avenue, Los Angeles, California 90071 and its telephone number is (323)
210-5000. ACAC was organized for the sole purpose of facilitating transactions
of the type described herein and in connection therewith purchasing, holding,
owning and transferring all right, title and interest in Mortgage Loans and any
activities incidental to and necessary or convenient for the accomplishment of
such purpose. ACAC does not have, and is not expected in the future to have,
any significant assets.
ACAC may act as the Bond Issuer or may sell or assign its beneficial
ownership interest in any Mortgage Pool, in whole or in part, to another entity
formed by ACAC solely for the purpose of acting as the Bond Issuer for a given
Series of Bonds at or prior to the time of the issuance of such Bonds. Each
Series of Bonds will be non-recourse obligations of the related Bond Issuer.
ACAC's Certificate of Incorporation places substantial restrictions on the
operations and management of ACAC such that a voluntary or involuntary
application with respect thereto for relief under the United States Bankruptcy
Code or similar state laws is unlikely. Neither ACAC nor any of its affiliates
will insure or guarantee distributions on the Securities of any Series.
39
<PAGE>
AAMES CAPITAL CORPORATION
GENERAL
Aames Capital Corporation ("ACC") was incorporated in the State of
California on August 13, 1993 and is a wholly owned subsidiary of Aames
Financial Corporation ("AFC"). ACC is primarily engaged in acquiring, owning,
transferring and servicing Mortgage Loans. ACC maintains its principal offices
at 350 South Grand Avenue, Los Angeles, California 90071 and its telephone
number is (323) 210-5000. ACC will only act as Transferor in connection with
the issuance of Certificates and will not act in such capacity in connection
with the issuance of any Series of Bonds. Neither ACC nor any of its affiliates
will insure or guarantee distributions on the Securities of any Series. ACC, or
such other entity identified in the related Pooling and Servicing Agreement,
will act as servicer (in such capacity, the "Servicer") with respect to the
Mortgage Loans included in the Mortgage Pool for any Series of Securities.
MORTGAGE LOAN DELINQUENCY AND FORECLOSURE EXPERIENCE
The following table sets forth delinquency, foreclosure and loss
information relating to ACC's servicing portfolio as of or for the periods
indicated:
<TABLE>
<CAPTION>
AS OF OR FOR THE FISCAL YEARS
ENDED JUNE 30,
-----------------------------
1997 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Percentage of dollar amount of delinquent loans to loans
serviced (period end)(1)(2)(3)
One Month ...................................................... 4.3% 3.8%
Two Months ..................................................... 1.9% 1.3%
Three or More Months:
Not Foreclosed(4) ............................................ 8.1% 9.0%
Foreclosed(5) ................................................ 1.0% 1.5%
---- ----
Total ........................................................ 15.3% 15.6%
==== ====
Percentage of dollar amount of loans foreclosed during the
period to loans serviced (2)(3) ................................ 1.5% 2.0%
Number of loans foreclosed during the period .................... 560 1,125
Principal amount of foreclosed loans during the period .......... $ 48,029 $ 84,613
Net losses on liquidations during the period(6) ................. $ 5,470 $ 26,488
Percentage of losses to average servicing portfolio (3) ......... .24% .72%
Servicing portfolio at period end ............................... $3,174,000 $4,147,000
</TABLE>
----------
(1) Delinquent loans are loans for which more than one payment is past due.
(2) The delinquency and foreclosure percentages are calculated on the basis
of the total dollar amount of mortgage loans originated or purchased by
ACC and, in each case, serviced by ACC and any subservicers as of the end
of the periods indicated.
(3) The servicing portfolio used in the percentage calculations includes $82
million of loans subserviced by ACC on an interim basis at June 30, 1998.
(4) Represents loans which are in foreclosure but as to which foreclosure
proceedings have not concluded.
(5) Represents properties acquired following a foreclosure sale and still
serviced by ACC at period end.
(6) Represents losses net of gains on foreclosed properties sold during the
period indicated.
40
<PAGE>
ACC's servicing portfolio has grown over the periods presented. However,
because foreclosures and losses typically occur months or years after a loan is
originated, data relating to delinquencies, foreclosures and losses as a
percentage of the current portfolio can understate the risk of future
delinquencies, losses or foreclosures.
There is no assurance that the delinquency, foreclosure and loss
experience with respect to any of the Mortgage Loans or with respect to any
Mortgage Pool will be comparable to the experience reflected above for home
equity mortgage loans originated or purchased and serviced by affiliates of
ACC. Because certain Mortgage Loans may have been underwritten pursuant to
standards that rely primarily on the value of the related Mortgaged Properties
rather than the creditworthiness of the related Mortgagors, the actual rates of
delinquencies, foreclosures and losses on such Mortgage Loans, particularly in
periods during which the value of the related Mortgaged Properties has
declined, could be higher than those historically experienced by the mortgage
lending industry in general. To the extent the underwriting guidelines of ACC
permit higher initial Combined Loan-to-Value Ratios than those that have been
required historically, or to the extent Mortgage Pools contain a larger
percentage of higher credit grade loans than have historically been the case,
losses realized on foreclosures of the related Mortgaged Properties may be
higher than the experience reflected above for home equity mortgage loans
originated or purchased and serviced by affiliates of ACC. In addition, the
rate of delinquencies, foreclosures and losses with respect to the Mortgage
Loans will also be affected by, among other things, interest rate fluctuations
and general and regional economic conditions. See "Risk Factors -- Nature of
the Security for Mortgage Loans" herein.
41
<PAGE>
THE ORIGINATORS
Each Transferor may acquire Mortgage Loans originated by one or more
subsidiaries of AFC ("Affiliated Originators"). In addition, each Transferor
may directly, or indirectly through one of the Affiliated Originators, acquire
Mortgage Loans originated by entities unaffiliated with AFC ("Unaffiliated
Originators") (together with Affiliated Originators, the "Originators").
UNDERWRITING GUIDELINES
All Mortgage Loans originated by Affiliated Originators will be
underwritten in accordance with standard underwriting guidelines developed by
the Sponsor and the related Affiliated Originator for customary application in
the Affiliated Originator's loan origination activities, as described below.
Unless otherwise specified in the related Prospectus Supplement, Mortgage Loans
originated by Unaffiliated Originators are reunderwritten in accordance with
the applicable underwriting guidelines. In connection with certain purchases of
Mortgage Loans from Unaffiliated Originators, the Sponsor may decide, after
evaluating a number of factors, including the Sponsor's previous experiences
with a particular seller, the size of the loan portfolio and other relevant
information to complete such purchase without re-underwriting the entire loan
portfolio. In such cases, the Sponsor will re-underwrite a statistically
significant sample of the loans in that portfolio to confirm compliance with
the Sponsor's underwriting guidelines.
The Sponsor's underwriting guidelines are designed to assess the
borrower's creditworthiness and the adequacy of the real property as collateral
for the loan. The borrower's creditworthiness is assessed by examination of a
number of factors, generally including calculation of debt-to-income ratios
(which is the sum of the borrower's monthly debt payments divided by the
borrowers's monthly income before taxes and other payroll deductions) an
examination of the borrower's credit history and credit score through standard
credit reporting bureaus, and by evaluating the borrower's payment history with
respect to existing mortgages, if any, on the property.
An assessment of the adequacy of the real property as collateral for the
loan is primarily based upon an appraisal of the property and a calculation of
the ratio (the "combined loan-to-value ratio") of all mortgages existing on the
property (including the loan applied for) to the appraised value of the
property at the time of origination. As a lender that specializes in loans made
to credit impaired borrowers, the Sponsor ordinarily makes mortgage loans to
borrowers with credit histories or other factors that would typically
disqualify them from consideration for a loan from traditional financial
institutions. Consequently, the Sponsor's underwriting guidelines generally
require lower combined loan-to-value ratios than would typically be the case if
the borrower could qualify for a loan from a traditional financial institution.
Appraisers determine a property's value by reference to the sales prices of
comparable properties recently sold, adjusted to reflect the condition of the
property as determined through inspection. Appraisals on loans purchased by the
Sponsor are reviewed by the Sponsor's own appraisers or by qualified contract
appraisers approved by the Sponsor to assure that they meet the Sponsor's
standards.
The underwriting of a mortgage loan to be originated or purchased by the
Sponsor includes a review of the completed loan package, which includes the
loan application, a current appraisal, a preliminary title report and a credit
report. All loan applications and all closed loans offered to the Sponsor for
purchase must be approved by the Sponsor in
42
<PAGE>
accordance with its underwriting criteria. The Sponsor regularly reviews its
underwriting guidelines and makes changes when appropriate to respond to market
conditions, the performance of loans representing a particular loan product or
changes in laws or regulations.
The Sponsor requires title insurance coverage issued on an American Land
Title Association (or similar) form of title insurance on all residential
properties securing mortgage loans it originates or purchases. The loan
originator and its assignees are generally named as the insured. Title
insurance policies indicate the lien position of the mortgage loan and protect
the Sponsor against loss if the title or lien position is not as indicated. The
applicant is also required to maintain hazard and, in certain instances, flood
insurance, in an amount sufficient to cover the new loan and any senior
mortgage, subject to the maximum amount available under the National Flood
Insurance Program.
The Sponsor has two general underwriting programs through which it
implements the above:
o the "traditional" underwriting program, under which the borrower's
mortgage credit and consumer credit are each scored and weighted to
determine the overall credit grade of the borrower with the borrower then
being assigned an "A" through "D" credit grade, and
o a credit score/LTV based underwriting program (referred to as the "SNAP
program"), under which the borrower's credit score as reported by various
reporting agencies and the LTV of the loan are used to determine whether
the borrower qualifies for the loan requested and the appropriate pricing
for that loan.
"Traditional" Underwriting Program. Under its "traditional" underwriting
program, the Sponsor assigns a letter credit grade (A, A-, B, C, C- and D) to
each loan it originates or purchases depending on the risk profile of the loan,
with the higher credit grades exhibiting a lower risk profile and the lower
credit grades exhibiting increasingly higher risk profiles. Generally, the
higher credit grade loans have higher loan-to-value ratios and carry a lower
interest rate. The following chart generally outlines the parameters of the
credit grades of the Sponsor's traditional underwriting program as at the date
hereof:
<TABLE>
<CAPTION>
"A" CREDIT "A-" CREDIT "B" CREDIT "C" CREDIT "C-" CREDIT "D" CREDIT
GRADE GRADE GRADE GRADE GRADE GRADE
------------------ ----------------- ----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
GENERAL Has good credit. Has good credit Generally good Marginal credit Marginal credit Designed to
REPAYMENT but might have mortgage pay history which is history not provide a
some minor history but may offset by other offset by other borrower with
delinquency. have marginal positive positive poor credit
consumer credit attributes. attributes. history an
history. opportunity to
correct past
credit problems.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
"A" CREDIT "A-" CREDIT "B" CREDIT
GRADE GRADE GRADE
------------------ ------------------ -------------------
<S> <C> <C> <C>
EXISTING No lates in past No more than No more than
MORTGAGE LOANS 12 months. 59 days late at 89 days late at
closing and a closing and a
maximum of two maximum of
30-day lates in four 30-day lates
the past 12 in the past 12
months. months or one
60-day late and
two 30-day lates.
CONSUMER Consumer credit Consumer credit Consumer credit
CREDIT is good in the is good in the must be
last 12 months. last 12 months. satisfactory in
Less than 25% Less than 35% the last 12
of credit report of credit report months. Less
items derogatory items derogatory than 40% of
with no 60-day with no 90-day credit report
or more lates. or more lates. items
Generally, Generally, derogatory.
requires a requires a Generally,
minimum credit minimum credit requires a
score of 600. score of 580. minimum credit
score of 560.
BANKRUPTCY 2 years since 2 years since 1 year since
discharge or discharge or discharge with
dismissal with dismissal with reestablished
reestablished reestablished "B" credit or 18
"A" credit. "A-" credit. months since
discharge
without
reestablished
credit.
DEBT SERVICE-TO- Generally not to Generally not to Generally not to
INCOME RATIO exceed 45%. exceed 45%. exceed 50%.
MAXIMUM LOAN-
TO-VALUE RATIO:
OWNER OCCUPIED Generally 90% Generally 90% Generally 80%
for a 1 to 4 for a 1 to 4 for a 1 to 4
family dwelling. family dwelling. family dwelling.
NON-OWNER Generally 80% Generally 70% Generally 65%
OCCUPIED for a 1 to 4 for a 1 to 4 for a 1 to 2
family dwelling. family dwelling. family dwelling.
<PAGE>
<CAPTION>
"C" CREDIT "C-" CREDIT "D" CREDIT
GRADE GRADE GRADE
--------------------- ------------------ -----------------
<S> <C> <C> <C>
EXISTING Can have No more than Greater than
MORTGAGE LOANS multiple 30-day 149 days 150 days
lates and two delinquent in delinquent in
60-day lates or the past 12 the past 12
one 90-day late months. Can months.
in the past 12 have multiple
months; 90-day lates or
currently not one 120 day late
more than 119 in the past 12
days late at months.
closing.
CONSUMER Consumer credit Consumer credit Consumer credit
CREDIT is fair in the last is poor in the is poor in the
12 months. The last 12 months last 12 months.
majority of the with currently The majority of
credit is not delinquent the credit is
currently accounts. Less derogatory
delinquent. Less than 60% of (more than
than 50% of credit report 60%).
credit report items Percentage of
items derogatory. derogatory items
derogatory. Generally, not a factor.
Generally, requires a Generally,
requires a minimum credit requires a
minimum credit score of 500. minimum credit
score of 530. score of 500.
BANKRUPTCY Bankruptcy Bankruptcy filed Current
filing 12 months within last 12 bankruptcy must
old, discharged months and be paid through
or dismissed discharged or loan.
prior to dismissed prior
application. to application.
DEBT SERVICE-TO- Generally not to Generally not to Generally not to
INCOME RATIO exceed 55%. exceed 60%. exceed 60%.
MAXIMUM LOAN-
TO-VALUE RATIO:
OWNER OCCUPIED Generally 75% Generally 70% Generally 65%
for a 1 to 4 for a 1 to 4 for a 1 to 4
family dwelling. family dwelling. family dwelling.
NON-OWNER Generally 65% Generally 65% Generally 60%
OCCUPIED for a 1 to 4 for a 1 to 4 for a 1 to 4
family dwelling. family dwelling. family dwelling.
</TABLE>
"SNAP" Underwriting Program. The SNAP program was developed by the Sponsor
to enhance its ability to risk-base price its loan products, to increase
uniformity of creditworthiness within each credit "band" and to reduce
subjectivity and simplify the underwriting process in order to improve
efficiency and service levels to its customers.
The SNAP program uses the credit score (as defined below) of the primary
borrower (i.e., the borrower with the majority of total income) to determine
programe eligibility and then to determine the maximum LTV and interest rate
for which the borrower may qualify. Generally, the minimum acceptable credit
score under the SNAP program is 500.
44
<PAGE>
In most cases the payment history of the borrower under the existing
mortgage loan is also taken into consideration. Borrowers with lower credit
scores generally qualify for lower maximum LTVs and are charged higher interest
rates than borrowers with higher credit scores. "Credit Scores" are discussed
below.
Under the SNAP program, a verification of the borrower's mortgage payment
history under his existing mortgage loan over the most recent 12 months is
required in all cases where the primary borrower's credit score is less than
600 (or less than 640 if the loan amount is less than $100,000). The maximum
LTV allowed and the interest rate for the loan indicated by the SNAP program
may be adjusted based on the borrower's past mortgage payment history. Under
the SNAP program, a poor mortgage payment history will result in a lower
maximum LTV and a higher interest rate (comparable to the maximum LTV and
interest rate for a borrower with a lower credit score) in order to reflect the
increased risk of default indicated by the mortgage payment history. The LTV
and credit score adjustments are set forth in the chart below.
<TABLE>
<CAPTION>
ACTUAL
CREDIT ADJUSTED CREDIT SCORE AND MAXIMUM LTV
SCORE BASED UPON MORTGAGE LATES IN PREVIOUS 12 MONTHS
<S> <C> <C> <C> <C> <C>
4x30 and 0x60; 12x30 and 2x60;
2x30 2x30 and 1x60 12x30 and 1x90 12x60 and 1x120 1x150
700+ 600 560; 80%max LTV 550; 75%max LTV 520; 70%max LTV 500; 65%max LTV
680 600 560; 80%max LTV 550; 75%max LTV 520; 70%max LTV 500; 65%max LTV
660 600 560; 80%max LTV 550; 75%max LTV 520; 70%max LTV 500; 65%max LTV
640 600 560; 80%max LTV 550; 75%max LTV 520; 70%max LTV 500; 65%max LTV
620 600 560; 80%max LTV 550; 75%max LTV 520; 70%max LTV 500; 65%max LTV
600 600 560; 80%max LTV 550; 75%max LTV 520; 70%max LTV 500; 65%max LTV
580 580 560; 80%max LTV 550; 75%max LTV 520; 70%max LTV 500; 65%max LTV
560 560 560; 80%max LTV 550; 75%max LTV 520; 70%max LTV 500; 65%max LTV
540 540 540 540 520; 70%max LTV 500; 65%max LTV
520 520 520 520 520; 70%max LTV 500; 65%max LTV
500 500 500 500 500 500
</TABLE>
For example, under the SNAP program, in the case of a borrower with a
credit score of 640 who has had not more than one 30-day late payment on his
existing mortgage loan during the previous 12 months (i.e., 1x30) and who
otherwise qualifies for a maximum LTV of 90%, the borrower's actual credit
score of 640 would be used for purposes of qualifying for the loan and
determining the applicable interest rate and the 90% maximum LTV allowed would
not be adjusted downward. However, under the SNAP program, if the borrower with
the 640 credit score had two 30-day late payments in the previous 12 months
(i.e., 2x30), the credit score used for purposes of qualifying and determining
pricing, would fall to 600 -- and the maximum LTV allowed would be 80%. In
addition, the interest rate for that loan would determined as if the borrower's
credit score were 600 (instead of the actual credit score of 640). If that same
borrower had a mortgage delinquency of 2x30 and 1x60 or 4x30 and 0x60 during
the previous 12 months, then the maximum LTV allowed would be 80% and the loan
would be priced as if the credit score was 560. If that borrower had a mortgage
delinquency of 12x30 and 2x60 or 12x30 and 1x60 and 1x90 for the previous 12
months, then the maximum LTV falls to 75% and the loan would be priced as if
the credit score was 550. If that borrower had a mortgage delinquency of 12x90,
or 12x60 and 1x90 and 1x120 for the previous 12 months, then the maximum LTV
decreases to 70% and the credit score used for pricing falls to 520. If that
borrower had a mortgage delinquency of 1x150 or more for the previous 12
months, then the maximum LTV falls to 65% and the loan would be priced as if
the credit score were 500.
45
<PAGE>
CREDIT SCORES
"Credit scores" are obtained by many lenders in connection with mortgage
loan applications to help assess a borrower's credit-worthiness. Credit scores
are obtained from credit reports provided by various credit reporting
organizations, each of which may employ differing computer models and
methodologies. The credit score is designed to assess a borrower's credit
history at a single point, using objective information currently on file for
the borrower at a particular credit reporting organization. Information
utilized to create a credit score may include, among other things, payment
history, delinquencies on accounts, level of outstanding indebtedness, length
of credit history, types of credit, and bankruptcy experience. Credit scores
range from approximately 400 to approximately 800, with higher scores
indicating an individual with a more favorable credit history compared to an
individual with a lower score. However, a credit score purports only to be a
measurement of the relative degree of risk a borrower represents to a lender,
that is, a borrower with a higher score is statistically expected to be less
likely to default in payment than a borrower with a lower score. In addition,
it should be noted that credit scores were developed to indicate a level of
default probability over a two-year period, which does not correspond to the
life of a mortgage loan. Furthermore, credit scores were not developed
specifically for use in connection with mortgage loans, but for consumer loans
in general, and assess only the borrower's past credit history. Therefore, a
credit score does not take into consideration the differences between mortgage
loans and consumer loans generally or the specific characteristics of the
related mortgage loan including, for example, the LTV or CLTV, the collateral
for the mortgage loan, or the debt to income ratio. There can be no assurance
that the credit scores of the mortgagors will be an accurate predictor of the
likelihood of repayment of the related mortgage loans.
DOCUMENTATION
The Sponsor's mortgage programs include several levels of documentation
used to verify the borrower's income:
Full Documentation: The Full Documentation level is the highest level of
income documentation and is available for all income types including
wage-earners, self-employed borrowers and fixed income borrowers (retired,
pension, annuity, etc.). Generally a stable, two-year history of receipt of
receipt of the income (or proof that the income level will continue for a
minimum of three years) is required. A wage-earner may document income by
any of the following: a verification of employment signed by the employer
together with a pay-stub reflecting year-to-date income; the borrower's
most recent two-years W-2 forms and a current pay-stub reflecting
year-to-date income; the borrower's most recent two-years IRS Form 1040's
and a year-to-date statement of profit-and-loss; or the borrower's most
recent 24-months personal bank statements showing average monthly deposits
sufficient to support the qualifying income. A self-employed borrower may
document income with either the most recent two-years IRS Form 1040's and a
year-to-date statement of profit-and-loss or the most recent 24-months
personal bank statements. An Award Letter is sufficient documentation of
income for fixed income borrowers.
Limited Documentation: The Limited Documentation level of income
documentation is available for borrowers of all income types who have less
than a two-year history of stable income or who otherwise can't meet the
requirements of the Full
46
<PAGE>
Documentation program. Generally a six-month history of stable income is
required. A wage earner may provide either a year-to-date pay-stub or the
most recent six-months personal bank statements showing average monthly
deposits sufficient to support the qualifying income. Self-employed or
fixed income borrowers may provide six-months personal bank statements to
support their qualifying income.
Stated Income: The Stated Income level of income documentation is
available only for self-employed borrowers or wage earners with A through C
credit grades or a minimum 550 credit score. Fixed income borrowers,
borrower's with C- or D credit grades or borrowers with credit scores below
550 are not eligible for the Stated Income program. Under the Stated Income
program, the borrower's income used to qualify for the loan is taken from
the borrower's signed application and must be reasonable for the borrower's
line of work or profession. Self-employed borrowers must provide
satisfactory evidence of the existence of the related business (e.g., a
business license, proof of a business banking relationship or trade
references). Self-employed borrowers with a credit score between 550 and
600 must establish that the related business has been in existence for at
least six months.
REPRESENTATIONS BY ORIGINATORS AND THE TRANSFERORS
Generally, an Unaffiliated Originator will make certain representations
and warranties with respect to the Mortgage Loans, as specified below, when the
Mortgage Loans are sold by such Unaffiliated Originator to the related
Transferor or an affiliate thereof. The related Transferor will make comparable
representations and warranties with respect to the Mortgage Loans being
transferred pursuant to the related Pooling and Servicing Agreement or
Indenture, as applicable.
Such representations and warranties generally include, among other things,
that (A) at the time of the sale by the Originator of each Mortgage Loan and,
(B) at the time of the conveyance by such Transferor of each Mortgage Loan into
the related Mortgage Pool: (i) the information with respect to each Mortgage
Loan set forth in the Loan Schedule and delivered upon conveyance of the
Mortgage Loan is true and correct as of the related Cut-off Date; (ii) the
proceeds of each Mortgage Loan have been fully disbursed (subject to any escrow
for repairs) and there are no obligations to make further disbursements with
respect to any Mortgage Loan; (iii) each Mortgaged Property is improved by a
single (one- to four-) family residential dwelling, which may include a
condominium, townhouse or manufactured home which is permanently affixed to and
treated as real property under local law; (iv) each Mortgage Loan had, at the
time of origination, either an attorney's certification of title or a title
search or title policy; (v) as of the related Cut-off Date, each Mortgage Loan
is secured by a valid and subsisting lien of record on the Mortgaged Property
having the priority indicated on the related Loan Schedule and subject in all
cases to exceptions to title set forth in the title insurance policy, if any,
with respect to the related Mortgage Loan; (vi) each Originator held good and
indefeasible title to, and was the sole owner of, each Mortgage Loan conveyed
by such Originator; and (vii) each Mortgage Loan was originated in accordance
with law and is the valid, legal and binding obligation of the related
Mortgagor, subject to certain limitations.
Unless otherwise described in the related Prospectus Supplement, all of
the representations and warranties of an Unaffiliated Originator in respect of
a Mortgage Loan will be made as of the date on which such Unaffiliated
Originator sells the Mortgage Loan, and all
47
<PAGE>
of the representations and warranties of the related Transferor in respect of a
Mortgage Loan will be made as of the date such Transferor conveys such Mortgage
Loan into the related Mortgage Pool. The date as of which such representations
and warranties are made thus may be a date prior to the date of the issuance of
the related Series of the Securities. A substantial period of time may elapse
between the date as of which the representations and warranties are made and
the date the related Series of Securities is issued. However, the related
Transferor will not include any Mortgage Loan in the Mortgage Pool for any
Series of Securities if anything has come to such Transferor's attention that
would cause it to believe that such representations and warranties will not be
accurate and complete in all material respects in respect of such Mortgage Loan
as of the date of initial issuance of the related Series of Securities.
Upon a breach of a representation and/or warranty with respect to a
Mortgage Loan made by the related Transferor under the related Pooling and
Servicing Agreement or Indenture, as applicable, which occurs after conveyance
of the related Mortgage Loan to a Mortgage Pool, such Transferor may be
required to withdraw such Mortgage Loan from such Mortgage Pool or remove such
Mortgage Loan from the Mortgage Pool and convey a substantially similar
mortgage loan to the Mortgage Pool in substitution therefor.
48
<PAGE>
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued in one or more classes (each, a
"Class") pursuant to an agreement (each, a "Pooling and Servicing Agreement")
dated as of the related Cut-off Date among the related Transferor, ACC, the
Servicer and the Trustee for the benefit of the holders of the Certificates
("Certificateholders") of such Series. Each Series of Bonds will be issued in a
single class pursuant to an indenture (each, an "Indenture") dated as of the
related Cut-off Date between the related Bond Issuer and the Trustee for the
benefit of the holders of the Bonds ("Bondholders" and, together with
Certificateholders, "Securityholders") of such Series. The provisions of each
Pooling and Servicing Agreement or Indenture, as applicable, will vary
depending upon the nature of the Securities to be issued thereunder and the
nature of the related Trust or Trust Estate, as applicable. A representative
form of Pooling and Servicing Agreement and Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summaries describe the material provisions relating to the Securities
which may appear in any related Pooling and Servicing Agreement or Indenture,
as applicable. The Prospectus Supplement for a Series of Securities will
describe any material provision of the related Pooling and Servicing Agreement
or Indenture, as applicable, relating to such Series that materially differs
from the description thereof contained in this Prospectus. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the definitive Pooling and Servicing
Agreement or Indenture, as applicable, for each Series of Securities and the
applicable Prospectus Supplement. A copy of the definitive Pooling and
Servicing Agreement or Indenture, as applicable (each without exhibits),
relating to any Series of Securities will be provided to Securityholders,
without charge, upon written request to the related Transferor addressed to it
at: 350 South Grand Avenue, Los Angeles, California 90071, Attention: Corporate
Secretary.
GENERAL
The Certificates of a given Series will evidence undivided beneficial
interests in the assets of the related Trust specified in the related
Prospectus Supplement. The Bonds of a given Series will represent non-recourse
obligations of the related Bond Issuer, secured by the assets in the related
Trust Estate, and the proceeds of such assets will be the sole source of
payments on such Bonds. The Securities of a given Series may be covered by or
entitled to the benefits of a Financial Guaranty Insurance Policy, a Mortgage
Pool Insurance Policy, a Special Hazard Insurance Policy, a Bankruptcy Bond or
other insurance policies, cash accounts, letters of credit, limited guaranty
insurance policies, third party guarantees or other forms of credit
enhancement, in each case as described herein and in the related Prospectus
Supplement. A Series of Certificates may include one or more Classes of senior
certificates that receive certain preferential treatment (collectively, "Senior
Certificates") with respect to one or more subordinated Classes (collectively,
"Subordinated Classes") of Certificates of such Series. Distributions on one or
more Classes of a Series of Certificates may be made: (a) prior to one or more
other Classes, (b) after the occurrence of specified events, (c) in accordance
with a schedule or formula, (d) on the basis of collections from designated
portions of the Mortgage Loans in the related Trust or (e) on a different
basis, in each case as specified in the related Prospectus Supplement. The
timing and amounts of such distributions may vary among such Classes or over
time as specified in the related Prospectus Supplement.
49
<PAGE>
Unless otherwise specified in the related Prospectus Supplement,
distributions or payments, as applicable, on Securities will be made only from
the assets of the related Trust or Trust Estate, as applicable, and the
Securities will not represent interests in or obligations of the related
Transferor, the Servicer, the Trustee, any Originator or any other person. The
assets of each Trust or Trust Estate, as applicable, will consist of one or
more of the following, to the extent set forth in the related Prospectus
Supplement: (a) the Mortgage Loans that from time to time are subject to the
related Pooling and Servicing Agreement or Indenture, as applicable; (b) the
assets of the Trust or the Trust Estate that from time to time are required by
the Pooling and Servicing Agreement or Indenture, as applicable, to be
deposited in the Certificate Account or Bond Account, as applicable, the
Collection Account and any other accounts (collectively, the "Accounts")
established pursuant to the related Pooling and Servicing Agreement or
Indenture, as applicable, or to be invested in Permitted Investments; (c)
property and any proceeds thereof acquired by foreclosure, deed in lieu of
foreclosure or a comparable conversion of the Mortgage Loans in the related
Mortgage Pool; (d) any Financial Guaranty Insurance Policy; (e) any Mortgage
Pool Insurance Policy; (f) any Special Hazard Insurance Policy; (g) any
Bankruptcy Bond; (h) any funds on deposit from time to time in any Reserve
Account; and (i) all rights under any other insurance policies, guarantees,
surety bonds, letters of credit or other credit enhancement covering any
Securities, any Mortgage Loan in the related Mortgage Pool or any related
Mortgaged Property required pursuant to the related Pooling and Servicing
Agreement or Indenture, as applicable.
FORM OF SECURITIES
General. Unless otherwise specified in the Prospectus Supplement, the
Securities of each Series will be issued as physical certificates ("Definitive
Securities") in fully registered form only in the denominations specified in
the related Prospectus Supplement. Definitive Securities, if issued, will be
transferable and exchangeable at the corporate trust office of the Trustee or,
at the election of the Trustee, the office of a registrar for the Securities
appointed by the Trustee, in either case as named in the related Prospectus
Supplement. No service charge will be incurred for any registration of exchange
or transfer, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge. If provided in the related Pooling and
Servicing Agreement or Indenture, as applicable, a certificate administrator
may perform certain duties in connection with the administration of the
Securities.
Book-Entry Registration. If specified in the related prospectus
supplement, one or more classes of securities may be issued in book-entry form.
Persons acquiring beneficial ownership interests in the book-entry securities
will hold their securities through The Depository Trust Company ("DTC") in the
United States, or Clearstream Banking societe anonyme ("Clearstream,
Luxembourg") or the Euroclear System ("Euroclear") in Europe if they are
participants of those systems, or indirectly through organizations which are
participants in any of those systems. The book-entry securities will be issued
in one or more certificates which equal the aggregate principal balance of the
applicable class or classes of securities and will initially be registered in
the name of Cede & Co., the nominee of DTC. Clearstream, Luxembourg and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Clearstream, Luxembourg's and Euroclear's
names on the books of their respective depositories which in turn will hold
positions in customers' securities accounts in the depositories' names on the
books of DTC.
50
<PAGE>
Citibank N.A. will act as depository for Clearstream, Luxembourg and The Chase
Manhattan Bank will act as depository for Euroclear. Except as described below,
no person acquiring a book-entry security will be entitled to receive a
physical definitive certificate representing its security.
Unless and until definitive securities are issued, it is anticipated that
the only certificateholder or noteholder, as applicable, will be Cede & Co., as
nominee of DTC. Beneficial owners are only permitted to exercise their rights
indirectly through DTC or, in Europe, Clearstream, Luxembourg and Euroclear,
and their participants.
The beneficial owner's ownership of a book-entry security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary that maintains the beneficial owner's account for this
purpose. In turn, the financial intermediary's ownership of the book-entry
security will be recorded on the records of DTC (or of a participating firm
that acts as agent for the financial intermediary, whose interest will in turn
be recorded on the records of DTC, if the beneficial owner's financial
intermediary is not a DTC participant and on the records of Clearstream,
Luxembourg or Euroclear, as appropriate).
Beneficial owners will receive all distributions of principal of, and
interest on, the book-entry securities from the trustee through DTC and DTC
participants. While the book-entry securities are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations, DTC is required to make
book-entry transfers among participants on whose behalf it acts with respect to
the securities and is required to receive and transmit distributions of
principal of, and interest on, the securities. Participants and indirect
participants with whom beneficial owners have accounts with respect to
securities are similarly required to make book-entry transfers and receive and
transmit distributions on behalf of their respective beneficial owners.
Accordingly, although beneficial owners will not possess certificates or notes,
the DTC rules provide a mechanism by which beneficial owners will receive
distributions and will be able to transfer their interest.
Beneficial owners will not receive or be entitled to receive certificates
representing their respective interests in the securities, except under the
limited circumstances described below. Unless and until definitive securities
are issued, beneficial owners who are not participants may transfer ownership
of securities only through participants and indirect participants by
instructing participants and indirect participants to transfer securities, by
book-entry transfer, through DTC for the account of the purchasers of these
securities, which must be maintained with their participants. Under the DTC
rules and in accordance with DTC's normal procedures, transfers of ownership of
securities will be executed through DTC and the accounts of the respective
participants at DTC will be debited and credited. Similarly, the participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing beneficial owners.
Because of time zone differences, credits of securities received in
Clearstream, Luxembourg or Euroclear as a result of a transaction with a
participant will be made during subsequent securities settlement processing and
dated the business day following the DTC settlement date. These credits or any
transactions in securities settled during subsequent securities settlement
processing will be reported to the relevant Euroclear or Clearstream,
Luxembourg participants on that business day. Cash received in Clearstream,
Luxembourg or Euroclear as a result of sales of securities by or through a
Clearstream, Luxembourg
51
<PAGE>
participant or Euroclear participant to a DTC participant will be received with
value on the DTC settlement date but will be available in the relevant
Clearstream, Luxembourg or Euroclear cash account only as of the business day
following settlement in DTC.
Transfers between participants will occur in accordance with DTC rules.
Transfers between Clearstream, Luxembourg participants and Euroclear
participants will occur in accordance with their respective rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream,
Luxembourg participants or Euroclear participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the relevant European depository; however,
these cross market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in that
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver
instructions to the relevant European depository to take action to effect final
settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same day
funds settlement applicable to DTC. Clearstream, Luxembourg participants and
Euroclear participants may not deliver instructions directly to the European
depositories.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the book-entry securities, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of book-entry securities will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
Clearstream, Luxembourg is incorporated under the laws of Luxembourg as a
professional depository. Clearstream, Luxembourg holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between Clearstream, Luxembourg participants through
electronic book-entry changes in accounts of Clearstream, Luxembourg
participants, thus eliminating the need for physical movement of certificates.
Transactions may be settled in Clearstream, Luxembourg in any of 28 currencies,
including United States dollars. Clearstream, Luxembourg provides to its
participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream, Luxembourg interfaces with domestic markets
in several countries. As a professional depository, Clearstream, Luxembourg is
subject to regulation by the Luxembourg Monetary Institute. Clearstream,
Luxembourg participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to
Clearstream, Luxembourg is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream, Luxembourg participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for its participants and
to clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thus eliminating
the need for physical movement of
52
<PAGE>
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. The Brussels, Belgium office of Morgan Guaranty Trust Company
of New York functions as Euroclear operator, under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation. All operations are
conducted by the Euroclear operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear operator,
not Euroclear Clearance Systems. The Euroclear Clearance Systems establish
policy for Euroclear on behalf of Euroclear participants. Euroclear
participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries. Indirect access to
Euroclear is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear participant, either directly or
indirectly.
Because the Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law. These Terms and Conditions govern transfers of securities and cash
within Euroclear, withdrawals of securities and cash from Euroclear, and
receipts of payments with respect to securities in Euroclear. All securities in
Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under these Terms and Conditions only on behalf of Euroclear participants,
and has no record of or relationship with persons holding through Euroclear
participants.
Distributions on the book-entry securities will be made on each
distribution date by the trustee to DTC. DTC will be responsible for crediting
the amount of these payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing these payments to the beneficial owners that it
represents and to each financial intermediary for which it acts as agent. Each
financial intermediary will be responsible for disbursing funds to the
beneficial owners that it represents.
Under a book-entry format, beneficial owners may experience some delay in
their receipt of payments, since these payments will be forwarded by the
trustee to Cede & Co. Distributions with respect to securities held through
Clearstream, Luxembourg or Euroclear will be credited to the cash accounts of
Clearstream, Luxembourg participants or Euroclear participants in accordance
with the relevant system's rules and procedures, to the extent received by the
relevant European depository. These distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of financial intermediaries, the ability of
a beneficial owner to pledge book-entry securities to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of the book-entry securities, may be limited due to the lack of
physical certificates for book-entry securities. In addition, issuance of the
53
<PAGE>
book-entry securities in book-entry form may reduce the liquidity of the
securities in the secondary market since certain potential investors may be
unwilling to purchase securities for which they cannot obtain physical
certificates.
Monthly and annual reports on the applicable trust fund will be provided
to Cede & Co., as nominee of DTC, and may be made available by Cede & Co. to
beneficial owners upon request, in accordance with the rules, regulations and
procedures creating and affecting DTC, and to the financial intermediaries to
whose DTC accounts the book-entry securities of the beneficial owners are
credited.
DTC has advised the trustee that, unless and until definitive securities
are issued, DTC will take any action permitted to be taken by the holders of
the book-entry securities under the relevant agreement only at the direction of
one or more financial intermediaries to whose DTC accounts the book-entry
securities are credited, to the extent that these actions are taken on behalf
of financial intermediaries whose holdings include the book-entry securities.
Clearstream, Luxembourg or the Euroclear operator, as the case may be, will
take any other action permitted to be taken by a holder under the relevant
operating agreement on behalf of a Clearstream, Luxembourg participant or
Euroclear participant only in accordance with its relevant rules and procedures
and subject to the ability of the relevant European depository to effect these
actions on its behalf through DTC. DTC may take actions, at the direction of
the related participants, with respect to some securities which conflict with
actions taken with respect to other securities.
Definitive securities will be issued to beneficial owners, or their
nominees, rather than to DTC, only if:
o DTC or the seller advises the trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the book-entry securities and the
seller or the trustee is unable to locate a qualified successor;
o the seller, at its sole option, elects to terminate a book-entry system
through DTC; or
o after the occurrence of an event of default, beneficial owners owning a
majority in principal amount of the applicable securities advise the
trustee and DTC through the financial intermediaries and the DTC
participants in writing that the continuation of a book-entry system
through DTC (or its successor) is no longer in the best interests of
beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the trustee will be required to notify all applicable
beneficial owners of the occurrence of the event and the availability through
DTC of definitive securities. Upon surrender by DTC of the global certificate
or certificates representing the book-entry securities and instructions for
re-registration, the trustee will issue definitive securities, and thereafter
the trustee will recognize the holders of the definitive securities as
certificateholders or noteholders, as applicable, under the applicable
agreement.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of securities among
participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform these procedures, and these
procedures may be discontinued at any time.
54
<PAGE>
Neither the depositor, the seller, the servicer the owner trustee (if
applicable), the trustee or any of their affiliates will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the book-entry securities held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing
any records relating to these beneficial ownership interests.
DISTRIBUTIONS AND PAYMENTS ON SECURITIES
General. Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, if applicable, of principal only
or interest only) on the related Certificates, or payments of principal and
interest on the related Bonds, as applicable, will be made by the Trustee on
each Distribution Date specified in the related Prospectus Supplement (each, a
"Distribution Date") or Payment Date specified in the related Prospectus
Supplement (each, a "Payment Date"), respectively, in the amounts specified in
the related Prospectus Supplement. Distributions or payments, as applicable,
will be made to the persons in whose names the Securities are registered at the
close of business on the record dates specified in the Prospectus Supplement.
Distributions or payments, as applicable, will be made by check mailed to the
persons entitled thereto at the address appearing in the register maintained
for Securityholders (the "Security Register") or, to the extent described in
the related Prospectus Supplement, by wire transfer or by such other means as
are described therein, except that the final distribution or payment, as
applicable, in retirement of the Securities will be made only upon presentation
and surrender of the Securities at the office or agency of the Trustee or other
person specified in the final distribution notice to Securityholders.
With respect to a given Series of Certificates, each Class of Certificates
within such Series will evidence the interests specified in the related
Prospectus Supplement, which may include, among other things, (i) the right to
receive distributions allocable only to principal, only to interest or to any
combination thereof; (ii) the right to receive distributions only of
prepayments of principal throughout the lives of the Certificates or during
specified periods; (iii) interests that are subordinated in their right to
receive distributions of scheduled payments of principal, prepayments of
principal, interest or any combination thereof to one or more other Classes of
Certificates of such Series throughout the lives of the Certificates or during
specified periods or interests that are subordinated with respect to certain
losses or delinquencies; (iv) the right to receive distributions only after the
occurrence of events specified in the related Prospectus Supplement; (v) the
right to receive distributions in accordance with a schedule or formula or on
the basis of collections from designated portions of the assets in the related
Trust; (vi) as to Certificates entitled to distributions allocable to interest,
the right to receive interest at a fixed rate or an adjustable rate; (vii) as
to Certificates entitled to distributions allocable to interest, the right to
such distributions allocable to interest only after the occurrence of events
specified in the related Prospectus Supplement; and (viii) as to Certificates
entitled to distributions allocable to interest only after the occurrence of
certain events, the accrual but deferment of payment of interest until such
events occur, in each case as specified in such Prospectus Supplement.
In general, the method of determining the amount of distributions or
payments, as applicable, on a particular Series of Securities will depend on
the type of credit support, if any, that is used with respect to such Series.
See "Credit Enhancement" herein. Set forth below is a general description of
certain methods that may be used to determine the amount
55
<PAGE>
of distributions or payments, as applicable, on the Securities of a particular
Series. The Prospectus Supplement for each Series of Securities will describe
the method to be used in determining the amount of distributions or payments,
as applicable, on the Securities of such Series.
Distributions or payments, as applicable, allocable to principal and
interest on the Securities of a Series will be made by the Trustee out of, and
only to the extent of, funds in a segregated account established and maintained
by the Trustee for the deposits of such amounts (the "Certificate Account,"
with respect to Certificates, and the "Bond Account," with respect to Bonds).
The Certificate Account or Bond Account, as applicable, may include funds
transferred from any Reserve Account, any Prefunding Account and funds received
as a result of any other form of credit enhancement. As between Certificates of
different Classes and as between distributions of interest and principal and,
if applicable, between distributions of prepayments of principal and scheduled
payments of principal, distributions made on any Distribution Date will be
applied as specified in the related Prospectus Supplement. Unless otherwise
specified in the Prospectus Supplement relating to a given Series of
Certificates, distributions or payments, as applicable, on the Certificates of
any Class of a Series will be made pro rata to all related Certificateholders
of that Class.
Available Funds. All distributions or payments, as applicable, on the
Securities of each Series on any Distribution Date or Payment Date, as
applicable, will be made from the funds available for distribution or payment,
as applicable, on such Distribution Date or Payment Date, as applicable, as
described below ("Available Funds"), in accordance with the terms described in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, Available Funds for each Distribution Date or Payment
Date, as applicable, will equal the sum of the following amounts:
(i) the aggregate of all previously undistributed payments on account of
principal (including principal prepayments, if any, and prepayment
penalties, if so provided in the related Prospectus Supplement) and
interest on the Mortgage Loans in the related Mortgage Pool, received by
the Servicer during the related collection period (the "Collection Period")
except:
(a) all payments which were due before the Cut-off Date;
(b) amounts received on particular Mortgage Loans as late payments of
principal or interest and, unless otherwise specified in the related
Prospectus Supplement, other amounts required to be paid by the
Mortgagors which are to be retained by the Servicer (including any
Sub-Servicer) as additional compensation;
(c) amounts representing reimbursement, to the extent permitted as
described under "The Pooling and Servicing Agreement -- Monthly Advances
and Compensating Interest" and "-- Servicing and Other Compensation and
Payment of Expenses," for advances made by the Servicer or any
Sub-Servicers that were deposited into the Certificate Account or Bond
Account, as applicable, and amounts representing reimbursement for
certain other losses and expenses incurred by the Servicer or any
Sub-Servicer as permitted under the related Pooling and Servicing
Agreement or Servicing Agreement, as applicable;
(d) that portion of each collection of interest on a particular
Mortgage Loan in such Mortgage Pool representing servicing compensation
payable to the Servicer that is to be retained from such collection or
is permitted to be retained from related
56
<PAGE>
Insurance Proceeds, Liquidation Proceeds or proceeds of Mortgage Loans
withdrawn from the Mortgage Pool pursuant to the related Pooling and
Servicing Agreement or Servicing Agreement, as applicable; and
(e) Trustee fees and other expenses or fees payable out of the
related Trust or Trust Estate, as applicable, as specified in the
related Prospectus Supplement;
(ii) all amounts received and retained, if any, in connection with the
liquidation of defaulted Mortgage Loans ("Liquidation Proceeds"), net of
unreimbursed liquidation expenses and insured expenses incurred and
unreimbursed advances made by the Servicer or any Sub-Servicer ("Net
Liquidation Proceeds"), including all proceeds (net of unreimbursed
Servicing Advances) of title insurance, hazard insurance and primary
mortgage insurance, if any ("Insurance Proceeds"), all Principal
Prepayments, all proceeds received in connection with the condemnation of a
Mortgaged Property or the release of part of a Mortgaged Property and all
proceeds of any Mortgage Loan acquired by the related Transferor or any
other entity pursuant to the Pooling and Servicing Agreement, the Indenture
or the Servicing Agreement;
(iii) the amount of any Monthly Advance or Compensating Interest Payment
made by the Servicer or any Sub-Servicer, as deposited by such in the
Certificate Account or Bond Account, as applicable; and
(iv) if applicable, amounts withdrawn from a Reserve Account or a
Prefunding Account or received in connection with other credit enhancement.
Distributions and Payments of Interest. Unless otherwise specified in the
Prospectus Supplement relating to a given Series of Certificates, each Class of
Certificates may bear interest at a different rate, which may be fixed or
adjustable (the "Certificate Rate"). All of the Bonds of a given Series will
bear interest at the same rate, which may be fixed or adjustable (the "Bond
Rate"). Interest will accrue on the Security Principal Balance (or, in the case
of a Class of Certificates entitled only to distributions allocable to
interest, the aggregate notional principal balance) of Securities entitled to
interest, at the Certificate Rate or Bond Rate, as applicable, and for the
periods specified in the Prospectus Supplement. To the extent funds are
available therefor, interest accrued during each such specified period on
Securities entitled to interest (other than a Class of Certificates that
provides for interest that accrues, but is not currently payable, referred to
hereafter as "Accrual Certificates") will be distributable or payable on the
Distribution Dates or Payment Dates, as applicable, specified in the Prospectus
Supplement until the aggregate Security Principal Balance of the related
Securities has been distributed or paid in full or, in the case of a Class of
Certificates entitled only to distributions allocable to interest, until the
aggregate notional principal balance of such Certificates is reduced to zero or
for the period of time designated in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Certificates, distributions allocable to interest on each
Certificate of such Series that is not entitled to distributions allocable to
principal will be calculated based on the notional principal balance of such
Certificate. The notional principal balance of a Certificate will not evidence
an interest in or entitlement to distributions allocable to principal but will
be used solely for convenience in expressing the calculation of interest and
for certain other purposes.
With respect to any Class of Accrual Certificates, if specified in the
Prospectus Supplement relating to a given Series of Certificates, any interest
that has accrued but is not
57
<PAGE>
paid on a given Distribution Date will be added to the aggregate Security
Principal Balance of such Class of Certificates on that Distribution Date.
Unless otherwise specified in the related Prospectus Supplement, distributions
of interest on each Class of Accrual Certificates will commence only after the
occurrence of the events specified in such Prospectus Supplement. Prior to such
time, the beneficial interest of such Class of Accrual Certificates in the
Trust, as reflected in the aggregate Security Principal Balance of such Class
of Accrual Certificates, will increase on each Distribution Date by the amount
of interest that accrued on such Class during the preceding interest accrual
period but that was not required to be distributed to such Class on such
Distribution Date. Any such Class of Accrual Certificates will thereafter
accrue interest on its outstanding Security Principal Balance as so adjusted.
Distributions and Payments of Principal. Unless otherwise specified in the
Prospectus Supplement relating to a given Series of Certificates, the aggregate
principal balance amount of any Class of Certificates entitled to distributions
of principal will be the aggregate original Security Principal Balance of such
Class of Certificates specified in the related Prospectus Supplement, less all
amounts previously distributed to such Certificates as allocable to principal.
The aggregate principal balance amount of the Bonds of any Series will be the
aggregate original Security Principal Balance of such Bonds specified in the
related Prospectus Supplement, less all amounts previously paid on such Bonds
as allocable to principal. In the case of Accrual Certificates, unless
otherwise specified in the Prospectus Supplement relating to a given Series of
Certificates, the original Security Principal Balance will be increased by all
interest accrued but not then distributable on such Accrual Certificates. The
Prospectus Supplement relating to a given Series of Certificates will specify
the method by which the amount of principal payments on the Certificates will
be calculated and the manner in which such amount will be allocated among the
Classes of Certificates entitled to distributions of principal. As used herein,
the term "Security Principal Balance" at any time means the principal balance
of the related Securities determined as described above.
The Prospectus Supplement relating to a given Series of Certificates may
provide that one or more Classes of Senior Certificates will be entitled to
receive all or a disproportionate percentage of any principal payments made by
a Mortgagor which are received in advance of their scheduled due dates and are
not accompanied by amounts representing scheduled interest due after the month
of such payments ("Principal Prepayments") in the percentages and under the
circumstances or for the periods specified in the Prospectus Supplement. Any
such allocation of Principal Prepayments to such Class or Classes of
Certificates will have the effect of accelerating the amortization of such
Senior Certificates while increasing the interests evidenced by Subordinated
Certificates in the Trust. Increasing the interests of Subordinated
Certificates relative to that of the Senior Certificates is intended to
preserve the availability of the subordination provided by the Subordinated
Certificates. See "Credit Enhancement -- Subordination" herein. The timing and
amounts of distributions allocable to interest and principal and, if
applicable, Principal Prepayments and scheduled payments of principal, to be
made on any Distribution Date may vary among Classes over time, or otherwise,
as specified in the Prospectus Supplement.
REVOLVING PERIOD AND AMORTIZATION PERIOD; TRANSFEROR INTEREST
If the Prospectus Supplement relating to a given Series of Certificates so
provides, there may be a period commencing on the date of issuance of a Class
or Classes of Certificates of a Series and ending on the date set forth in the
related Prospectus Supplement (the
58
<PAGE>
"Revolving Period") during which no principal payments will be made to one or
more Classes of Certificates of the related Series as are identified in such
Prospectus Supplement. All collections of principal otherwise allocated to such
Class or Classes of Certificates may be (i) utilized by the Trust during such
period to acquire additional Mortgage Loans that satisfy the criteria described
in the related Prospectus Supplement, (ii) held in an account and invested in
Eligible Investments for later distribution to Certificateholders, (iii)
applied to those Class or Classes of Certificates, if any, of the same Series
as specified in the related Prospectus Supplement as then are in amortization
or (iv) otherwise applied as specified in the related Prospectus Supplement.
An "Amortization Period" is the period, if any, specified as such in the
related Prospectus Supplement during which an amount of principal is payable to
holders of one or more Classes of a Series of Certificates. If so specified in
the related Prospectus Supplement, during an Amortization Period all or a
portion of principal collections on the Mortgage Loans may be applied as
specified above for a Revolving Period and, to the extent not so applied, will
be distributed to the Class or Classes of Certificates of the same or different
Series as specified in the related Prospectus Supplement as then being entitled
to payments of principal. In addition, if so specified in the related
Prospectus Supplement, amounts deposited in certain accounts for the benefit of
one or more Classes of Certificates may be released from time to time or on a
specified date and applied as a payment of principal on such Classes of
Certificates. The related Prospectus Supplement will set forth the
circumstances that will result in the commencement of an Amortization Period.
Each Trust that has a Revolving Period may also issue to the related
Transferor a certificate evidencing a Transferor Interest in the Trust not
represented by the other Certificates issued by such Trust. As further
described in the related Prospectus Supplement, the value of such Transferor
Interest will fluctuate as the amount of the assets of the Trust fluctuates and
the outstanding amount of the Certificates of the related Series of
Certificates is reduced.
REPORTS TO SECURITYHOLDERS
Except as otherwise set forth in the related Prospectus Supplement, on or
before each Distribution Date or Payment Date, as applicable, each
Securityholder of record of the related Series of Securities will be entitled
to receive a statement setting forth, to the extent applicable to such Series,
the following information with respect to the distribution for such
Distribution Date or Payment Date, as applicable.
(i) the amount of such distribution or payment, as applicable, allocable
to principal, separately identifying the aggregate amount of any Principal
Prepayments and, if so specified in the related Prospectus Supplement, any
prepayment penalties included therein;
(ii) the amount of such distribution or payment, as applicable,
allocable to interest;
(iii) the amounts of (a) any overdue accrued interest included in such
distribution or payment, as applicable, (b) any remaining overdue accrued
interest with respect to such Securities or (c) any current shortfall in
amounts to be distributed or paid, as applicable, as accrued interest to
holders of such Securities;
(iv) the amounts of (a) any overdue payments of scheduled principal
included in such distribution, (b) any remaining overdue principal amounts
with respect to such
59
<PAGE>
Securities, (c) any current shortfall in receipt of scheduled principal
payments on the related Mortgage Loans or (d) any realized losses or
Liquidation Proceeds to be allocated as reductions in the outstanding
principal balances of such Securities;
(v) if applicable with respect to a given Series of Certificates, the
aggregate amount (a) otherwise allocable to the Subordinated
Certificateholders on such Distribution Date and (b) withdrawn from a
Reserve Account, if any, that is included in the amounts distributed with
respect to Senior Certificates;
(vi) the total amount of the Insured Amount included in the amount
distributed on such Distribution Date or Payment Date, as applicable;
(vii) the Pool Balance and the Pool Factor of the Mortgage Loans after
giving effect to the distribution or payment, as applicable, on the
Distribution Date or Payment Date, as applicable;
(viii) if applicable with respect to a given Series of Certificates, the
percentage of principal payments on the Mortgage Loans, if any, which each
Class will be entitled to receive on the following Distribution Date;
(ix) unless the Certificate Rate or Bond Rate, as applicable, is a fixed
rate, the related Certificate Rate or Bond Rate applicable to the
distribution on the Distribution Date or Payment Date, as applicable;
(x) the number and aggregate principal balance of Mortgage Loans in the
related Mortgage Pool contractually delinquent (a) one month, (b) two
months and (c) three or more months as of the end of the related Collection
Period;
(xi) the number and aggregate principal balance of all Mortgage Loans in
foreclosure or other similar proceedings, and the book value of any real
estate acquired through foreclosure or grant of a deed in lieu of
foreclosure;
(xii) if applicable, the amount remaining in any Reserve Account or the
amount remaining of any other credit support, after giving effect to the
distribution or payment, as applicable, on the Distribution Date or Payment
Date, as applicable;
(xiii) if applicable, during the Funding Period, the remaining
Prefunding Amount and the portion of the Prefunding Amount used to acquire
additional Mortgage Loans since the preceding Distribution Date or Payment
Date as applicable;
(xiv) if applicable, during the Funding Period, the amount remaining in
the Capitalized Interest Account; and
(xv) the amount of Monthly Advances, Servicing Advances and/or
Compensating Interest Payments, if any, made since the preceding
Distribution Date or Payment Date, as applicable.
Where applicable, any amount set forth above may be expressed as a dollar
amount of the related Securities having the denomination or interest specified
either in the related Prospectus Supplement or in the report to
Securityholders. The report to Securityholders for any Series of Securities may
include additional or other information of a similar nature to that specified
above.
The "Pool Balance" means the aggregate outstanding principal balance of
the Mortgage Loans as of the related Distribution Date or Payment Date, as
applicable, and the "Pool Factor" is the percentage obtained by dividing the
Pool Balance as of such Distribution Date or Payment Date, as applicable, by
the Cut-off Date Pool Balance.
60
<PAGE>
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer or the Trustee will mail to each person who was a
Securityholder of record at any time during such calendar year (a) a report as
to the aggregate of amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record
during a portion of such calendar year, for the applicable portion of such year
and (b) such other customary information as may be deemed necessary or
desirable for Securityholders to prepare their tax returns.
61
<PAGE>
CREDIT ENHANCEMENT
Credit enhancement may be provided with respect to a Series of Securities
or with respect to the Mortgage Loans included in the related Trust or Trust
Estate, as applicable. Credit enhancement may be in the form of (i) in the case
of a given Series of Certificates, the subordination of one or more Classes of
the Certificates of such Series, (ii) the use of a Financial Guaranty Insurance
Policy, a Mortgage Pool Insurance Policy, a Special Hazard Insurance Policy, a
Bankruptcy Bond, a Reserve Account or other insurance policies, cash accounts,
letters of credit, limited guaranty insurance policies, third party guarantees
or other forms of credit enhancement described in the related Prospectus
Supplement, or in the case of a given Series of Certificates, the use of a
cross-support feature, or (iii) any combination of the foregoing. The
protection against losses afforded by any credit enhancement will be limited
and will not guarantee repayment of the entire principal balance of the
Securities and interest thereon. If losses occur that exceed the maximum amount
covered by the credit enhancement or that are not covered by the credit
enhancement, Securityholders will bear their allocable share of such
deficiency. If a form of credit enhancement applies to several Classes of
Certificates of a given Series, and if principal payments of certain Classes
will be distributed prior to such distributions to other Classes, the Classes
which receive distributions at a later time are more likely to bear any losses
which exceed the amount covered by credit enhancement.
Unless otherwise specified in the Prospectus Supplement, coverage under
any credit enhancement may be canceled or reduced by the related Transferor
without the consent of Securityholders, if such cancellation or reduction would
not adversely affect the rating or ratings of the related Securities.
SUBORDINATION
If so specified in a Prospectus Supplement relating to a given Series of
Certificates, scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been distributable to one or more
Classes of Subordinated Certificates of such Series will instead be distributed
to holders of one or more Classes of Senior Certificates, under the
circumstances and to the extent specified in such Prospectus Supplement. If
specified in the related Prospectus Supplement, the holders of Senior
Certificates will receive the amounts of principal and interest due to them on
each Distribution Date out of the funds available for distribution on such date
in the related Certificate Account prior to any such distribution being made to
holders of the related Subordinated Certificates, in each case under the
circumstances and subject to the limitations specified in such Prospectus
Supplement. The protection afforded to the holders of Senior Certificates
through subordination also may be accomplished by first allocating certain
types of losses or delinquencies to the related Subordinated Certificates, to
the extent described in the related Prospectus Supplement. If aggregate losses
and delinquencies in respect of such Mortgage Loans were to exceed the total
amounts otherwise available for distribution to holders of Subordinated
Certificates or, if applicable, were to exceed the specified maximum amount,
holders of Senior Certificates would experience losses on such Certificates.
If so specified in the Prospectus Supplement relating to a given Series of
Certificates, the same Class of Certificates may be Senior Certificates with
respect to the right to receive certain types of payments or with respect to
the allocation of certain types of losses or
62
<PAGE>
delinquencies and Subordinated Certificates with respect to the right to
receive other types of payments or with respect to the allocation of certain
types of losses or delinquencies. If specified in the Prospectus Supplement,
various Classes of Senior Certificates and Subordinated Certificates may
themselves be subordinate in their right to receive certain distributions to
other Classes of Senior and Subordinated Certificates, respectively, through a
cross-support mechanism or otherwise. As between Classes of Senior Certificates
and as between Classes of Subordinated Certificates, distributions may be
allocated among such Classes (i) in the order of their scheduled final
distribution dates, (ii) in accordance with a schedule or formula, (iii) in
relation to the occurrence of certain events or (iv) otherwise, in each case as
specified in the related Prospectus Supplement.
The related Prospectus Supplement will set forth information concerning
the amount of subordination of a Class or Classes of Subordinated Certificates
in a Series, the circumstances in which such subordination will be applicable,
the manner, if any, in which the amount of subordination will decrease over
time, the manner of funding any Reserve Account and the conditions under which
amounts in any such Reserve Account will be used to make distributions to
Senior Certificateholders or released to Subordinated Certificateholders from
the related Trust.
OVERCOLLATERALIZATION FEATURE
If so specified in the related Prospectus Supplement, credit enchancement
may include overcollateralization resulting from (i) the application of excess
cash on specified Distribution Dates to the reduction of the principal balances
of the Certificates and/or Bonds, as applicable, so that over time the
outstanding principal balance of the related Mortgage Loans will exceed the
aggregate of the principal balances of the Certificates and/or Bonds, as
applicable, or (ii) collateral securing the Mortgage Loans having a value at
the Closing Date in excess of the aggregate of the principal balances of the
Certificates and/or Bonds, as applicable (any such feature, an
"Overcollateralization Feature"). Any Overcollateralization Feature will be
described more fully in the related Prospectus Supplement.
RESERVE ACCOUNTS
If so specified in the related Prospectus Supplement, cash, U.S. Treasury
securities, instruments evidencing ownership of principal or interest payments
thereon, demand notes, certificates of deposit or a combination thereof in the
aggregate amount specified in such Prospectus Supplement may be deposited by
the related Transferor, the Servicer or the Originators, as applicable, on the
date specified in the related Prospectus Supplement in one or more reserve
accounts (each, a "Reserve Account") established as part of the related Trust
or Trust Estate, as applicable. In addition to or in lieu of the foregoing, if
so specified in a Prospectus Supplement relating to a given Series of
Certificates, all or any portion of amounts otherwise distributable on any
Distribution Date to holders of Subordinated Certificates may instead be
deposited into a Reserve Account. Such deposits may be made on the date
specified in the related Prospectus Supplement, which may include each
Distribution Date for specified periods or until the balance in the Reserve
Account has reached a specified amount. See "-- Subordination" above.
The cash and other assets in a Reserve Account will be used to enhance the
likelihood of timely payment of principal of, and interest on, or, if so
specified in the related Prospectus Supplement, to provide additional
protection against losses in respect of, the assets in the
63
<PAGE>
related Trust or Trust Estate, as applicable, to pay the expenses of the Trust
or Trust Estate, as applicable, or for such other purposes specified in such
Prospectus Supplement. Any cash in a Reserve Account and the proceeds upon
maturity or liquidation of any other asset or instrument therein will be
invested, to the extent acceptable to the applicable Rating Agency, in
Permitted Investments, including obligations of the United States and certain
agencies thereof, certificates of deposit, certain commercial paper, time
deposits and bankers acceptances sold by eligible commercial banks, certain
repurchase agreements of United States government securities with eligible
commercial banks and certain other instruments acceptable to the applicable
Rating Agency. Unless otherwise specified in the related Prospectus Supplement,
any asset or instrument deposited in any Reserve Account will name the Trustee,
in its capacity as trustee for the Securityholders, as beneficiary and will be
issued by an entity acceptable to the applicable Rating Agency.
Any amounts on deposit in a Reserve Account will be available for
withdrawal from such Reserve Account for distribution or payment, as
applicable, to holders of Securities or release to holders of Securities, the
related Transferor, the Servicer, the Originators or another entity for the
purposes, in the manner and at the times specified in the related Prospectus
Supplement.
FINANCIAL GUARANTY INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a financial guaranty
insurance policy or policies (each, a "Financial Guaranty Insurance Policy")
may be obtained and maintained for the Securities of a given Series. The
provider of any Financial Guaranty Insurance Policy (a "Securities Insurer")
will be described in the related Prospectus Supplement. A copy of any such
Financial Guaranty Insurance Policy will be attached as an exhibit to the
related Pooling and Servicing Agreement or Indenture, as applicable.
Unless otherwise specified in the related Prospectus Supplement, a
Financial Guaranty Insurance Policy will unconditionally and irrevocably
guarantee to Securityholders that a certain amount will be available for
distribution or payment, as applicable, to Securityholders on a related
Distribution Date or Payment Date, as applicable (the "Insured Amount"). The
Insured Amount will equal the full amount of principal and interest
distributable as of any Distribution Date or due and payable as of any Payment
Date, as applicable, to Securityholders under the related Pooling and Servicing
Agreement or Indenture, as applicable, plus any other amounts specified therein
or in the related Prospectus Supplement.
The specific terms of any Financial Guaranty Insurance Policy will be
described in the related Prospectus Supplement.
Subject to the terms of the related Pooling and Servicing Agreement or
Indenture, as applicable, a Securities Insurer may be subrogated to the rights
of Securityholders to receive payments under the Securities to the extent of
any payments by such Securities Insurer under the related Financial Guaranty
Insurance Policy that were not previously reimbursed. However, any such
subrogation rights of a Securities Insurer may not result in a reduction of the
amount otherwise distributable on any Distribution Date or due and payable on
any Payment Date, as applicable, to holders of the Securities covered by such
Financial Guaranty Insurance Policy.
64
<PAGE>
MORTGAGE POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a mortgage pool
insurance policy or policies (each, a "Mortgage Pool Insurance Policy") issued
by the insurer (the "Mortgage Pool Insurer") named in such Prospectus
Supplement will be obtained and maintained for all or certain of the Mortgage
Loans. A Mortgage Pool Insurance Policy will, subject to the limitations
described below, cover losses on the related Mortgage Loans up to a maximum
amount specified in the related Prospectus Supplement. A Mortgage Pool
Insurance Policy, however, is not a blanket policy against loss, as claims
thereunder may be made only respecting losses on certain Mortgage Loans and
only upon satisfaction of certain conditions precedent described below. Unless
otherwise specified in a related Prospectus Supplement, a Mortgage Pool
Insurance Policy will not cover losses due to a failure to pay or denial of a
claim under a primary mortgage insurance policy.
A Mortgage Pool Insurance Policy generally will not insure (and many
primary mortgage insurance policies do not insure) against loss sustained by
reason of a default arising from, among other things, (i) fraud or negligence
in the origination or servicing of a Mortgage Loan, including misrepresentation
by the Mortgagor, the Originator or persons involved in the origination
thereof, or (ii) failure to construct a Mortgaged Property in accordance with
plans and specifications. If so specified in the related Prospectus Supplement,
an endorsement to a Mortgage Pool Insurance Policy, a bond or other credit
support may cover fraud in connection with the origination of Mortgage Loans.
If so specified in the related Prospectus Supplement, a failure of coverage
attributable to an event specified in clause (i) or (ii) above might result in
a breach of the related Transferor's representations and, in such event, might
give rise to an obligation on the part of the related Transferor to withdraw
the defaulted Mortgage Loan from the Mortgage Pool if the breach cannot be
cured by the such Transferor. No Mortgage Pool Insurance Policy will cover
losses in respect of a defaulted Mortgage Loan occurring when the Servicer of
such Mortgage Loan, at the time of default or thereafter, was not approved by
the applicable Mortgage Pool Insurer.
The original amount of coverage under a Mortgage Pool Insurance Policy
will be reduced over the life of the related Securities by the aggregate dollar
amount of claims paid by the Servicer less the aggregate of the net amounts
realized by the Mortgage Pool Insurer upon disposition of all foreclosed
properties. The amount of claims paid will include certain expenses incurred by
the Servicer, as well as accrued interest on delinquent Mortgage Loans to the
date of payment of the claim. Accordingly, if aggregate net claims paid under a
Mortgage Pool Insurance Policy reach the maximum amount, coverage under the
Mortgage Pool Insurance Policy will be exhausted and any further losses will be
borne by the related Securityholders.
The terms of any Mortgage Pool Insurance Policy will be described in the
related Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a special hazard
insurance policy or policies (each, a "Special Hazard Insurance Policy") will
be obtained for the related Mortgage Pool and will be issued by the insurer
(the "Special Hazard Insurer") named in such Prospectus Supplement. Each
Special Hazard Insurance Policy, subject to limitations described below, will
protect the related Securityholders from (i) loss by reason of damage to
Mortgaged Properties caused by certain hazards (including earthquakes and, to a
limited
65
<PAGE>
extent, tidal waves and related water damage) not insured against under the
standard form of hazard insurance policy for the respective states in which the
Mortgaged Properties are located or under a flood insurance policy if the
Mortgaged Property is not located in a federally designated flood area, and
(ii) loss caused by reason of the application of the coinsurance clause
contained in a hazard insurance policy. See "The Pooling and Servicing
Agreement -- Maintenance of Hazard Insurance" herein. A Special Hazard
Insurance Policy will not cover losses occasioned by war, civil insurrection,
certain governmental action, errors in design, faulty workmanship or materials
(except under certain circumstances), nuclear reaction, flood (if the Mortgaged
Property is located in a federally designated flood area), chemical
contamination and certain other risks. The amount of coverage under any Special
Hazard Insurance Policy will be specified in the related Prospectus Supplement.
A Special Hazard Insurance Policy will provide that no claim may be paid unless
hazard and, if applicable, flood insurance on the related Mortgaged Property
securing the Mortgage Loan has been kept in force and other protection and
preservation expenses have been paid.
The terms of any Special Hazard Insurance Policy will be described in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, because
each Special Hazard Insurance Policy will be designed to permit full recovery
under the Mortgage Pool Insurance Policy in circumstances in which such
recoveries would otherwise be unavailable because property has been damaged by
a cause not insured against by a standard hazard policy and thus would not be
restored, each Pooling and Servicing Agreement and Servicing Agreement will
provide that, if the related Mortgage Pool Insurance Policy shall have been
terminated or been exhausted through payment of claims, the Servicer will be
under no further obligation to maintain such Special Hazard Insurance Policy.
BANKRUPTCY BONDS
If so specified in the related Prospectus Supplement, a bankruptcy bond or
bonds (each, a "Bankruptcy Bond") for proceedings under the United States
Bankruptcy Code will be issued by an insurer named in such Prospectus
Supplement. A Bankruptcy Bond will cover certain losses resulting from a
reduction by a bankruptcy court of scheduled payments of principal and interest
on a Mortgage Loan or a reduction by such court of the principal amount of a
Mortgage Loan and will cover certain unpaid interest on the amount of such a
principal reduction from the date of the filing of a bankruptcy petition. The
level of coverage and other terms of a Bankruptcy Bond will be set forth in the
related Prospectus Supplement.
CROSS SUPPORT
If so specified in a Prospectus Supplement relating to a given Series of
Certificates, the beneficial interests of separate Trusts or separate groups of
assets in a single Trust may be evidenced by separate Classes of the
Certificates of such Series. In such case, credit support may be provided by a
cross-support feature which requires that distributions be made with respect to
Certificates evidencing a beneficial interest in other asset groups within the
same Trust. The Prospectus Supplement for a Series of Certificates which
includes a cross-support feature will describe the manner and conditions for
applying such cross-support feature.
If so specified in a Prospectus Supplement relating to a given Series of
Certificates, the coverage provided by one or more other forms of credit
enhancement, such as Financial
66
<PAGE>
Guaranty Insurance Policies or Reserve Accounts, may apply concurrently to two
or more separate Trusts, without priority among such Trusts, until the credit
support is exhausted. If applicable, the Prospectus Supplement will identify
the Trusts to which such credit enhancement relates and the manner of
determining the amount of the coverage provided thereby and the application of
such coverage to the identified Trusts or asset groups.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If so specified in the related Prospectus Supplement, a Trust or Trust
Estate, as applicable, may include, in addition to or in lieu of some or all of
the foregoing, letters of credit, third party guarantees and other arrangements
for maintaining timely payments or providing additional protection against
losses on the assets included in such Trust or Trust Estate, as applicable,
paying administrative expenses or accomplishing such other purpose. The related
Prospectus Supplement will describe any such arrangements, including
information as to the extent of coverage and any conditions or limitations
thereto. The related Trust or Trust Estate, as applicable, may include a
guaranteed investment contract or reinvestment agreement pursuant to which
funds held in one or more accounts will be invested at a specified rate. Any
such arrangement must be acceptable to each Rating Agency named in the related
Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENT
To the extent that the related Prospectus Supplement expressly provides
for credit enhancement and maintenance arrangements, the following paragraphs
shall apply.
If a form of credit enhancement has been obtained for a Series of
Securities, the related Transferor or the Servicer will be obligated to
exercise its reasonable efforts to keep or cause to be kept such form of credit
support in full force and effect throughout the term of the related Pooling and
Servicing Agreement, Indenture or Servicing Agreement, as applicable, unless
coverage thereunder has been exhausted through payment of claims or otherwise,
or substitution therefor is made as described below.
In lieu of the obligation to maintain a particular form of credit
enhancement, the related Transferor or the Servicer may obtain a substitute or
alternate form of credit enhancement. If the related Transferor obtains such a
substitute form of credit enhancement, such form of credit enhancement will be
maintained and kept in full force and effect as provided herein. Prior to its
obtaining any substitute or alternate form of credit enhancement, the related
Transferor or the Servicer will obtain written confirmation from each
applicable Rating Agency that the substitution or alternate form of credit
enhancement for the existing credit enhancement will not adversely affect the
then current ratings assigned to such Securities by each applicable Rating
Agency.
The Servicer will provide the Trustee information required for the Trustee
to draw under a Financial Guaranty Insurance Policy or any letter of credit,
will present claims to any Mortgage Pool Insurer, any Special Hazard Insurer
and to any provider of a Bankruptcy Bond, and will take such reasonable steps
as are necessary to permit recovery under such Financial Guaranty Insurance
Policy, letter of credit, Bankruptcy Bond, Special Hazard Insurance Policy,
Mortgage Pool Insurance Policy or other applicable forms of credit enhancement.
Additionally, the Servicer will present such claims and take such steps as are
reasonably necessary to provide for the performance by another party of its
obligations to withdraw Mortgage Loans from the related Mortgage Pool pursuant
to the terms of the
67
<PAGE>
related Agreement or Indenture, as applicable. All collections by the Servicer
under any Mortgage Pool Insurance Policy or any Bankruptcy Bond and, where the
related property has not been restored, any Special Hazard Insurance Policy,
are to be deposited initially in the Collection Account and ultimately in the
Certificate Account or Bond Account, as applicable, subject to withdrawal.
Unless otherwise specified in the related Prospectus Supplement, all draws
under any Financial Guaranty Insurance Policy or letter of credit will be
deposited directly in the Certificate Account or Bond Account, as applicable.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
Special Hazard Insurance Policy are insufficient to restore the damaged
property to a condition sufficient to permit recovery under any applicable form
of credit enhancement, the Servicer is not required to expend its own funds to
restore the damaged property unless it determines (i) that such restoration
will increase the proceeds to Securityholders on liquidation of the Mortgage
Loan after reimbursement to the Servicer for its expenses and (ii) that such
expenses will be recoverable out of related Liquidation Proceeds or Insurance
Proceeds. If recovery under any applicable form of credit enhancement is not
available because the Servicer has been unable to make the above determinations
or has made such determinations incorrectly or recovery is not available for
any other reason, the Servicer is nevertheless obligated to follow such normal
practices and procedures (subject to the preceding sentence) as it deems
necessary or advisable to realize upon the defaulted Mortgage Loan and in the
event such determination has been incorrectly made, is entitled to
reimbursement of its expenses in connection with such restoration.
68
<PAGE>
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The yields to maturity of the Securities will be affected by the amount
and timing of principal payments on or in respect of the Mortgage Loans
included in the related Mortgage Pools, the allocation of available funds to
the Securities, the Certificate Rate for various Classes of a Series of
Certificates or the Bond Rate for various Series of Bonds, as applicable, and
the purchase price paid for the Securities.
The original terms to maturity of the Mortgage Loans in a given Mortgage
Pool will vary depending upon the type of Mortgage Loans included therein. Each
Prospectus Supplement will contain information with respect to the type and
maturities of the Mortgage Loans in the related Mortgage Pool. Unless otherwise
specified in the related Prospectus Supplement, Mortgage Loans may be prepaid
without penalty in full or in part at any time, although a prepayment fee or
penalty may be imposed in connection therewith.
The rate of prepayments with respect to mortgage loans has fluctuated
significantly in recent years. In general, if prevailing rates fall appreciably
below the Mortgage Rates borne by the Mortgage Loans, such Mortgage Loans are
likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above such Mortgage Rates. Conversely, if prevailing
interest rates rise appreciably above the Mortgage Rates borne by the Mortgage
Loans, such Mortgage Loans are likely to experience a lower prepayment rate
than if prevailing rates remain at or below such Mortgage Rates. However, there
can be no assurance that such will be the case.
Prepayments are influenced by a variety of economic, geographical, social,
tax, legal and additional factors. The rate of prepayments on Mortgage Loans
may be affected by changes in a Mortgagor's housing needs, job transfers,
unemployment, Mortgagor's net equity in the related Mortgaged Property, the
enforcement of due-on-sale clauses and other servicing decisions. Adjustable
rate mortgage loans, bi-weekly mortgage loans, graduated payment mortgage
loans, growing equity mortgage loans, reverse mortgage loans, buy-down mortgage
loans and mortgage loans with other characteristics may experience a rate of
principal prepayments which is different from that of fixed rate, monthly pay,
fully amortizing mortgage loans.
Generally, mortgage loans secured by junior liens have smaller average
principal balances than senior or first mortgage loans and are not viewed by
borrowers as permanent financing. Accordingly, such mortgage loans may
experience a higher rate of prepayment than mortgage loans which represent
first liens. In addition, any future limitations on the right of borrowers to
deduct interest payments on second mortgage loans for federal income tax
purposes may result in a higher rate of prepayment of such mortgage loans. The
obligation of the Servicer to enforce due-on-sale provisions of the mortgage
loans may also increase prepayments. The prepayment experience of the Mortgage
Pools may be affected by a wide variety of factors, including general and local
economic conditions, mortgage market interest rates, the availability of
alternative financing and homeowner mobility.
Unless otherwise provided in the related Prospectus Supplement, all of the
Mortgage Loans will contain due-on-sale provisions permitting the mortgagee to
accelerate the maturity of the Mortgage Loan upon sale or certain transfers by
the Mortgagor of the underlying Mortgaged Property. Unless otherwise provided
in the related Prospectus Supplement, the Servicer generally will enforce any
due-on-sale or due-on-encumbrance clause, to the extent it has knowledge of the
conveyance or further encumbrance or the
69
<PAGE>
proposed conveyance or proposed further encumbrance of the Mortgaged Property
and reasonably believes that it is entitled to do so under applicable law;
provided, however, that the Servicer will not take any enforcement action that
would materially increase the risk of default or delinquency on, or materially
decrease the security for, such Mortgage Loan. See "The Pooling and Servicing
Agreement -- Enforcement of Due-on-Sale Clauses" herein.
The weighted average lives of Securities will also be affected by the
amount and timing of delinquencies and defaults on the Mortgage Loans and the
liquidations of defaulted Mortgage Loans. Delinquencies and defaults will
generally slow the rate of payment of principal to the Securityholders.
However, this effect will be offset to the extent that lump sum recoveries on
defaulted Mortgage Loans and foreclosed Mortgaged Properties result in
principal payments on the Mortgage Loans that are faster than otherwise
scheduled.
When a full prepayment occurs on a Mortgage Loan, the Mortgagor will be
charged interest on the principal amount of the Mortgage Loan so prepaid only
for the number of days in the month actually elapsed up to the date of the
prepayment rather than for a full month. Interest shortfalls also could result
from the application of the Relief Act, as described under "Certain Legal
Aspects of the Mortgage Loans and Related Matters -- Soldiers' and Sailors'
Civil Relief Act" herein. Unless otherwise specified in the related Prospectus
Supplement, in the event that less than 30 days' interest is collected on a
Mortgage Loan during a Collection Period, the Servicer or any Sub-Servicer, if
applicable, will be obligated to make a Compensating Interest Payment with
respect thereto, but only to the extent of the aggregate Servicing Fee for the
related Distribution Date or Payment Date, as applicable. To the extent such
shortfalls exceed the amount of the Compensating Interest Payment that the
Servicer or any Sub-Servicer is obligated to pay, the yield on the Securities
could be adversely affected. Partial prepayments in a given month may be
applied to the outstanding principal balances of the Mortgage Loans so prepaid
on the first day of the month of receipt or the month following receipt. In the
latter case, partial prepayments will not reduce the amount of interest passed
through in such month.
Under certain circumstances, the related Transferor, the Servicer or
certain other entities specified in the Prospectus Supplement relating to a
Series of Certificates may have the option to acquire the Mortgage Loans and
other assets of a Trust, thereby effecting early retirement of the related
Series of Certificates, subject to the principal balance of the related
Mortgage Loans being less than the percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Loans
at the Cut-off Date for the related Series. Typically, the related Transferor,
the Servicer or such other entity will cause the retirement of a Series of
Certificates at the point at which servicing of the remaining relatively small
pool of Mortgage Loans becomes inefficient. See "The Pooling and Servicing
Agreement -- Termination; Optional Termination" herein. Under certain
circumstances, a Series of Bonds may be (i) redeemed at the option of the
related Bond Issuer or another party specified in the Prospectus Supplement
relating to such Series of Bonds; or (ii) subject to special redemption under
certain circumstances. The circumstances and terms under which the Bonds of a
Series may be redeemed will be described in the related Prospectus Supplement.
See "The Indenture -- Redemption of Bonds" herein.
Unless otherwise specified in the related Prospectus Supplement, the
effective yield to Securityholders will be slightly lower than the yield
otherwise produced by the applicable Certificate Rate or Bond Rate and purchase
price, because while interest generally will accrue on the Securities from the
first day of each month, the distribution or payment, as applicable, of such
interest will not be made earlier than a specified date in the month following
the month of accrual.
70
<PAGE>
With respect to Mortgage Loans that provide for Negative Amortization, the
related mortgagor has the option to defer payments of interest for periods
specified in such Mortgage Loan. In the aggregate, deferral of interest may
result in reduced collections during one or more Collection Periods, although
collections in future Collection Periods may be relatively greater because (i)
interest not paid during such period will be added to the principal balance of
the related Mortgage Loan to be repaid over time and (ii) such Deferred
Interest will bear interest at the interest rate specified in the Mortgage Loan
each month until paid, increasing the aggregate amount of interest to be paid
by the related mortgagor over time. In the aggregate, Negative Amortization of
Mortgage Loans may have the effect of reducing the overall payment and
repayment rate experience of a Mortgage Pool.
The timing of payments on the Mortgage Loans may significantly affect an
investor's yield. In general, the earlier a prepayment of principal on the
Mortgage Loans, the greater will be the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate faster (or slower) than the rate anticipated by
the investor during the period immediately following the issuance of the
Securities will not be offset by a subsequent like reduction (or increase) in
the rate of principal payments.
The Prospectus Supplement relating to a Series of Securities may discuss
in greater detail the effect of the rate and timing of principal payments
(including prepayments) on the yield, weighted average lives and maturities of
such Securities, including the effect of prepayments and allocation of realized
losses on the Mortgage Loans as they relate to specific Classes of
Certificates. Factors other than those identified herein and in the related
Prospectus Supplement could significantly affect principal prepayments at any
time and over the lives of the Securities. The relative combination of the
various factors affecting prepayment may also vary from time to time. There can
be no assurance as to the rate of payment of principal of the Mortgage Loans at
any time or over the lives of the Securities.
71
<PAGE>
THE POOLING AND SERVICING AGREEMENT
Set forth below is a summary of the material provisions of each Pooling
and Servicing Agreement that are not described elsewhere in this Prospectus.
The summary does not purport to describe all provisions of each Pooling and
Servicing Agreement, and is subject to, and qualified in its entirety by
reference to, the provisions of each Pooling and Servicing Agreement. Where
provisions or terms used in a particular Pooling and Servicing Agreement are
different than as described herein, a description of such provisions or terms
will be included in the related Prospectus Supplement.
The Mortgage Loans to be included in a Mortgage Pool for a Series of Bonds
will be assigned to the Trustee pursuant to provisions included in the related
Indenture that are substantially the same as, and the obligations of ACAC, as
Transferor (or the related Bond Issuer, if a different entity, to the extent
described in the related Prospectus Supplement), and the Trustee with respect
to the Mortgage Loans so conveyed will be substantially similar to, those
described under "-- Assignment of Mortgage Loans" below. In addition, the
Mortgage Loans included in a Mortgage Pool for a Series of Bonds will be
serviced pursuant to the terms of a Servicing Agreement and any such Servicing
Agreement will contain provisions governing the servicing of such Mortgage
Loans that are substantially similar to the provisions included in each Pooling
and Servicing Agreement relating to servicing and collection procedures with
respect to the related Mortgage Loans as described below. See "The Indenture --
General" herein.
ASSIGNMENT OF MORTGAGE LOANS
Assignment of the Mortgage Loans. At the Closing Date for a Series of
Certificates, the related Transferor will cause the Mortgage Loans that will
comprise the related Trust to be assigned to the Trustee, without recourse,
together with all principal and interest received by or on behalf of the
related Transferor on or with respect to such Mortgage Loans on or after the
Cut-off Date, other than principal and interest due before the Cut-off Date.
The Trustee will, concurrently with such assignment, deliver the Certificates
to the related Transferor in exchange for the Mortgage Loans.
Each Mortgage Loan assigned to the Trustee will be identified in a
schedule appearing as an exhibit to the related Pooling and Servicing Agreement
(a "Loan Schedule"). The Loan Schedule will include information as to the
outstanding principal balance of each Mortgage Loan after application of
payments due on the Cut-off Date, as well as information regarding the Mortgage
Rate, the maturity date of the Mortgage Loan, the Combined Loan-to-Value Ratio
at origination and certain other information.
In connection with the assignment, the related Transferor will be required
to deliver or cause to be delivered to the Trustee certain specified items
(collectively, with respect to each Mortgage Loan, the "Mortgage File"). Unless
otherwise specified in the related Prospectus Supplement each Mortgage File
will be required to include:
(a) the original Mortgage Note, with all intervening endorsements
sufficient to show a complete chain of endorsement to the related
Transferor, endorsed by the related Transferor, without recourse, to the
order of the Trustee;
(b) the original Mortgage with evidence of recording indicated thereon;
(c) the original executed assignment of the Mortgage in recordable
form;
72
<PAGE>
(d) originals of all assumption, modification and substitution
agreements, if any, in those instances where the terms or provisions of a
Mortgage or Mortgage Note have been modified or such Mortgage or Mortgage
Note has been assumed;
(e) originals of all intervening mortgage assignments with evidence of
recording indicated thereon sufficient to show a complete chain of
assignment from the originator of the Mortgage Loan to the related
Transferor; and
(f) the original lender's title insurance policy issued on the date of
the origination of such Mortgage Loan.
Unless otherwise specified in the related Prospectus Supplement, the
related Transferor will promptly cause the assignments of the related Mortgage
Loans to be recorded in the appropriate public office for real property
records, except in states in which, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interest in
such loans against the claim of any subsequent transferee or any successor to
or creditor of the related Transferor or the Originator of such Mortgage Loans.
If the related Transferor cannot deliver the original Mortgage or mortgage
assignment with evidence of recording thereon on the Closing Date solely
because of a delay caused by the public recording office where such original
Mortgage or mortgage assignment has been delivered for recordation, such
Transferor shall deliver to the Trustee an Officer's Certificate, with a
photocopy of such Mortgage attached thereto, stating that such original
Mortgage or mortgage assignment has been delivered to the appropriate public
recording official for recordation. The related Transferor shall promptly
deliver to the Trustee such original Mortgage or mortgage assignment with
evidence of recording indicated thereon upon receipt thereof from the public
recording official. If the related Transferor within six months from the
Closing Date shall not have received such original Mortgage or mortgage
assignment from the public recording official, it shall obtain, and deliver to
the Trustee within eight months from the Closing Date, a copy of such original
Mortgage or mortgage assignment certified by such public recording official to
be a true and complete copy of such original Mortgage or mortgage assignment as
recorded by such public recording office.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Mortgage Loans as agent of the Trustee.
Review of the Mortgage File. The Trustee will agree, for the benefit of
the Certificateholders, to review each Mortgage File and the specified items
delivered by or on behalf of the related Transferor within 45 days after the
Closing Date, to determine if the documents described in clauses (a) through
(f) above have been executed and received, and that such documents relate to
the Mortgage Loans in the Loan Schedule. The Trustee is under no duty or
obligation to inspect, review or examine any such documents, instruments,
certificates or other papers to determine that they are genuine, enforceable or
appropriate for the represented purpose or that they are other than what they
purport to be on their face, nor is the Trustee under any duty to determine
independently whether there are any intervening assignments or assumption or
modification agreements with respect to any Mortgage Loan.
If within such 45-day period the Trustee finds that any document
constituting a part of a Mortgage File is not properly executed, has not been
received or is unrelated to the Mortgage Loans identified in the related Loan
Schedule, or that any Mortgage Loan does
73
<PAGE>
not conform in a material respect to the description thereof as set forth in
the related Loan Schedule, the Trustee will be required to promptly notify the
related Transferor of any defect. Such Transferor will use reasonable efforts
to remedy a material defect in a document constituting part of a Mortgage File
within 60 days after the Trustee's notice. Thereafter, the Trustee shall also
certify that it has received all of the documents referred to in clauses (a)
through (f) and that all corrections or curative actions required to be taken
by the related Transferor within the 60-day period have been completed or
effected, or that the related Mortgage Loans will be withdrawn or substituted,
as specified below.
Withdrawal or Substitution of Mortgage Loans. Unless otherwise specified
in the related Prospectus Supplement, if, within 60 days after the Trustee's
notice of defect, the related Transferor has not remedied the defect and the
defect materially and adversely affects the interest of the Certificateholders
in the related Mortgage Loan, such Transferor will be required to, prior to the
next Distribution Date, at its option, (i) substitute in lieu of such Mortgage
Loan another Mortgage Loan of like kind (a "Qualified Replacement Mortgage
Loan") or (ii) withdraw such Mortgage Loan from the related Mortgage Property
by paying an amount equal to its Principal Balance together with one month's
interest at the Mortgage Rate, less any payments received during the related
Collection Period ("Loan Withdrawal Amount").
If as provided above, the related Transferor, rather than withdrawing the
Mortgage Loan, removes a Mortgage Loan (a "Deleted Mortgage Loan") from the
related Trust and substitutes in its place a Qualified Replacement Mortgage
Loan, such substitution must be effected within 90 days of the date of the
initial issuance of the Certificates of a Series with respect to which no REMIC
election is made. With respect to a Trust for which a REMIC election is to be
made, except as otherwise provided in the related Prospectus Supplement, such
substitution of a defective Mortgage Loan must be effected within two years of
the date of the initial issuance of the Certificates, and may not be made if
such substitution would cause the Trust to not qualify as a REMIC or result in
a prohibited transaction tax under the Code. Except as otherwise provided in
the related Prospectus Supplement, any Qualified Replacement Mortgage Loan
generally will, on the date of substitution, (i) have an outstanding principal
balance, after deduction of all scheduled payments due in the month of
substitution, not in excess of and not substantially less than the outstanding
principal balance of the Deleted Mortgage Loan (the amount of any shortfall to
be paid by or at the direction of the related Transferor to the related Trust
in the month of substitution for distribution to the Certificateholders as a
reduction of principal), (ii) have a Mortgage Rate neither one percentage point
or more less than nor one percentage point or more greater than the Mortgage
Rate of the Deleted Mortgage Loan as of the date of substitution, (iii) have a
remaining term to maturity neither one year or more earlier than nor one year
or more later than that of the Deleted Mortgage Loan and (iv) comply with all
of the representations and warranties set forth in the related Pooling and
Servicing Agreement as of the date of substitution. The related Pooling and
Servicing Agreement may include additional provisions relating to meeting the
foregoing requirements on an aggregate basis where a number of substitutions
occur contemporaneously.
Additionally, unless otherwise specified in the related Prospectus
Supplement, the related Transferor will have made representations and
warranties in respect of the Mortgage Loans assigned by such Transferor and
evidenced by a Series of Certificates. Such representations and warranties
generally include, among other things: (i) that title insurance (or in the case
of Mortgaged Properties located in areas where such policies are generally
74
<PAGE>
not available, an attorney's certificate of title) was in effect on the Closing
Date; (ii) that such Transferor had title to each such Mortgage Loan and such
Mortgage Loan was subject to no offsets, defenses or counterclaims; (iii) that
each Mortgage Loan constituted a valid first or junior lien on the Mortgaged
Property (subject only to permissible title insurance exceptions, if
applicable, and certain other exceptions described in the Pooling and Servicing
Agreement) and that the Mortgaged Property was free from damage and was in
acceptable condition; (iv) that there were no delinquent tax or assessment
liens against the Mortgaged Property; (v) that no required payment on a
Mortgage Loan was more than thirty days delinquent as of the related Cut-off
Date; and (vi) that each Mortgage Loan was made in compliance with, and,
subject to certain limitations, is enforceable under, all applicable state and
federal laws and regulations in all material respects. Upon the discovery by
the related Transferor or the Trustee that the representations in the
applicable Pooling and Servicing Agreement are untrue in any material respect
as of the dates specified therein, with the result that the interests of the
Certificateholders in the related Mortgage Loan are materially and adversely
affected, the party discovering such breach is required to give prompt written
notice to the other parties. Upon the earliest to occur of the related
Transferor's discovery, its receipt of notice of breach from any of the other
parties or such time as a situation resulting from a representation which is
untrue and materially and adversely affects the interests of the
Certificateholders, such Transferor is required promptly to cure such breach in
all material respects or such Transferor will (or will cause the applicable
Originator to) on the Distribution Date next succeeding such discovery, receipt
of notice or such other time, withdraw, or provide a Qualified Replacement
Mortgage Loan, as set forth above. The obligation of the related Transferor so
to cure, substitute or withdraw any Mortgage Loan as to which breach has not
been remedied constitutes the sole remedy available to the Certificateholders
or the Trustee respecting such breach.
Any agreements pursuant to which the related Transferor acquires certain
Mortgage Loans to be deposited in a Trust will contain representations and
obligations of the related Originators that are similar to those described in
the preceding paragraph. The related Transferor may enforce any obligations of
the related Originators in connection with its efforts to cure any breach of a
representation pursuant to the related Pooling and Servicing Agreement. See
"The Originators -- Representations by Originators and the Transferors" herein.
PAYMENTS ON THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, the
Pooling and Servicing Agreement will require the Servicer to establish and
maintain one or more accounts (each, a "Collection Account") at one or more
institutions meeting the requirements set forth in the related Pooling and
Servicing Agreement. Pursuant to the related Pooling and Servicing Agreement,
the Servicer will be required to deposit all collections (other than amounts
escrowed for taxes and insurance) related to the Mortgage Loans into the
Collection Account no later than the second business day after receipt. All
funds in the Collection Accounts will be required to be invested in instruments
designated as Permitted Investments. Any investment earnings on funds held in
the Collection Accounts are for the benefit of the Servicer.
The Servicer may make withdrawals from the Collection Account only for the
following purposes: (a) to make deposits into the Certificate Account as set
forth below; (b)
75
<PAGE>
to pay itself any monthly Servicing Fees; (c) to make any Servicing Advance or
to reimburse itself for any Servicing Advance or Monthly Advance previously
made; (d) to withdraw amounts that have been deposited to the Collection
Account in error; and (e) to clear and terminate the Collection Account.
Unless otherwise specified in the related Prospectus Supplement, not later
than the third day prior to any Distribution Date (the "Deposit Date"), the
Servicer will be required to wire transfer to the Trustee for deposit in the
Certificate Account the sum (without duplication) of all amounts on deposit in
the Collection Account that constitute any portion of Available Funds for the
related Distribution Date. See "Description of Securities -- Distributions and
Payments on Securities -- Available Funds" herein.
INVESTMENT OF ACCOUNTS
Unless otherwise specified in the related Prospectus Supplement, all or a
portion of any Account, including the Collection Account, may be invested and
reinvested in one or more Permitted Investments bearing interest or sold at a
discount. The Trustee or any affiliate thereof may be the obligor on any
investment in any Account which otherwise qualifies as a Permitted Investment.
No investment in the Collection Account may mature later than the Deposit Date
next succeeding the date of investment.
The Trustee will not in any way be held liable by reason of any
insufficiency in any Account resulting from any loss on any Permitted
Investment included therein.
Unless otherwise specified in the related Prospectus Supplement, all
income or other gain from investments in any Account will be held in such
Account for the benefit of the Servicer and will be subject to withdrawal from
time to time as permitted by the related Pooling and Servicing Agreement. Any
loss resulting from such investments will be for the account of the Servicer.
The Servicer will be required to deposit the amount of any such loss
immediately upon the realization of such loss to the extent such loss is not
offset by other income or gain from investments in such Account and then
available for such application.
PERMITTED INVESTMENTS
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will define "Permitted Investments" generally
as follows:
(a) Direct general obligations of the United States or the obligations
of any agency or instrumentality of the United States, the timely payment
or the guarantee of which constitutes a full faith and credit obligation of
the United States.
(b) Federal Housing Administration debentures, but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount
upon maturity or call for redemption.
(c) Federal Home Loan Mortgage Corporation senior debt obligations, but
excluding any such securities whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for redemption.
(d) Federal National Mortgage Association senior debt obligations, but
excluding any such securities whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for redemption.
76
<PAGE>
(e) Federal funds, certificates of deposit, time and demand deposits,
and bankers' acceptances (having original maturities of not more than 365
days) of any domestic bank or trust company, the short-term debt
obligations of which have been assigned a minimum rating specified in the
related Pooling and Servicing Agreement by the applicable Rating Agency.
(f) Deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of at least $50,000,000
which deposits are not in excess of the applicable limits insured by the
Bank Insurance Fund or the Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation, provided that the long-term deposits
of such bank or savings and loan association are assigned a minimum rating
specified in the related Pooling and Servicing Agreement by the applicable
Rating Agency.
(g) Commercial paper (having original maturities of not more than 180
days) assigned a minimum rating specified in the related Pooling and
Servicing Agreement by the applicable Rating Agency.
(h) Investments in money market funds assigned a minimum rating
specified in the related Pooling and Servicing Agreement by the applicable
Rating Agency.
(i) Other investments acceptable to the applicable Rating Agency.
No instrument described above is permitted to evidence either the right to
receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations, and no instrument
described above may be purchased at a price greater than par if such instrument
may be prepaid or called at a price less than its purchase price prior to
stated maturity.
MONTHLY ADVANCES AND COMPENSATING INTEREST
In order to maintain a regular flow of scheduled interest to
Certificateholders (rather than to guarantee or insure against losses), unless
otherwise provided in the related Prospectus Supplement, each Pooling and
Servicing Agreement will require that, on each Distribution Date, the Servicer
or any Sub-Servicer deposit in the Collection Account an amount of its own
funds (a "Monthly Advance"). Unless otherwise specified in the related
Prospectus Supplement, a "Monthly Advance" will be equal to the sum of the
interest portions of the aggregate amount of monthly payments (net of the
Servicing Fee) due on the Mortgage Loans during the related Collection Period,
but delinquent as of the close of business on the last day of the related
Collection Period, plus, with respect to each Mortgaged Property which was
acquired in foreclosure or similar action (each, an "REO Property") during or
prior to the related Collection Period and as to which final sale did not occur
during the related Collection Period, an amount equal to the excess, if any, of
interest on the outstanding principal balance of the Mortgage Loan relating to
such REO Property for the related Collection Period at the related Mortgage
Rate (net of the Servicing Fee) over the net income from the REO Property
transferred to the Certificate Account for such Distribution Date.
The Servicer or any Sub-Servicer, if applicable, may recover Monthly
Advances, if not recovered from the Mortgagor on whose behalf such Monthly
Advance was made, from late
77
<PAGE>
collections on the related Mortgage Loans, including Liquidation Proceeds,
insurance proceeds and such other amounts as may be collected by the Servicer
from the Mortgagor or otherwise relating to the Mortgage Loan. To the extent
the Servicer, in its good faith business judgment, determines that any Monthly
Advance will not be ultimately recoverable from late collections, insurance
proceeds, Liquidation Proceeds on the related Mortgage Loans or otherwise, the
Servicer may reimburse itself or a Sub-Servicer, if applicable, on the next
Distribution Date from Available Funds remaining in the Certificate Account
after making required payments on such Distribution Date.
With respect to each Mortgage Loan as to which a prepayment is received,
that becomes a Liquidated Mortgage Loan or is otherwise charged-off during the
Collection Period related to a Distribution Date, unless otherwise specified in
the related Prospectus Supplement, the Servicer will be required with respect
to such Distribution Date to remit to the Trustee, from amounts otherwise
payable to the Servicer as the Servicing Fee, an amount generally representing
the excess of interest on the principal balance of such Mortgage Loan prior to
such prepayment, liquidation or charge-off over the amount of interest actually
received on the related Mortgage Loan during the applicable Collection Period
(each such amount, a "Compensating Interest Payment"). The Servicer will not be
entitled to be reimbursed from collections on the Mortgage Loans or any assets
of the Trust for any Compensating Interest Payments made. If the Servicing Fee
in respect of such Collection Period is insufficient to make the entire
required Compensating Interest Payment, the resulting shortfall will reduce the
amount of interest payable to the Certificateholders on such Distribution Date
and such reduction will not be recoverable thereafter.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, the
Servicer is required to foreclose upon or otherwise comparably effect the
ownership in the name of the Servicer, on behalf of the Trustee, of Mortgaged
Properties relating to defaulted Mortgage Loans as to which no satisfactory
arrangements can be made for collection of delinquent payments and which the
related Transferor or the Servicer has not reacquired pursuant to the option
described below, unless the Servicer reasonably believes that Liquidation
Proceeds with respect to such Mortgage Loan would not be increased as a result
of such foreclosure or other action, in which case the Mortgage Loan will be
charged off and will be liquidated (a "Liquidated Mortgage Loan"). In
connection with such foreclosure or other conversion, the Servicer is required
to exercise or use foreclosure procedures with the same degree of care and
skill as it would ordinarily exercise or use under the circumstances in the
conduct of its own affairs. Any amounts advanced in connection with such
foreclosure or other action will constitute Servicing Advances.
Unless otherwise specified in the related Prospectus Supplement, if a
REMIC election has been made, the Servicer will be required to sell REO
Property within two years of its acquisition by the Trustee, unless an opinion
of counsel experienced in federal income tax matters, addressed to the Trustee,
the related Transferor and the Servicer is obtained to the effect that the
holding by the Trust of such REO Property for a greater specified period will
not result in the imposition of taxes on "prohibited transactions" of the Trust
as defined in Section 860F of the Code or cause the Trust to fail to qualify as
a REMIC.
In servicing the Mortgage Loans, the Servicer is required to determine,
with respect to each defaulted Mortgage Loan, when it has recovered, whether
through trustee's sale,
78
<PAGE>
foreclosure sale or otherwise, all amounts, if any, it expects to recover from
or on account of such defaulted Mortgage Loan, whereupon such Mortgage Loan
shall become a Liquidated Mortgage Loan.
Unless otherwise specified in the related Prospectus Supplement, the
related Transferor or the Servicer may have the right and the option under the
related Pooling and Servicing Agreement, but not the obligation, to reacquire
for its own account any Mortgage Loan which becomes delinquent, in whole or in
part, as to three consecutive monthly installments or any Mortgage Loan as to
which enforcement proceedings have been brought by the Servicer subject to
certain limitations set forth in the Prospectus Supplement. Any such Mortgage
Loan so reacquired will be withdrawn from the related Mortgage Pool on a
Deposit Date at the Loan Withdrawal Amount thereof.
GENERAL SERVICING PROCEDURES
The Servicer will service the Mortgage Loans, either directly or through
Sub-Servicers, in accordance with the provisions of each related Pooling and
Servicing Agreement and the policies and procedures customarily employed by the
Servicer in servicing other comparable mortgage loans. Servicing includes, but
is not limited to, post-origination loan processing, customer service,
remittance handling, collections and liquidations.
The Servicer, in its own name or in the name of any Sub-Servicer, will be
authorized and empowered pursuant to the related Pooling and Servicing
Agreement (i) to execute and deliver any and all instruments of satisfaction or
cancellation or of partial or full release or discharge and all other
comparable instruments with respect to the Mortgage Loans and with respect to
the Mortgaged Properties, (ii) to institute foreclosure proceedings or obtain a
deed in lieu of foreclosure so as to effect ownership of any Mortgaged Property
in its own name on behalf of the Trustee and (iii) to hold title in its own
name to any Mortgaged Property upon such foreclosure or deed in lieu of
foreclosure on behalf of the Trustee.
During a foreclosure, any expenses incurred by the Servicer are added to
the amount owed by the Mortgagor, as permitted by applicable law. Upon
completion of the foreclosure, the property is sold to an outside bidder, or
passes to the mortgagee, in which case the Servicer will proceed to liquidate
the asset. Servicing and charge-off policies and collection practices may
change over time in accordance with the Servicer's business judgment, changes
in its real estate loan portfolio and applicable laws and regulations.
SUB-SERVICERS
The Servicer will be permitted under the related Pooling and Servicing
Agreement to enter into sub-servicing arrangements with certain mortgage
servicing institutions meeting the requirements of such Pooling and Servicing
Agreement (each, a "Sub-Servicer") to service the Mortgage Loans in a Mortgage
Pool. Any such sub-servicing arrangements will not relieve the Servicer of any
liability associated with servicing the Mortgage Loans. Compensation for the
services of the Sub-Servicer with respect to the Mortgage Loans will be paid by
the Servicer. See "-- Servicing and Other Compensation and Payment of Expenses"
below.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, as
compensation for its servicing activities under a Pooling and Servicing
Agreement, the Servicer will be entitled
79
<PAGE>
to retain the amount of the Servicing Fee (as defined in the related Pooling
and Servicing Agreement) with respect to each Mortgage Loan. Additional
servicing compensation in the form of prepayment charges, release fees, bad
check charges, assumption fees, extension fees, late payment charges and any
other servicing-related fees, Net Liquidation Proceeds not required to be
deposited in the Collection Account and similar items may, to the extent
collected from Mortgagors, be retained by the Servicer.
The Servicer will be required to pay all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Properties, (ii) any enforcement or
judicial proceedings, including foreclosures and (iii) the management and
liquidation of Mortgaged Properties acquired in satisfaction of the related
Mortgage Loans. Such expenditures (each, a "Servicing Advance") may include
costs of collection efforts, reappraisals, forced placement of hazard insurance
if a borrower allows his hazard policy to lapse, legal fees in connection with
foreclosure actions, advancing payments due under any Senior Lien, if any,
advancing delinquent property taxes, and upkeep and maintenance of the
Mortgaged Property if it is acquired through foreclosure and similar types of
expenses. The Servicer will be obligated to make the Servicing Advances
incurred in the performance of its servicing obligations. Unless otherwise
specified in the related Prospectus Supplement, the Servicer will be entitled
to recover Servicing Advances, if not theretofore recovered from the Mortgagor
on whose behalf such Servicing Advance was made, from late collections on the
related Mortgage Loans, including Liquidation Proceeds, insurance proceeds and
such other amounts. Servicing Advances will be reimbursable to the Servicer
from the sources described above out of the funds on deposit in the Collection
Account. The Servicer is not required to make any Servicing Advance that it
determines would be nonrecoverable.
In addition, a Sub-Servicer may be entitled to a monthly servicing fee in
a minimum amount set forth in the related Prospectus Supplement. The
Sub-Servicer may also be entitled to collect and retain, as part of its
servicing compensation, any late charges or prepayment penalties provided in
the Mortgage Note or related instruments. The Sub-Servicer will be reimbursed
by the Servicer for certain expenditures that it makes, generally to the same
extent that the Servicer would be reimbursed for such expenditures under the
related Pooling and Servicing Agreement. Compensation for the services of the
Sub-Servicer shall be paid by the Servicer as a general corporate obligation of
the Servicer.
MAINTENANCE OF HAZARD INSURANCE
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will be required to cause to be maintained fire and hazard insurance
with extended coverage customary in the area where each Mortgaged Property is
located in an amount which is at least equal to the least of (i) the
outstanding principal balance owing on the Mortgage Loan and the related Senior
Lien, if any, (ii) the full insurable value of the related Mortgaged Property
and (iii) the minimum amount required to compensate for damage or loss on a
replacement cost basis. Unless otherwise specified in the related Prospectus
Supplement, if the Mortgaged Property is in an area identified in the Federal
Register by the Flood Emergency Management Agency as having special flood
hazards, the Servicer will be required to cause to be purchased a flood
insurance policy with a generally acceptable insurance carrier, in an amount
representing coverage not less than the least of (a) the outstanding principal
balance of the Mortgage Loan and the Senior Lien, if any, (b) the
80
<PAGE>
minimum amount required to compensate for damages or loss on a replacement cost
basis or (c) the maximum amount of insurance available under the National Flood
Protection Act of 1973, as amended, provided that such flood insurance is
available. The Servicer will also be required to maintain fire, hazard and, if
applicable, flood insurance on each REO Property in the respective amounts
described above, as well as liability insurance, in each case to the extent
such insurance is available. Any amounts collected by the Servicer under any
such policies (other than amounts to be applied to the restoration or repair of
the Mortgaged Property, or to be released to the Mortgagor in accordance with
customary mortgage servicing procedures) are required to be deposited by the
Servicer in the Collection Account.
In the event that the Servicer obtains and maintains a blanket policy
insuring against fire and hazards of extended coverage on all of the Mortgage
Loans, then, to the extent such policy names the Trustee as loss payee and
provides coverage in an amount equal to the aggregate unpaid principal balances
of the Mortgage Loans without co-insurance, and otherwise complies with the
requirements of the preceding paragraph, the Servicer will be deemed
conclusively to have satisfied its obligations with respect to fire and hazard
insurance coverage. If such blanket policy contains a deductible clause, the
Servicer will be required to pay to the Trustee the difference between the
amount that would have been payable under a policy described in the preceding
paragraph and the amount paid under the blanket policy.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, when a
Mortgaged Property has been or is about to be voluntarily conveyed by the
Mortgagor, the Servicer, on behalf of the Trustee, in performing its servicing
functions, to the extent it has knowledge of such conveyance or prospective
conveyance, will be required to enforce the rights of the Trustee as the
mortgagee of record to accelerate the maturity of the related Mortgage Loan
under any due-on-sale clause contained in the related Mortgage or Mortgage
Note; provided, however, that the Servicer will not be required to exercise any
such right if the due-on-sale clause, in the reasonable belief of the Servicer,
is not enforceable under applicable law or if such enforcement would materially
increase the risk of default or delinquency on, or materially decrease the
security for, such Mortgage Loan. In such event, the Servicer will attempt to
enter into an assumption and modification agreement with the person to whom
such property has been or is about to be conveyed, pursuant to which such
person becomes liable under the Mortgage Note and, to the extent permitted by
applicable law or the mortgage documents, the Mortgagor remains liable thereon.
The Servicer also will be authorized to enter into a substitution of liability
agreement with such person, pursuant to which the original Mortgagor is
released from liability and such person is substituted as Mortgagor and becomes
liable under the Mortgage Note. The Servicer will not enter into an assumption
agreement unless permitted by applicable law and unless such assumption
agreement would not materially increase the risk of default or delinquency on,
or materially decrease the security for, such Mortgage Loan.
VOTING
Unless otherwise specified in the related Pooling and Servicing Agreement,
with respect to any provisions of the Pooling and Servicing Agreement providing
for the action, consent or approval of the holders of all Certificates
evidencing specified "Voting Interests"
81
<PAGE>
in the Trust, the holders of any Class of Certificates will collectively be
entitled to the then-applicable percentage of such Class of Certificates of the
aggregate Voting Interests represented by all Certificates. Each
Certificateholder of a Class will have a Voting Interest equal to the product
of the Voting Interest to which such Class is collectively entitled and the
Certificateholder's Percentage Interest (as such term is defined in the related
Pooling and Servicing Agreement) in such Class. With respect to any provisions
of the Pooling and Servicing Agreement providing for action, consent or
approval of a specified Class or Classes of Certificates, each
Certificateholder of such specified Class will have a Voting Interest in such
Class equal to such Certificateholder's Percentage Interest in such Class. Any
Certificate registered in the name of the related Transferor or any affiliate
thereof will be deemed not to be outstanding and the Percentage Interest
evidenced thereby shall not be taken into account in determining whether the
requisite amount of Percentage Interests necessary to take any such action, or
effect any such consent, has been obtained.
AMENDMENTS
Unless otherwise specified in the related Prospectus Supplement, at any
time and from time to time, without the consent of the Certificateholders, the
Trustee, the related Transferor and the Servicer may amend the related Pooling
and Servicing Agreement for the purposes of (a) curing any ambiguity or
correcting or supplementing any provision of such agreement that may be
inconsistent with any other provision of such agreement, (b) if a REMIC
election has been made and if accompanied by an approving opinion of counsel
experienced in federal income tax matters, removing the restriction against the
transfer of a Residual Certificate to a Disqualified Organization (as such term
is defined in the Code) or (c) complying with the requirements of the Code;
provided, however, that such action shall not, as evidenced by an opinion of
counsel delivered to the Trustee, materially and adversely affect the interests
of any Certificateholder.
Unless otherwise specified in the related Prospectus Supplement, the
related Pooling and Servicing Agreement may also be amended by the Trustee, the
related Transferor and the Servicer, at any time and from time to time, with
the prior written approval of not less than a majority of the Percentage
Interests represented by each affected Class of Certificates then outstanding,
for the purpose of adding any provisions or changing in any manner or
eliminating any of the provisions thereof or of modifying in any manner the
rights of the Certificateholders thereunder; provided, however, that no such
amendment shall (a) change in any manner the amount of, or delay the timing of,
payments which are required to be distributed to any Certificateholder without
the consent of such Certificateholder or (b) change the aforesaid percentages
of Percentage Interests which are required to consent to any such amendments,
without the consent of the Certificateholders of all Certificates of the Class
or Classes affected then outstanding. If a REMIC election has been made with
respect to the related Trust, any such amendment must be accompanied by an
opinion of tax counsel as to REMIC matters.
The Trustee will be required to furnish a copy of any such amendment to
each Certificateholder in the manner set forth in the related Pooling and
Servicing Agreement.
82
<PAGE>
CERTIFICATE EVENTS OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement, events of
default with respect to Certificates (each, a "Certificate Event of Default")
under a Pooling and Servicing Agreement will consist of (a) any failure by the
Servicer to make a Monthly Advance as required; (b) any failure by the Servicer
to deposit in the Collection Account or Certificate Account any amount (other
than an amount representing a Monthly Advance) required to be so deposited
under the related Pooling and Servicing Agreement, which failure continues
unremedied for one Business Day after the giving of written notice of such
failure to the Servicer by the Trustee or to the Servicer and the Trustee by
Certificateholders evidencing Voting Interests represented by all Certificates
aggregating not less than 51%; (c) any failure by the Servicer to duly observe
or perform in any material respect any other of its covenants or agreements in
the Pooling and Servicing Agreement which materially and adversely affects the
rights of Certificateholders and continues unremedied for 30 days after the
giving of written notice of such failure to the Servicer by the Trustee or the
Certificateholders evidencing Voting Interests represented by all Certificates
aggregating not less than 51%; (d) certain events of insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings regarding
the Servicer and certain actions by the Servicer indicating its insolvency or
inability to pay its obligations; (e) the occurrence of delinquencies and/or
losses in respect of the Mortgage Loans in excess of levels, and for periods of
time, as specified in the Pooling and Servicing Agreement; and (f) if the
related Transferor and the Servicer are the same entity (i.e., ACC), any
failure of the Transferor to duly observe or perform in any material respect
any of its covenants or agreements in the related Pooling and Servicing
Agreement that materially and adversely affects the rights of
Certificateholders and continues unremedied for 30 days after the giving of a
written notice of such failure to such Transferor by the Trustee or to the
Servicer and the Trustee by Certificateholders evidencing Voting Interests
represented by all Certificates aggregating not less than 51%.
RIGHTS UPON CERTIFICATE EVENTS OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement, upon the
occurrence of a Certificate Event of Default, Certificateholders evidencing
Voting Interests represented by all Certificates aggregating not less than 51%
or the Trustee may terminate all of the rights and obligations of the Servicer
under the related Pooling and Servicing Agreement, whereupon the Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under the related Pooling and Servicing Agreement and will be entitled to such
compensation as the Servicer would have been entitled to thereunder. In the
event that the Trustee would be obligated to succeed the Servicer but is
unwilling or legally unable to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, any established housing and home
finance institution or any institution that regularly services home equity
loans that is currently servicing a home equity loan portfolio that has all
licenses, permits and approvals required by applicable law and a net worth of
at least $10,000,000 to act as successor to the Servicer under the related
Pooling and Servicing Agreement, provided that the appointment of any such
successor Servicer will not result in the qualification, reduction or
withdrawal of the rating assigned to the Certificates by any applicable Rating
Agency. Pending appointment of a successor Servicer, unless the Trustee is
prohibited by law from so acting, the Trustee shall be obligated to act as
Servicer. The Trustee and such successor Servicer may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
described above.
83
<PAGE>
Unless otherwise specified in the related Prospectus Supplement, no
Certificateholder, solely by virtue of its status as a Certificateholder, will
have any right under the related Pooling and Servicing Agreement to institute
any action, suit or proceeding with respect to the related Pooling and
Servicing Agreement unless such Certificateholder previously has given to the
Trustee written notice of default and unless Certificateholders evidencing
Voting Interests represented by all Certificates aggregating not less than 51%
have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity for costs, expenses and liabilities to be
incurred, and the Trustee for 60 days has neglected or refused to institute any
such action, suit or proceeding. However, the Trustee will be under no
obligation to exercise any of the rights or powers vested in it by the related
Pooling and Servicing Agreement or to institute, conduct or defend any
litigation thereunder or in relation thereto at the request, order or direction
of any of the Certificateholders, 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.
TERMINATION; OPTIONAL TERMINATION
Unless otherwise specified in the related Pooling and Servicing Agreement,
the obligations created by each Pooling and Servicing Agreement for each Series
of Certificates will terminate upon the payment to the related
Certificateholders of all amounts held in any Accounts or by the Servicer, and
required to be paid to them pursuant to such Pooling and Servicing Agreement
following the later of (i) the final payment or other liquidation of the last
of the Mortgage Loans subject thereto or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any such Mortgage
Loans remaining in the Trust and (ii) the acquiring by the related Transferor,
the Servicer or other entity specified in the related Prospectus Supplement
including, if REMIC treatment has been elected, the holder of the residual
interest in the REMIC (see "Certain Federal Income Tax Consequences" below),
from the related Trust of all of the remaining Mortgage Loans and all property
acquired in respect of such Mortgage Loans. Unless otherwise specified in the
related Prospectus Supplement, any such acquisition of Mortgage Loans and
property acquired in respect of Mortgage Loans evidenced by a Series of
Certificates will be made at the option of the related Transferor, the Servicer
or other entity at a price, and in accordance with the procedures, specified in
the Prospectus Supplement. The exercise of such right will effect early
retirement of the Certificates of that Series, but the right of the related
Transferor, the Servicer or other entity to so acquire is subject to the
principal balance of the related Mortgage Loans being less than the percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of such Mortgage Loans at the Cut-off Date for the Series. The
foregoing is subject to the provisions that if a REMIC election is made with
respect to a Trust, any reacquisition pursuant to clause (ii) above will be
made only in connection with a "qualified liquidation" of the REMIC within the
meaning of Section 860F(g)(4) of the Code.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that on or before a specified date
in each year, a firm of independent public accountants will furnish a statement
to the Trustee to the effect that on the basis of certain procedures
substantially in conformance with the Uniform Single Audit
84
<PAGE>
Program for Mortgage Bankers (to the extent the procedures are applicable to
the servicing obligations set forth in the Pooling and Servicing Agreement),
the servicing by or on behalf of the Servicer of the related Mortgage Loans,
under agreements substantially similar to each other (including the related
Pooling and Servicing Agreement) was conducted in compliance with such
agreements and such procedures have disclosed no exceptions or errors in
records relating to the Mortgage Loans subject to the related Pooling and
Servicing Agreement which, in the opinion of such firm, are material, except
for such exceptions as will be referred to in the report. Unless otherwise
specified in the related Prospectus Supplement, each Pooling and Servicing
Agreement will provide that the Servicer will be required to deliver to the
Trustee, on or before a specified date in each year, an annual statement signed
by an officer of the Servicer to the effect that the Servicer has fulfilled its
material obligations under the related Pooling and Servicing Agreement
throughout the preceding year.
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE TRANSFERORS
The related Pooling and Servicing Agreement will provide that neither the
related Transferor nor any of its directors, officers, employees or agents
shall have any liability to the related Trust created thereunder or to any of
the Certificateholders, except with respect to liabilities resulting from
willful malfeasance, bad faith or gross negligence or from the reckless
disregard of obligations or duties arising under the related Pooling and
Servicing Agreement. The related Pooling and Servicing Agreement will further
provide that, with the exceptions stated above, the related Transferor and its
directors, officers, employees and agents are entitled to be indemnified and
held harmless by the related Trust against any loss, liability or expense
incurred in connection with legal actions relating to such Pooling and
Servicing Agreement or the Certificates.
THE TRUSTEE
Each Prospectus Supplement will name the Trustee under the related Pooling
and Servicing Agreement. The Pooling and Servicing Agreement will provide that
the Trustee may resign at any time, upon notice to the related Transferor, the
Servicer and any Rating Agency, in which event such Transferor will be
obligated to appoint a successor Trustee. The related Transferor may remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee. Each Pooling and Servicing Agreement will provide that the Trustee is
under no obligation to exercise any of the rights or powers vested in it by the
Pooling and Servicing Agreement at the request or direction of any of the
Certificateholders, unless such Certificateholders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction. The Trustee may execute any of the rights or powers granted by the
Pooling and Servicing Agreement or perform any duties thereunder either
directly or by or through agents or attorneys, and the Trustee is responsible
for any misconduct or negligence on the part of any agent or attorney appointed
and supervised with due care by it thereunder. Pursuant to the Pooling and
Servicing Agreement, the Trustee is not liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized by an
authorized officer of any person or within its rights or powers under the
Pooling and Servicing Agreement.
85
<PAGE>
The Trustee and any director, officer, employee or agent of the Trustee may
rely and will be protected in acting or refraining from acting in good faith in
reliance on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the authorized officer of any person
respecting any matters arising under the Pooling and Servicing Agreement.
86
<PAGE>
THE INDENTURE
GENERAL
Each Series of Bonds will be issued pursuant to an Indenture to be entered
into between the related Bond Issuer and the related Trustee. The Mortgage
Loans to be included in the related Mortgage Pool will be assigned to the
Trustee pursuant to provisions included in the related Indenture that are
substantially the same as, and the obligations of ACAC, as Transferor (or the
related Bond Issuer, if a different entity, to the extent described in the
related Prospectus Supplement), and the Trustee with respect to the Mortgage
Loans so conveyed will be substantially similar to, those described under "The
Pooling and Servicing Agreement -- Assignment of Mortgage Loans" herein. In
addition, the Mortgage Loans included in the Mortgage Pool for any Series of
Bonds will be serviced by the Servicer pursuant to the terms of a Servicing
Agreement to be entered into among the Bond Issuer, ACC, as Servicer, and the
related Trustee, which will contain provisions substantially similar to the
servicing and collection provisions included in each Pooling and Servicing
Agreement and described under "The Pooling and Servicing Agreement" herein.
Where provisions or terms used in a particular Indenture or Servicing Agreement
differ from those provided herein, a description of such provisions or terms
will be included in the related Prospectus Supplement.
The following summaries describe certain provisions of the Indenture not
described elsewhere in this Prospectus. Where particular provisions or terms
used in the Indenture are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summaries.
The description set forth below is subject to modification in the Prospectus
Supplement for a Series of Bonds to describe the terms and provisions of the
particular Indenture relating to such Series of Bonds.
MODIFICATION OF INDENTURE
With the consent of the holders of not less than 51% of the then aggregate
principal amount of the outstanding Bonds of any Series issued under an
Indenture, the related Trustee and the related Bond Issuer may execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the Indenture with respect to such Series or
modify (except as provided below) in any manner the rights of the holders of
such Bonds.
Without the consent of the holder of each outstanding Bond of such Series
affected thereby, however, no supplemental indenture shall (a) change the final
Payment Date of the principal of, or any installment of interest on, any Bond
of such Series or reduce the principal amount thereof, the Bond Rate specified
thereon (except as provided in the related Indenture with respect to Bonds that
have an adjustable Bond Rate), the redemption price with respect thereto or the
earliest date on which any Bonds of such Series may be redeemed at the option
of the related Bond Issuer, or change any place of payment where, or the coin
or currency in which, any Bond of such Series or any interest thereon is
payable, or impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment, (b) reduce the percentage of the
aggregate principal amount of the outstanding Bonds of such Series, the consent
of the holders of which is required for any such supplemental indenture, or the
consent of the holders of which is required for any waiver of compliance with
certain provisions of the Indenture or of certain defaults
87
<PAGE>
thereunder and their consequences as provided for in the Indenture, (c) modify
the provisions of the Indenture specifying the circumstances under which such a
supplemental indenture may not change the provisions of the Indenture without
the consent of the holders of each outstanding Bond of such Series affected
thereby, or the provisions of the Indenture with respect to certain remedies
available in a Bond Event of Default (as described below), except to increase
any percentage specified therein or to provide that certain other provisions of
the Indenture cannot be modified or waived without the consent of the holder of
each outstanding Bond affected thereby, (d) modify or alter the provisions of
the Indenture regarding the voting of Bonds held by the related Bond Issuer or
an affiliate of the related Bond Issuer or (e) permit the creation of any lien
ranking prior to or on the parity with the lien of the Indenture with respect
to any part of the property subject to a lien under the Indenture or terminate
the lien of the Indenture on any property at any time subject thereto or
deprive the holder of any Bond of such Series of the security afforded by the
lien of the Indenture.
The related Bond Issuer and the respective Trustee may also enter into
supplemental indentures, without obtaining the consent of Bondholders of such
Series, to cure ambiguities or make minor corrections, to provide for the
issuance of Bonds in bearer or registered form or for the conversion of any
outstanding Bonds to or from bearer form and to do such other things as would
not adversely affect the interests of the Bondholders of such Series.
BOND EVENTS OF DEFAULT
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Bonds, a "Bond Event of Default" with respect to any Series of
Bonds will be defined in the respective Indenture under which such Bonds are
issued as: (a) unless otherwise specified in the Prospectus Supplement for such
Series, a default in the payment of interest on any Bond of such Series when
and as due and such failure continues for a period of two days; (b) a failure
to pay the Bonds of such Series in full on or before the date specified as the
Final Maturity Date in the related Prospectus Supplement; (c) a default in the
observance of certain negative covenants in the Indenture or in the observance
of certain covenants relating to redemptions of Bonds of such Series; (d) a
default in the observance of any other covenant of the Indenture, and the
continuation of any such default for a specified period after notice to the
related Bond Issuer by the Trustee or to the related Bond Issuer and the
Trustee by the holders of at least 25% in principal amount of the Bonds of such
Series then outstanding; (e) any representation or warranty made by the related
Bond Issuer in the Indenture or in any certificate delivered pursuant thereto
having been incorrect in a material respect as of the time made, and the
circumstance in respect of which such representation or warranty is incorrect
not having been cured within a specified period after notice thereof is given
to the related Bond Issuer by the Trustee or by the holders of at least 25% in
principal amount of the Bonds of such Series then outstanding; or (f) certain
events of bankruptcy, insolvency, receivership or reorganization of the related
Bond Issuer.
RIGHTS UPON BOND EVENTS OF DEFAULT
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Bonds, in case a Bond Event of Default should occur and be
continuing with respect to a Series of Bonds, the Trustee may, and on request
of holders of not less than 51% in principal amount of the Bonds of such Series
then outstanding shall, declare the principal of such
88
<PAGE>
Series of Bonds to be due and payable. Such declaration may under certain
circumstances be rescinded by the holders of a majority in principal amount of
the Bonds of such Series then outstanding.
If, following a Bond Event of Default, a Series of Bonds has been declared
to be due and payable, the Trustee may, in its discretion (provided that the
holders of the Bonds of such Series have not directed the Trustee to sell the
assets included in the related Trust Estate), refrain from selling such assets
and continue to apply all amounts received on such assets to payments due on
the Bonds of such Series in accordance with their terms, notwithstanding the
acceleration of the maturity of such Bonds. The Trustee, however, must sell the
assets included in the related Trust Estate for such Series if collections in
respect of such assets are determined to be insufficient to make all scheduled
payments on Bonds of such Series, in which case payments will be made on the
Bonds in the same manner as described in the next sentence with regard to
instances in which such assets are sold. In addition, upon a Bond Event of
Default the Trustee may, in its discretion (provided that, unless the Bond
Event of Default relates to a default in payment of principal or interest, the
Trustee must receive the consent of the holders of all outstanding Bonds of
such Series, and certain other conditions must be met), sell the assets
included in the related Trust Estate for such Series, in which event the Bonds
of such Series will be payable pro rata out of the collections on, or the
proceeds from the sale of, such assets and any overdue installments of interest
on the Bonds will, to the extent permitted by applicable law, bear interest at
the highest stated interest rate borne by any Bond of such Series.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case a Bond Event of Default shall occur and be continuing, the
Trustee shall be under no obligation to exercise any of the rights and powers
under the Indenture at the request or direction of any of the Bondholders,
unless such Bondholders have offered to the Trustee reasonable security or
indemnity satisfactory to it against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction. Subject
to such provisions for indemnification and certain limitations contained in the
Indenture, the holders of a majority in principal amount of the outstanding
Bonds of a Series shall have the right to direct the time, method, and place of
conducting any proceeding or any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Bonds of such
Series; and the holders of a majority in principal amount of the Bonds of a
Series then outstanding may, in certain cases, waive any default with respect
thereto, except a default in the payment of principal or interest or a default
in respect of a covenant or provision of the Indenture that cannot be modified
without the waiver or consent of the holder of each outstanding Bond affected
thereby.
LIST OF BONDHOLDERS
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Bonds, three or more holders of the Bonds of any Series (each
of whom has owned a Bond of such Series for at least six months) may, by
written request to the Trustee, obtain access to the list of all Bondholders of
such Series maintained by the Trustee for the purpose of communicating with
other such Bondholders with respect to their rights under the Indenture. The
Trustee may elect not to afford the requesting Bondholders access to the list
of Bondholders if it agrees to mail the desired communication or proxy, on
behalf of the requesting Bondholders, to all Bondholders.
89
<PAGE>
ANNUAL COMPLIANCE STATEMENT
The related Bond Issuer will be required to file annually with the Trustee
a written statement as to the fulfillment of its obligations under the
Indenture.
TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Bondholders a brief
report relating to its eligibility and qualifications to continue as the
Trustee under the Indenture, any amounts advanced by it under the Indenture,
the amount, interest rate and maturity date of certain indebtedness owing by
the related Bond Issuer to it in the Trustee's individual capacity, the
property and funds physically held by the Trustee as such, any release, or
release and substitution, of property subject to the lien of the Indenture that
has not been previously reported, any additional Series of Bonds not previously
reported and any action taken by it which materially affects the Bonds and
which has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the assets securing the
Bonds of a Series upon the delivery to the Trustee for cancellation of all of
the Bonds of such Series or, with certain limitations, upon deposit with the
Trustee of funds sufficient for the payment in full of all of the Bonds of such
Series.
REDEMPTION OF BONDS
To the extent provided in the related Prospectus Supplement, the Bonds of
any Series may be (i) redeemed at the option of the related Bond Issuer or
another party specified in the related Prospectus Supplement; or (ii) subject
to special redemption under certain circumstances. The circumstances and terms
under which the Bonds of a Series may be redeemed will be described in the
related Prospectus Supplement.
REPORTS BY TRUSTEE TO BONDHOLDERS
On each Payment Date, the Trustee will send a report to each Bondholder
setting forth, among other things, the amount of such payment representing
interest, the amount thereof, if any, representing principal and the
outstanding principal amount of an individual Bond after giving effect to the
payments made on such Payment Date.
LIMITATION ON SUITS
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Bonds, no Bondholder of any Series will have any right to
institute any proceedings with respect to the Indenture unless (1) such holder
has previously given written notice to the Trustee of a continuing Bond Event
of Default with respect to such Series; (2) the holders of at least 25% in
principal amount of the Bonds of such Series then outstanding have made written
request to the Trustee to institute proceedings in respect of such Bond Event
of Default in its own name as Trustee; (3) such holders have offered to the
Trustee reasonable indemnity satisfactory to it against the costs, expenses and
liabilities to be incurred in compliance with such request; (4) for a specified
period after its receipt of such notice, request and offer of indemnity the
Trustee has failed to institute any such proceedings; and (5) no direction
inconsistent with such written request has been given to the Trustee during
such period by the holders of not less than 51% in principal amount of the
Bonds of such Series then outstanding.
90
<PAGE>
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
RELATED MATTERS
The following discussion contains summaries, which are general in nature,
of material legal matters relating to the Mortgage Loans. Because such legal
aspects are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete or to encompass the
laws of all states in which Mortgaged Properties are situated. The summaries
are qualified in their entirety by reference to the appropriate laws of the
states in which Mortgage Loans may be originated.
NATURE OF THE MORTGAGE LOANS
The Mortgage Loans will be secured by mortgages, deeds of trust, security
deeds or deeds to secure debt, depending upon the prevailing practice in the
state in which the Mortgaged Property is located. In California, for example,
Mortgage Loans are secured by deeds of trust. In other states, a mortgage
creates a lien upon the real property encumbered by the mortgage, which lien is
generally not prior to the lien for real estate taxes and assessments and other
charges under governmental police powers. Priority between mortgages depends on
their terms and generally on the order of recording in the appropriate state or
county office. There are two parties to a mortgage: the mortgagor, who is the
borrower and owner of the mortgaged property, and the mortgagee, who is the
lender. The mortgagor delivers to the mortgagee a note or bond and the
mortgage. Although a deed of trust is similar to a mortgage, a deed of trust
has three parties: the borrower property owner called the trustor (similar to a
mortgagor), the lender (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the borrower's
obligation to the lender. A security deed and a deed to secure debt are special
types of deeds that indicate on their face that they are granted to secure an
underlying debt. By executing a security deed or deed to secure debt, the
grantor conveys title to, as opposed to merely creating a lien upon, the
subject property to the grantee until such time as the underlying debt is
repaid. The mortgagee's authority under a mortgage, the trustee's authority
under a deed of trust and the grantee's authority under a security deed or deed
to secure debt are governed by law and, with respect to some deeds of trust,
the directions of the beneficiary.
Certain of the Mortgage Loans may be loans secured by condominium units.
The condominium building may be a multi-unit building or buildings, or a group
of buildings whether or not attached to each other, located on property subject
to condominium ownership. Condominium ownership is a form of ownership of a
real property wherein each owner is entitled to the exclusive ownership and
possession of his or her individual condominium unit and also owns a
proportionate undivided interest in all parts of the condominium building
(other than the individual condominium units) and all areas or facilities, if
any, for the common use of the condominium units. The condominium unit owners
appoint or elect the condominium association to govern the affairs of the
condominium.
FORECLOSURE/REPOSSESSION
Foreclosure of a deed of trust is generally accomplished by a non-judicial
sale under a specific provision in the deed of trust which authorizes the
trustee to sell the property at
91
<PAGE>
public auction upon any default by the borrower under the terms of the note or
deed of trust. In addition to this non-judicial remedy, a deed of trust may be
judicially foreclosed. In addition to any notice requirements contained in a
deed of trust, in some states the trustee must record a notice of default and
send a copy to the borrower-trustor, to any person who has recorded a request
for a copy of any notice of default and notice of sale, to any
successor-in-interest to the borrower-trustor, to the beneficiary of any junior
deed of trust and to certain other persons. Before such non-judicial sale takes
place, typically a notice of sale must be posted in a public place and
published during a specific period of time in one or more newspapers, posted on
the property and sent to parties having an interest of record in the property.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time-consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to
conduct the sale of the property.
In some states, the borrower under a mortgage or a deed of trust will have
the right to reinstate the loan at any time following default until shortly
before the foreclosure sale. In such states, the borrower, or any other person
having a junior encumbrance on the real estate, may, during a statutorily
prescribed reinstatement period, cure a monetary default by paying the entire
amount in arrears plus other designated costs and expenses incurred in
enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. After the reinstatement period has expired without the
default having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale. If the mortgage or deed of trust is not reinstated,
a notice of sale must be posted in a public place and, in most states,
published for a specific period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest in the real property.
Although foreclosure sales are typically public sales, frequently no
third-party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus, the foreclosing lender often purchases the property from the
trustee or referee for an amount equal to the principal amount outstanding
under the loan, accrued and unpaid interest and the expenses of foreclosure.
Thereafter, the lender will assume the burden of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property, in which event the lender may be entitled to a deficiency
judgment in certain states. Any loss may be reduced by the receipt of any
mortgage insurance proceeds.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of
the borrower's defaults
92
<PAGE>
under the loan documents. Some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
fair notice require that borrowers under deeds of trust receive notice earlier
than that prescribed by statute. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that the sale by a trustee
under a deed of trust does not involve sufficient state action to afford
constitutional protection to the borrower.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienholders are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption would defeat the title
of any purchaser from the lender subsequent to foreclosure or sale under a deed
of trust. Consequently, the practical effect of the redemption right is to
force the lender to retain the property and pay the expenses of ownership until
the redemption period has run. In some states, such as California, there is no
right to reclaim property after a trustee's sale under a deed of trust.
CERTAIN PROVISIONS OF CALIFORNIA DEEDS OF TRUST
Most institutional lenders in California, including the Affiliated
Originators originating loans secured by real property in California, use a
form of deed of trust that confers on the beneficiary the right both to receive
all proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards made in connection with any condemnation proceedings to any indebtedness
secured by the deed of trust, in such order as the beneficiary may determine;
provided, however, that the beneficiary is prohibited (under California law)
from applying insurance and condemnation proceeds to the indebtedness secured
by the deed of trust unless the beneficiary's security has been impaired by the
casualty or condemnation, and, if such security has been impaired, permits such
proceeds to be so applied only to the extent of such impairment. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, and, as a
result thereof, the beneficiary's security is impaired, the beneficiary may
apply any award received in respect of such damages or in connection with such
condemnation to the indebtedness secured by the first deed of trust. Proceeds
in excess of the amount of indebtedness secured by a first deed of trust will,
in most cases, be applied to the indebtedness of a junior deed of trust.
Another provision typically found in the forms of deed of trust used by
most institutional lenders in California obligates the trustor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which are senior to the deed of
trust, to provide and maintain fire and hazard insurance on the property, to
maintain and repair the property and not to commit or permit any waste thereof,
and to appear in and defend any action or proceeding purporting to affect the
property or the rights of the beneficiary under the deed of trust. Upon a
failure of the trustor to perform any of these obligations, the beneficiary is
given the right under the
93
<PAGE>
deed of trust to perform the obligation itself, at its election, with the
trustor agreeing to reimburse the beneficiary for any sums expended by the
beneficiary on behalf of the trustor. All sums so expended by the beneficiary
become part of the indebtedness secured by the deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states, including California, have adopted statutory prohibitions
restricting the right of the beneficiary or mortgagee to obtain a deficiency
judgment against borrowers financing the purchase of their residence or
following sale under a deed of trust or certain other foreclosure proceedings.
A deficiency judgment is a personal judgment against the borrower equal in most
cases to the difference between the amount due to the lender and the net amount
received by the lender at the foreclosure sale. As a result of these
prohibitions, it is anticipated that in many instances the Servicer will not
seek deficiency judgments against defaulting Mortgagors.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon collateral or
enforce a deficiency judgment. For example, with respect to federal bankruptcy
law, a court with federal bankruptcy jurisdiction may permit a debtor through
his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary
default in respect of a mortgage loan on the debtor's residence by paying
arrearages within a reasonable time period and reinstating the original
mortgage loan payment schedule even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered in state court
(provided no sale of the residence had yet occurred) prior to the filing of the
debtor's petition. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the reorganization case, that
effected the curing of a mortgage loan default by paying arrearages over a
number of years.
Courts with federal bankruptcy jurisdiction also have indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of
each monthly payment, changing the rate of interest, altering the repayment
schedule, forgiving all or a portion of the debt and reducing the lender's
security interest to the value of the residence, thus leaving the lender a
general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan.
California courts have imposed general equitable principles upon judicial
foreclosure. These equitable principles are generally designed to relieve the
borrower from the legal effect of the borrower's default under the related loan
documents. Examples of judicial remedies that have been fashioned include
judicial requirements that the lender undertake affirmative and expensive
actions to determine the causes for the borrower's default and the likelihood
that the borrower will be able to reinstate the loan. In some cases, California
courts have required that lenders reinstate loans or recast payment schedules
in order to accommodate borrowers who are suffering from temporary financial
disabilities. In other cases, such courts have limited the right of the lender
to foreclose if the default under the loan is not monetary, such as the
borrower's failure to adequately maintain the property or the borrower's
execution of a second deed of trust affecting the property.
Federal and local real estate tax laws provide priority to certain tax
liens over the lien of a mortgage or secured party. Numerous federal and state
consumer protection laws
94
<PAGE>
impose substantive requirements upon mortgage lenders in connection with the
origination, servicing and enforcement of such loans. These laws include the
federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. These federal and state laws impose specific
statutory liabilities upon lenders who fail to comply with the provisions of
the law. In some cases, this liability may affect assignees of the loans.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act") which incorporates the Home Ownership and Equity Protection Act
of 1994. The Riegle Act adds certain additional provisions to Regulation Z, the
implementing regulation of the Truth-in-Lending Act. These provisions impose
additional disclosure and other requirements on creditors with respect to
nonpurchase money mortgage loans with high interest rates or high up-front fees
and charges. In general, mortgage loans within the purview of the Riegle Act
have annual percentage rates over 10% greater than the yield on Treasury
Securities of comparable maturity and/or fees and points which exceed the
greater of 8% of the total loan amount or $400. The provisions of the Riegle
Act apply on a mandatory basis to all mortgage loans originated on or after
October 1, 1995. The provisions can impose specific statutory liabilities upon
creditors who fail to comply with their provisions and may affect the
enforceability of the related loans. In addition, any assignee of the creditor
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including, without limitation, the right to
rescind the mortgage loan.
ENFORCEABILITY OF DUE-ON-SALE CLAUSES
Unless otherwise provided in the related Prospectus Supplement, each
Mortgage Loan will contain a due-on-sale clause which will generally provide
that if the Mortgagor sells, or voluntarily transfers or conveys the Mortgaged
Property, the Mortgage Loan may be accelerated by the mortgagee. The Garn-St.
Germain Depository Institutions Act of 1982 (the "Garn-St. Germain Act"),
subject to certain exceptions, preempts state constitutional, statutory and
case law prohibiting the enforcement of due-on-sale clauses. As to loans
secured by an owner-occupied residence, the Garn-St. Germain Act sets forth
nine specific instances in which a mortgagee covered by such Act may not
exercise its rights under a due-on-sale clause, notwithstanding the fact that a
transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Mortgaged Property to
an uncreditworthy person, which could increase the likelihood of default.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed at all or
after a certain period of time following origination of the mortgage loans with
respect to prepayments on mortgage loans secured by liens encumbering
owner-occupied residential properties. Because many of the Mortgaged Properties
will be owner-occupied, it is anticipated that prepayment charges may not be
imposed with respect to many of the Mortgage Loans. The absence of such a
restraint on prepayment may increase the likelihood of refinancing or other
early retirement of such Mortgage Loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to
95
<PAGE>
certain types of residential first mortgage loans originated by certain lenders
after March 31, 1980. The Office of Thrift Supervision, as successor to the
Federal Home Loan Bank Board, is authorized to issue rules and regulations and
to publish interpretations governing implementation of Title V. The statute
authorized the states to reimpose interest rate limits by adopting, before
April 1, 1983, a law or constitutional provision which expressly rejects an
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Relief Act, a Mortgagor who enters
military service after the origination of the related Mortgage Loan (including
a Mortgagor who is a member of the National Guard or is in reserve status at
the time of the origination of the Mortgage Loan and is later called to active
duty) may not be charged interest above an annual rate of 6% during the period
of such borrower's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such interest rate limitation
could have an effect, for an indeterminate period of time, on the ability of
the Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Unless otherwise provided in the applicable Prospectus Supplement, any
shortfall in interest collections resulting from the application of the Relief
Act could result in losses to Securityholders. In addition, the Relief Act
imposes limitations which would impair the ability of the Servicer to foreclose
on an affected Mortgage Loan during the Mortgagor's period of active duty
status. Thus, in the event that such a Mortgage Loan goes into default, there
may be delays and losses occasioned by the inability to realize upon the
Mortgaged Property in a timely fashion.
ENVIRONMENTAL CONSIDERATIONS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the United States Environmental Protection Agency (the "EPA") may
impose a lien on property where the EPA has incurred cleanup costs. However, a
CERCLA lien is subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable that a
lender may be held liable, as an "owner" or "operator," for costs of addressing
releases or threatened releases of hazardous substances at a Mortgaged
Property, regardless of whether or not the environmental damage or threat was
caused by a prior owner or operator. CERCLA imposes liability on any and all
"responsible parties" (which term includes, among others, the property owner
and operator) for the cost of clean-up of releases of hazardous substances.
However, CERCLA excludes from the definition of "owner or operator" secured
creditors who hold indicia of ownership for the purpose of protecting their
security interest, but "without participating in the management of the
facility."
Court decisions, such as United States v. Fleet Factors, 901 F.2d 1550
(11th Cir. 1990), cert. denied, 498 US 1049 (1991) (CERCLA liability may be
imposed on a secured lender if
96
<PAGE>
it has the ability to participate in management), and Kelley v. EPA, 15 F.3d
1100 (DC Cir. 1994) cert. denied sub nom, Kelley v. Am. Bankers Ass'n., 115 S.
Ct. 900 (1995) (invalidated the Lender Liability Rule issued by the EPA in
1992) created considerable uncertainty about the scope and availability of the
secured lender's exemption from liability. In September 1996, however, Congress
passed the Asset Conservation, Lender Liability, and Deposit Insurance
Protection Act of 1996 to address this uncertainty in federal law. This statute
adopted EPA's Lender Liability Rule into law and, among other things, clarified
the exemption by defining more clearly the circumstances under which a lender
will be deemed to have participated in management. Similar legislation has been
enacted in some states. In the jurisdictions in which such enactments are in
effect, the environmental liability risks associated with protecting a security
interest in property have been reduced, although not completely eliminated.
The costs associated with environmental clean-up may be substantial. If
the related Trustee or Servicer is deemed to have participated in management of
a contaminated property that is part of the Trust or Trust Estate, as
applicable, it is likely that remedial costs would become a liability of that
Trust or Trust Estate, as applicable, and in certain circumstances, of the
Trustee. Such an occurrence could occasion a loss to Securityholders. If a
lender is or becomes liable, it can bring an action for contribution against
any other "responsible parties," including a previous owner or operator, who
created the environmental hazard, but those persons or entities may be bankrupt
or otherwise judgment proof.
Unless otherwise specified in the related Prospectus Supplement, at the
time the Mortgage Loans were originated, no environmental assessment or a very
limited environmental assessment of the Mortgaged Properties was conducted.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Securities is based on the advice of Stroock & Stroock & Lavan LLP, counsel to
the Transferors ("Federal Tax Counsel"). This summary is based on laws,
regulations, including the real estate mortgage investment conduit ("REMIC")
regulations promulgated by the Treasury Department (the "REMIC Regulations"),
rulings and decisions now in effect or (with respect to regulations) proposed,
all of which are subject to change either prospectively or retroactively. This
summary does not address the federal income tax consequences of an investment
in Securities applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Securities.
I. TAXATION OF CERTIFICATES
A. GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether (i) the Certificates of a Series are classified as
indebtedness for federal income tax purposes; (ii) an election is made to treat
the Trust (or certain assets of the Trust) relating to a particular Series of
Certificates as a REMIC under the Internal Revenue Code of 1986, as amended
(the "Code"); (iii) the Certificates represent an ownership interest for
federal income tax purposes in some or all of the assets included in the Trust
for a Series; or (iv) for
97
<PAGE>
federal income tax purposes the Trust relating to a particular Series of
Certificates is classified as a partnership or is disregarded as an entity
separate from its owner. The Prospectus Supplement for each Series of
Certificates will specify how the Certificates will be treated for federal
income tax purposes and will specify whether a REMIC election will be made with
respect to such Series.
B. TAXATION OF DEBT CERTIFICATES (INCLUDING REGULAR CERTIFICATES)
Interest and Acquisition Discount. Certificates representing regular
interests in a REMIC ("Regular Certificates") are generally taxable to holders
in the same manner as evidences of indebtedness issued by the REMIC. Stated
interest on the Regular Certificates will be taxable as ordinary income and
taken into account using the accrual method of accounting, regardless of the
holder's normal accounting method. Interest (other than original issue
discount) on Certificates (other than Regular Certificates) that are
characterized as indebtedness for federal income tax purposes will be
includable in income by holders thereof in accordance with their usual methods
of accounting. Certificates characterized as debt for federal income tax
purposes and Regular Certificates will be referred to hereinafter collectively
as "Debt Certificates."
Debt Certificates that are Accrual Certificates will, and certain of the
other Debt Certificates may, be issued with "original issue discount" ("OID").
The following discussion is based in part on the rules governing OID that are
set forth in Sections 1271-1275 of the Code and the Treasury Department
regulations issued thereunder (the "OID Regulations"). A Certificateholder
should be aware, however, that the OID Regulations do not adequately address
certain issues relevant to prepayable securities, such as the Debt
Certificates.
In general, OID, if any, will equal the excess of the stated redemption
price at maturity of a Debt Certificate over its issue price. A holder of a
Debt Certificate must include such OID in gross income as ordinary interest
income as it accrues under a prescribed method which takes into account an
economic accrual of the discount. In general, OID must be included in income in
advance of the receipt of the cash representing that income. The amount of OID
on a Debt Certificate will be considered to be zero if it is less than a de
minimis amount as determined under the Code.
The issue price of a Debt Certificate is the first price at which a
substantial amount of Debt Certificates of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Certificates is sold for cash
on or prior to the Closing Date, the issue price for such class will be treated
as the fair market value of such class on the Closing Date. The stated
redemption price at maturity of a Debt Certificate includes the original
principal amount of the Debt Certificate, but generally will not include
distributions of interest if such distributions constitute "qualified stated
interest."
Under the OID Regulations, interest payments will not be qualified stated
interest unless the interest payments are "unconditionally payable." The OID
Regulations state that interest is unconditionally payable if reasonable legal
remedies exist to compel timely payment or the debt instrument otherwise
provides terms and conditions that make the likelihood of late payment of
interest (other than late payment that occurs within a reasonable grace period)
or nonpayment of interest a remote contingency. It is unclear whether the terms
and conditions of the debt instruments underlying the Debt Certificates
98
<PAGE>
or the Debt Certificates themselves are determinative of whether the likelihood
of late payment or non-payment is a remote contingency. Accordingly, Federal
Tax Counsel is unable to opine whether the interest with respect to a Debt
Certificate is qualified stated interest and, consequently, whether a Debt
Certificate has OID as a result of the failure of such interest to be treated
as qualified stated interest.
Certain Debt Certificates will provide for distributions of interest based
on a period that is the same length as the interval between Distribution Dates
but ends prior to each Distribution Date. Any interest that accrues prior to
the Closing Date may be treated under the OID Regulations either (i) as part of
the issue price and the stated redemption price at maturity of the Debt
Certificates or (ii) as not included in the issue price or stated redemption
price. Because interest on the Debt Certificates must in any event be accounted
for under an accrual method, applying either analysis would result in only a
slight difference in the timing of the inclusion of income of the yield on the
Debt Certificates. Nevertheless, the OID Regulations provide a special
application of the de minimis rule for debt instruments with long first accrual
periods where the interest payable for the first period is at a rate which is
effectively less than that which applies in all other periods. In such cases,
for the sole purpose of determining whether original issue discount is de
minimis, the OID Regulations provide that the stated redemption price is equal
to the instrument's issue price plus the greater of the amount of foregone
interest or the excess (if any) of the instrument's stated principal amount
over its issue price.
Under the de minimis rule, OID on a Debt Certificate will be considered to
be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Debt Certificate multiplied by the weighted average maturity of
the Debt Certificate. For this purpose, the weighted average maturity of the
Debt Certificate is computed as the sum of the amounts determined by
multiplying the number of full years (i.e., rounding down partial years) from
the issue date until each distribution in reduction of stated redemption price
at maturity is scheduled to be made by a fraction, the numerator of which is
the amount of each distribution included in the stated redemption price at
maturity of the Debt Certificate and the denominator of which is the stated
redemption price at maturity of the Debt Certificate. Holders generally must
report de minimis OID pro rata as principal payments are received, and such
income will be capital gain if the Debt Certificate is held as a capital asset.
However, holders may elect to accrue all de minimis OID as well as market
discount under a constant interest method. See "-- Election to Treat All
Interest as Original Issue Discount" herein.
The holder of a Debt Certificate issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Certificate, the sum of the "daily portions" of such OID. The amount of OID
includable in income by a holder will be computed by allocating to each day
during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of a Debt Certificate that is not a
Regular Certificate and the principal payments on which are not subject to
acceleration resulting from prepayments on the Mortgage Loans, the amount of
OID includable in income of a holder for an accrual period (generally the
period over which interest accrues on the debt instrument) will equal the
product of the yield to maturity of the Debt Certificate and the adjusted issue
price of the Debt Certificate, reduced by any payments of qualified stated
interest. The adjusted issue price is the sum of its issue price plus prior
accruals of OID, reduced by the total payments made with respect to such Debt
Certificate in all prior periods, other than qualified stated interest
payments.
99
<PAGE>
The amount of OID to be included in income by a holder of a debt
instrument, such as certain Classes of the Debt Certificates, that is subject
to acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Certificate") is computed by taking into account
the anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Certificate is the excess (if any) of the sum of (a)
the present value of all payments remaining to be made on the Pay-Through
Certificate as of the close of the accrual period and (b) the payments during
the accrual period of amounts included in the stated redemption price of the
Pay-Through Certificate, over the adjusted issue price of the Pay-Through
Certificate at the beginning of the accrual period. The present value of the
remaining payments is to be determined on the basis of three factors: (i) the
original yield to maturity of the Pay-Through Certificate (determined on the
basis of compounding at the end of each accrual period and properly adjusted
for the length of the accrual period), (ii) events which have occurred before
the end of the accrual period and (iii) the assumption that the remaining
payments will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a holder of a Pay-Through Certificate to take into
account prepayments with respect to the Mortgage Loans at a rate that exceeds
the Prepayment Assumption, and to decrease (but not below zero for any period)
the portions of OID required to be included in income by a holder of a
Pay-Through Certificate to take into account prepayments with respect to the
Mortgage Loans at a rate that is slower than the Prepayment Assumption.
Although OID will be reported to holders of Pay-Through Certificates based on
the Prepayment Assumption, no representation is made to such holders that
Mortgage Loans will be prepaid at that rate or at any other rate.
Certain classes of Regular Certificates may represent more than one class
of REMIC regular interests. Unless the applicable Prospectus Supplement
specifies otherwise, the Trustee intends, based on the OID Regulations, to
calculate OID on such Certificates as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
A subsequent holder of a Debt Certificate will also be required to include
OID in gross income, but such a holder who purchases such Debt Certificate for
an amount that exceeds its adjusted issue price will be entitled (as will an
initial holder who pays more than a Debt Certificate's issue price) to offset
such OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. Holders will be required to report
income with respect to the related Certificates under an accrual method without
giving effect to delays and reductions in distributions attributable to a
default or delinquency on the Mortgage Loans, except possibly to the extent
that it can be established that such amounts are uncollectible. As a result,
the amount of income (including OID) reported by a holder of such a Certificate
in any period could significantly exceed the amount of cash distributed to such
holder in that period. The holder will eventually be allowed a loss (or will be
allowed to report a lesser amount of income) to the extent that the aggregate
amount of distributions on the Certificates is reduced as a result of a
Mortgage Loan default. However, the timing and character of such losses or
reductions in income are uncertain and, accordingly, holders should consult
their own tax advisors on this point.
Interest-Only Debt Certificates. The Trust intends to report income from
interest-only classes of Debt Certificates to the Internal Revenue Service
("IRS") and to holders of
100
<PAGE>
interest-only Debt Certificates based on the assumption that the stated
redemption price at maturity is equal to the sum of all payments determined
under the applicable prepayment assumption. As a result, such interest-only
Debt Certificates will be treated as having original issue discount.
Variable Rate Debt Certificates. Under the OID Regulations, Debt
Certificates paying interest at a variable rate (a "Variable Rate Debt
Certificate") are subject to special rules. A Variable Rate Debt Certificate
will qualify as a "variable rate debt instrument" if (i) its issue price does
not exceed the total noncontingent principal payments due under the Variable
Rate Debt Certificate by more than a specified de minimis amount, (ii) it
provides for stated interest, paid or compounded at least annually, at (a) one
or more qualified floating rates, (b) a single fixed rate and one or more
qualified floating rates, (c) a single objective rate or (d) a single fixed
rate and a single objective rate that is a qualified inverse floating rate,
(iii) it provides that each qualified floating or objective rate is set at a
current value of that rate (one occurring in the interval beginning three
months before and ending one year after the rate is first in effect on the
Variable Rate Debt Certificate) and (iv) it does not provide for any principal
payments that are contingent, as defined in the OID Regulations, except as
provided in (i).
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate Debt Certificate is denominated. A multiple of a qualified
floating rate will generally not itself constitute a qualified floating rate
for purposes of the OID Regulations. However, a variable rate equal to (i) the
product of a qualified floating rate and a fixed multiple that is greater than
0.65 but not more than 1.35 or (ii) the product of a qualified floating rate
and a fixed multiple that is greater than 0.65 but not more than 1.35,
increased or decreased by a fixed rate will constitute a qualified floating
rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate Debt Certificate will be treated as a single qualified floating
rate (a "Presumed Single Qualified Floating Rate"). Two or more qualified
floating rates with values within 25 basis points of each other as determined
on the Variable Rate Debt Certificate's issue date will be conclusively
presumed to be a Presumed Single Qualified Floating Rate. Notwithstanding the
foregoing, a variable rate that would otherwise constitute a qualified floating
rate but which is subject to one or more restrictions such as a cap or floor
will not be a qualified floating rate for purposes of the OID Regulations
unless the restriction is fixed throughout the term of the Variable Rate Debt
Certificate or the restriction will not significantly affect the yield of the
Variable Rate Debt Certificate.
An "objective rate" is a rate that is not itself a qualified floating rate
but that is determined using a single fixed formula and which is based upon
objective financial or economic information. The OID Regulations also provide
that other variable rates may be treated as objective rates if so designated by
the IRS in the future. An interest rate based on the weighted average of the
interest rates on some or all of the qualified mortgages held by a REMIC should
constitute an objective rate. Despite the foregoing, a variable rate of
interest on a Variable Rate Debt Certificate will not constitute an objective
rate if it is reasonably expected that the average value of such rate during
the first half of the Variable Rate Debt Certificate's term will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the Variable Rate Debt Certificate's
101
<PAGE>
term. Further, an objective rate does not include a rate that is based on
information that is within the control of or unique to the circumstances of the
issuer or a party related to the issuer. An objective rate will qualify as a
"qualified inverse floating rate" if such rate is equal to a fixed rate minus a
qualified floating rate, and variations in the rate can reasonably be expected
to reflect inversely contemporaneous variations in the qualified floating rate.
The OID Regulations also provide that if a Variable Rate Debt Certificate
provides for stated interest at a fixed rate for an initial period of less than
one year followed by a variable rate that is either a qualified floating rate
or an objective rate and if the variable rate on the Variable Rate Debt
Certificate's issue date is intended to approximate the fixed rate, then the
fixed rate and the variable rate together will constitute either a single
qualified floating rate or objective rate, as the case may be (a "Presumed
Single Variable Rate"). If the value of the variable rate and the initial fixed
rate are within 25 basis points of each other as determined on the Variable
Rate Debt Certificate's issue date, the variable rate will be conclusively
presumed to approximate the fixed rate.
For Variable Rate Debt Certificates that qualify as a "variable rate debt
instrument" under the OID Regulations and provide for interest at either a
single qualified floating rate, a single objective rate, a Presumed Single
Qualified Floating Rate or a Presumed Single Variable Rate throughout the term
(a "Single Variable Rate Debt Certificate"), original issue discount is
computed as described above based on the following: (i) stated interest on the
Single Variable Rate Debt Certificate which is unconditionally payable in cash
or property (other than debt instruments of the issuer) at least annually will
constitute qualified stated interest, (ii) by assuming that the variable rate
on the Single Variable Debt Certificate is a fixed rate equal to: (a) in the
case of a Single Variable Rate Debt Certificate with a qualified floating rate
or a qualified inverse floating rate, the value of, as of the issue date, the
qualified floating rate or the qualified inverse floating rate or (b) in the
case of a Single Variable Rate Debt Certificate with an objective rate (other
than a qualified inverse floating rate), a fixed rate which reflects the
reasonably expected yield for such Single Variable Debt Certificate; and (iii)
the qualified stated interest allocable to an accrual period is increased (or
decreased) if the interest actually paid during an accrual period exceeds (or
is less than) the interest assumed to be paid under the assumed fixed rate
described in (ii) above.
In general, any Variable Rate Debt Certificate other than a Single
Variable Rate Debt Certificate (a "Multiple Variable Rate Debt Certificate")
that qualifies as a "variable rate debt instrument" will be converted into an
"equivalent" fixed rate debt instrument for purposes of determining the amount
and accrual of original issue discount and qualified stated interest on the
Multiple Variable Rate Debt Certificate. The OID Regulations generally require
that such a Multiple Variable Rate Debt Certificate be converted into an
"equivalent" fixed rate debt instrument by substituting any qualified floating
rate or qualified inverse floating rate provided for under the terms of the
Multiple Variable Rate Debt Certificate with a fixed rate equal to the value of
the qualified floating rate or qualified inverse floating rate, as the case may
be, as of the Multiple Variable Rate Debt Certificate's issue date. Any
objective rate (other than a qualified inverse floating rate) provided for
under the terms of the Multiple Variable Rate Debt Certificate is converted
into a fixed rate that reflects the yield that is reasonably expected for the
Multiple Variable Rate Debt Certificate. In the case of a Multiple Variable
Rate Debt Certificate that qualifies as a "variable rate debt instrument" and
provides for stated interest at a fixed rate in addition to either one or more
qualified floating rates or a qualified inverse floating rate, the fixed
102
<PAGE>
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Multiple Variable Rate Debt Certificate provides
for a qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Multiple Variable Rate Debt
Certificate as of the Multiple Variable Rate Debt Certificate's issue date is
approximately the same as the fair market value of an otherwise identical debt
instrument that provides for either the qualified floating rate or qualified
inverse floating rate rather than the fixed rate. Subsequent to converting the
fixed rate into either a qualified floating rate or a qualified inverse
floating rate, the Multiple Variable Rate Debt Certificate is then converted
into an "equivalent" fixed rate debt instrument in the manner described above.
Once the Multiple Variable Rate Debt Certificate is converted into an
"equivalent" fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the "equivalent" fixed rate debt instrument by applying the
original issue discount rules to the "equivalent" fixed rate debt instrument in
the manner described above. A holder of the Multiple Variable Rate Debt
Certificate will account for such original issue discount and qualified stated
interest as if the holder held the "equivalent" fixed rate debt instrument.
Each accrual period appropriate adjustments will be made to the amount of
qualified stated interest or original issue discount assumed to have been
accrued or paid with respect to the "equivalent" fixed rate debt instrument in
the event that such amounts differ from the accrual amount of interest accrued
or paid on the Multiple Variable Rate Debt Certificate during the accrual
period.
If a Variable Rate Debt Certificate does not qualify as a "variable rate
debt instrument" under the OID Regulations, then the Variable Rate Debt
Certificate would be treated as a contingent payment debt obligation. It is not
clear under current law how a Variable Rate Debt Certificate would be taxed if
such Debt Certificate were treated as a contingent payment debt obligation.
The IRS has issued final regulations (the "Contingent Regulations")
governing the calculation of OID on instruments having contingent interest
payments. The Contingent Regulations specifically do not apply however to debt
instruments to which Code Section 1272(a)(6) is applicable, such as a
Pay-Through Certificate. Additionally, the OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6). Until the
Treasury issues guidelines to the contrary, the Trustee intends to base its
computation of OID on Pay-Through Certificates as described in this Prospectus.
However, because no regulatory guidance exists under Code Section 1272(a)(6),
there can be no assurance that such methodology represents the correct manner
of calculating OID.
Market Discount. A purchaser of a Certificate may be subject to the market
discount rules of Sections 1276-1278 of the Code. A holder that acquires a Debt
Certificate with more than a prescribed de minimis amount of "market discount"
(generally, the excess of the principal amount of the Debt Certificate over the
purchaser's purchase price) will be required to include accrued market discount
in income as ordinary income in each month, but limited to an amount not
exceeding the principal payments on the Debt Certificate received in that month
and, if the Certificates are sold, the gain realized. Such market discount
would accrue in a manner to be provided in Treasury Department regulations but,
until such regulations are issued, such market discount would in general accrue
either (i) on the basis of a constant yield (in the case of a Pay-Through
Certificate, taking into account
103
<PAGE>
a prepayment assumption) or (ii) in the ratio of (a) in the case of
Certificates (or in the case of a Pass-Through Certificate, as set forth below,
the Mortgage Loans underlying such Certificate) not originally issued with
original issue discount, stated interest payable in the relevant period to
total stated interest remaining to be paid at the beginning of the period or
(b) in the case of Certificates (or, in the case of a Pass-Through Certificate,
as described below, the Mortgage Loans underlying such Certificate) originally
issued at a discount, OID in the relevant period to total OID remaining to be
paid.
Section 1277 of the Code provides that, regardless of the origination date
of the Debt Certificate (or, in the case of a Pass-Through Certificate, the
Mortgage Loans), the excess of interest paid or accrued to purchase or carry a
Certificate (or, in the case of a Pass-Through Certificate, as described below,
the underlying Mortgage Loans) with market discount over interest received on
such Certificate is allowed as a current deduction only to the extent such
excess is greater than the market discount that accrued during the taxable year
in which such interest expense was incurred. In general, the deferred portion
of any interest expense will be deductible when such market discount is
included in income, including upon the sale, disposition, or repayment of the
Certificate (or in the case of a Pass-Through Certificate, an underlying
Mortgage Loan). A holder may elect to include market discount in income
currently as it accrues, on all market discount obligations acquired by such
holder during the taxable year such election is made and thereafter, in which
case the interest deferral rule will not apply. If such an election were made
with respect to a Debt Certificate with market discount, the Certificateholder
would be deemed to have made an election to include currently market discount
in income with respect to all other debt instruments having market discount
that such Certificateholder acquires during the taxable year of the election or
thereafter and possibly previously acquired instruments. Similarly, a
Certificateholder that made this election for a Certificate that is acquired at
a premium would be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "-- Premium" and "-- Election to Treat
all Interest as Original Issue Discount" below. Each of these elections to
accrue interest, discount and premium with respect to a Certificate on a
constant yield method or as interest would be irrevocable.
Premium. A holder who purchases a Debt Certificate at a cost greater than
its stated redemption price at maturity generally will be considered to have
purchased the Certificate at a premium, which it may elect to amortize as an
offset to interest income on such Certificate (and not as a separate deduction
item) on a constant yield method. Although no regulations addressing the
computation of premium accrual on securities similar to the Certificates have
been issued, the legislative history of the Tax Reform Act of 1986 (the "1986
Act") indicates that premium is to be accrued in the same manner as market
discount. Accordingly, it appears that the accrual of premium on a Class of
Pay-Through Certificates will be calculated using the prepayment assumption
used in pricing such Class. If a holder makes an election to amortize premium
on a Debt Certificate, such election will apply to all taxable debt instruments
(including all REMIC regular interests and all pass-through certificates
representing ownership interests in a trust holding debt obligations) held by
the holder at the beginning of the taxable year in which the election is made,
and to all taxable debt instruments acquired thereafter by such holder, and
will be irrevocable without the consent of the IRS. Purchasers who pay a
premium for the Certificates should consult their tax advisors regarding the
election to amortize premium and the method to be employed.
104
<PAGE>
The IRS has issued regulations (the "Amortizable Bond Premium
Regulations") dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code
Section 1272(a)(6) such as the Pay-Through Certificates. Absent further
guidance from the IRS, the Trustee intends to account for amortizable bond
premium in the manner described above. Prospective purchasers of the
Certificates should consult their tax advisors regarding the possible
application of the Amortizable Bond Premium Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Certificate to elect to accrue all
interest, discount (including de minimis market or OID) and premium in income
as interest, based on a constant yield method for Debt Certificates acquired on
or after April 4, 1994. If such an election were to be made with respect to a
Debt Certificate with market discount, the holder of the Debt Certificate would
be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such holder of the Debt Certificate acquires during the year of the election or
thereafter. Similarly, a holder of a Debt Certificate that makes this election
for a Debt Certificate that is acquired at a premium will be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such holder owns or acquires. The election
to accrue interest, discount and premium on a constant yield method with
respect to a Debt Certificate is irrevocable except with the approval of the
IRS.
Sale or Exchange. A holder's adjusted tax basis in its Debt Certificate is
the price such holder pays for a Debt Certificate, plus amounts of OID or
market discount included in income and reduced by any payments received (other
than qualified stated interest payments) and any amortized premium. Except as
described in "-- Interest and Acquisition Discount" and "-- Market Discount,"
gain or loss recognized on a sale, exchange, or redemption of a Debt
Certificate, measured by the difference between the amount realized and the
Debt Certificate's basis as so adjusted, will generally be capital gain or
loss, assuming that the Debt Certificate is held as a capital asset. In the
case of a Debt Certificate held by a bank, thrift or similar institution
described in Section 582 of the Code, however, gain or loss realized on the
sale or exchange of a Debt Certificate will be taxable as ordinary income or
loss. Gain from the disposition of a Debt Certificate that might otherwise be
capital gain will be treated as ordinary income (i) if a Debt 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 Debt
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 disposition of property
that was held as 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
income rates, or (iii) in the case of a Regular Certificate to the extent that
such gain does not exceed the excess, if any, of (a) the amount that would have
been includable in the gross income of the holder if his yield on such Regular
Certificate were 110% of the applicable Federal rate under Code Section 1274(d)
as of the date of purchase, over (b) the amount of income actually includable
in the gross income of such holder with respect to the Regular Certificate.
Although the legislative history to the 1986 Act indicates that the portion of
the gain from disposition of a Regular Certificate that
105
<PAGE>
will be recharacterized as ordinary income under clause (iii) is limited to the
amount of OID (if any) on the Regular Certificate that was not previously
includable in income, the applicable Code provision contains no such
limitation.
C. TAXATION OF CERTIFICATES AS TO WHICH A REMIC ELECTION HAS BEEN MADE
1. TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Federal Tax Counsel, if a REMIC election is
made with respect to a Series of Certificates, then the arrangement by which
the Certificates of that Series are issued will be treated as a REMIC as long
as all of the provisions of the applicable Pooling and Servicing Agreement are
complied with and the statutory and regulatory requirements are satisfied.
Certificates will be designated as "Regular Interests" or "Residual Interests"
in a REMIC, as specified in the related Prospectus Supplement.
Status of Regular Certificates. Regular Certificates and Certificates
representing a residual interest in a REMIC (both types of securities
collectively referred to as "REMIC Certificates") will be "real estate assets"
for purposes of Section 856(c)(4)(A) of the Code and assets described in
Section 7701(a)(19)(C)(v) of the Code (assets qualifying under one or both of
those sections, applying each section separately, "qualifying assets") to the
extent that the REMIC's assets are qualifying assets. Moreover, if at least 95%
of the REMIC's assets are qualifying assets, then 100% of the REMIC
Certificates will be qualifying assets. Similarly, income on the REMIC
Certificates will be treated as "interest on obligations secured by mortgages
on real property" within the meaning of Section 856(c)(3)(B) of the Code,
subject to the limitations of the preceding two sentences. In addition to
Mortgage Loans, the REMIC's assets will include payments on Mortgage Loans held
pending distribution to holders of REMIC Certificates, amounts in reserve
accounts (if any), other credit enhancements (if any) and possibly buydown
funds ("Buydown Funds"). The Mortgage Loans generally will be qualifying assets
under each of the foregoing sections of the Code. However, Mortgage Loans that
are not secured by residential real property or real property used primarily
for church purposes may not constitute qualifying assets under Section
7701(a)(19)(C)(v) of the Code. In addition, to the extent that the principal
amount of a Mortgage Loan exceeds the value of the property securing the
Mortgage Loan, it is unclear and Federal Tax Counsel is unable to opine whether
the Mortgage Loans will be qualifying assets. The REMIC Regulations treat
credit enhancements as part of the mortgage or pool of mortgages to which they
relate, and therefore credit enhancements generally should be qualifying
assets. Regulations issued in conjunction with the REMIC Regulations provide
that amounts paid on loans and held pending distribution to holders of Regular
Certificates ("cash flow investments") will be treated as qualifying assets. It
is unclear whether reserve funds or Buydown Funds would also constitute
qualifying assets under any of those provisions.
2. REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Certificates. In the case of a "single class
REMIC," however, the expenses will be allocated, under Treasury Department
regulations, among the holders of the Regular Certificates and the holders of
the Residual Certificates on a daily basis in proportion to the relative
amounts of income accruing to each holder on that day. In the case of a holder
of a Regular Certificate who is an individual or a "pass-through interest
holder" (including
106
<PAGE>
certain pass-through entities but not including real estate investment trusts),
such expenses will be deductible only to the extent that such expenses, plus
other "miscellaneous itemized deductions" of the holder, exceed 2% of such
holder's adjusted gross income and such holder may not be able to deduct such
fees and expenses to any extent in computing such holder's alternative minimum
tax liability. In addition, Section 68 of the Code provides that the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount, or (ii) 80% of the amount of itemized deductions otherwise allowable
for such taxable year. For taxable years beginning after December 31, 1997, in
the case of a partnership that has 100 or more partners and elects to be
treated as an "electing large partnership," 70 percent of such partnership's
miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2 percent floor that would otherwise be applicable to individual
partners. The reduction or disallowance of this deduction may have a
significant impact on the yield of the Regular Certificate to such a holder. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury Department regulations, as a grantor trust if it were not a
REMIC (treating all interests as ownership interests, even if they would be
classified as debt for federal income tax purposes) or (ii) is similar to such
a trust and which is structured with the principal purpose of avoiding the
single class REMIC rules. Unless otherwise stated in the applicable Prospectus
Supplement, the expenses of the REMIC will be allocated to holders of the
related Residual Certificates.
3. TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related
Trust as REMICs ("Tiered REMICs") for federal income tax purposes. Upon the
issuance of any such Series of Certificates, counsel to the Transferors will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related Pooling and Servicing Agreement, the Tiered REMICs
will each qualify as a REMIC and the REMIC Certificates issued by the Tiered
REMICs, respectively, will be considered to evidence ownership of Regular
Certificates or Residual Certificates in the related REMIC within the meaning
of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code,
and "loans . . . secured by an interest in real property" under Section
7701(a)(19)(C)(v) of the Code, and whether the income on such Certificates is
interest described in Section 856(c)(3)(B) of the Code, the Tiered REMICs will
be treated as one REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including
107
<PAGE>
stated interest and any original issue discount or market discount on loans and
other assets, and (ii) deductions, including stated interest and original issue
discount accrued on Regular Interest Certificates, amortization of any premium
with respect to Mortgage Loans, and servicing fees and other expenses of the
REMIC. A holder of a Residual Interest Certificate that is an individual or a
"pass-through interest holder" (including certain pass-through entities, but
not including real estate investment trusts) will be unable to deduct servicing
fees payable on the Mortgage Loans or other administrative expenses of the
REMIC for a given taxable year, to the extent that such expenses, when
aggregated with such holder's other miscellaneous itemized deductions for that
year, do not exceed 2% of such holder's adjusted gross income and such holder
may not be able to deduct such fees and expenses to any extent in computing
such holder's alternative minimum tax liability. For taxable years beginning
after December 31, 1997, in the case of a partnership that has 100 or more
partners and elects to be treated as an "electing large partnership," 70
percent of such partnership's miscellaneous itemized deductions will be
disallowed, although the remaining deductions will generally be allowed at the
partnership level and will not be subject to the 2 percent floor that would
otherwise be applicable to individual partners.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the
"Startup Day" (generally, the day that the interests are issued). Such
aggregate basis will be allocated among the assets of the REMIC in proportion
to their respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to loans.
Subject to possible application of the de minimis rules, the method of accrual
by the REMIC of OID income on such loans will be equivalent to the method under
which holders of Pay-Through Certificates accrue original issue discount (i.e.,
under the constant yield method taking into account the Prepayment Assumption).
The REMIC will deduct OID on the Regular Certificates in the same manner that
the holders of the Regular Certificates include such discount in income, but
without regard to the de minimis rules. See "-- Taxation of Debt Certificates
(Including Regular Certificates)" above. However, a REMIC that acquires loans
at a market discount must include such market discount in income currently, as
it accrues, on a constant yield basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (presumably taking into account the Prepayment Assumption) on a
constant yield method. Although the law is somewhat unclear regarding recovery
of premium attributable to loans originated on or before such date, it is
possible that such premium may be recovered in proportion to payments of loan
principal.
Prohibited Transactions and Other Possible Taxes. The REMIC will be
subject to a 100% tax on any net income derived from a "prohibited
transaction." For this purpose, net income will be calculated without taking
into account any losses from prohibited transactions or any deductions
attributable to any prohibited transaction that resulted in a loss. In general,
prohibited transactions include: (i) subject to limited exceptions, the sale or
other disposition of any qualified mortgage transferred to the REMIC; (ii)
subject to a limited exception, the sale or other disposition of a cash flow
investment; (iii) the receipt of any
108
<PAGE>
income from assets not permitted to be held by the REMIC pursuant to the Code;
or (iv) the receipt of any fees or other compensation for services rendered by
the REMIC. It is anticipated that a REMIC will not engage in any prohibited
transactions in which it would recognize a material amount of net income. In
addition, subject to a number of exceptions, a tax is imposed at the rate of
100% on amounts contributed to a REMIC after the Startup Day. REMICs also are
subject to federal income tax at the highest corporate rate on "net income from
foreclosure property," determined by reference to the rules applicable to real
estate investment trusts. "Net income from foreclosure property" generally
means gain from the sale of foreclosure property that is inventory property,
and gross income from foreclosure property other than qualifying rents and
other qualifying income for a real estate investment trust. Unless otherwise
disclosed in the related Prospectus Supplement, it is not anticipated that any
REMIC will recognize "net income from foreclosure property" subject to federal
income tax. The holders of Residual Certificates will generally be responsible
for the payment of any such taxes imposed on the REMIC. To the extent not paid
by such holders or otherwise, however, such taxes will be paid out of the Trust
and will be allocated pro rata to all outstanding Classes of Certificates of
such REMIC.
4. TAXATION OF HOLDERS OF RESIDUAL CERTIFICATES
The holder of a Certificate representing a residual interest (a "Residual
Interest Certificate") will take into account the "daily portion" of the
taxable income or net loss of the REMIC for each day during the taxable year on
which such holder held the Residual Interest Certificate. The daily portion is
determined by allocating to each day in any calendar quarter its ratable
portion of the taxable income or net loss of the REMIC for such quarter, and by
allocating that amount among the holders (on such day) of the Residual
Certificates in proportion to their respective holdings on such day.
The holder of a Residual Interest Certificate must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to such income or loss.
The reporting of taxable income without corresponding distributions could
occur, for example, in certain REMIC issues in which the Mortgage Loans held by
the REMIC were issued or acquired at a discount, since mortgage prepayments
cause recognition of discount income, while the corresponding portion of the
prepayment could be used in whole or in part to make principal payments on
REMIC Regular Interests issued without any discount or at an insubstantial
discount. (If this occurs, it is likely that cash distributions will exceed
taxable income in later years.) Taxable income may also be greater in earlier
years of certain REMIC issues as a result of the fact that interest expense
deductions, as a percentage of outstanding principal on REMIC Regular
Certificates, will typically increase over time as lower yielding Certificates
are paid, whereas interest income with respect to loans will generally remain
constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Certificate in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Certificate may be less than that of such a bond
or instrument.
Limitation on Losses. The amount of the REMIC's net loss that a holder may
take into account currently is limited to the holder's adjusted basis at the
end of the calendar
109
<PAGE>
quarter in which such loss arises. A holder's basis in a Residual Interest
Certificate will initially equal such holder's purchase price, and will
subsequently be increased by the amount of the REMIC's taxable income allocated
to the holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
holder. Any disallowed loss may be carried forward indefinitely, but may be
used only to offset income of the REMIC generated by the same REMIC. The
ability of holders of Residual Certificates to deduct net losses may be subject
to additional limitations under the Code, as to which such holders should
consult their tax advisors.
Distributions. Distributions on a Residual Interest Certificate (whether
at their scheduled times or as a result of prepayments) will generally not
result in any additional taxable income or loss to a holder of a Residual
Interest Certificate. If the amount of such payment exceeds a holder's adjusted
basis in the Residual Interest Certificate, however, the holder will recognize
gain (treated as gain from the sale of the Residual Interest Certificate) to
the extent of such excess.
Sale or Exchange. A holder of a Residual Interest Certificate will
recognize gain or loss on the sale or exchange of a Residual Interest
Certificate equal to the difference, if any, between the amount realized and
such holder's adjusted basis in the Residual Interest Certificate at the time
of such sale or exchange. Except to the extent provided in regulations, which
have not yet been issued, any loss upon disposition of a Residual Interest
Certificate will be disallowed if the selling holder acquires any residual
interest in a REMIC or similar mortgage pool within six months before or after
such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a holder of
a Residual Interest Certificate consisting of "excess inclusion" income may not
be offset by other deductions or losses, including net operating losses, on
such holder's federal income tax return. Further, if the holder of a Residual
Interest Certificate is an organization subject to the tax on unrelated
business income imposed by Code Section 511, such holder's excess inclusion
income will be treated as unrelated business taxable income of such holder. In
addition, under Treasury Department regulations yet to be issued, if a real
estate investment trust, a regulated investment company, a common trust fund,
or certain cooperatives were to own a Residual Interest Certificate, a portion
of dividends (or other distributions) paid by the real estate investment trust
(or other entity) would be treated as excess inclusion income. If a Residual
Interest Certificate is owned by a foreign person, excess inclusion income is
subject to tax at a rate of 30% which may not be reduced by treaty, is not
eligible for treatment as "portfolio interest" and is subject to certain
additional limitations. See "Tax Treatment of Foreign Investors" herein.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
Residual Interest Certificate, over the daily accruals for such quarterly
period of (i) 120% of the long-term applicable federal rate on the Startup Day
multiplied by (ii) the adjusted issue price of such Residual Interest
Certificate at the beginning of such quarterly period. The adjusted issue price
of a Residual Interest Certificate at the beginning of each calendar quarter
will equal its issue price (calculated in a manner analogous to the
determination of the issue price of a Regular Certificate), increased by the
aggregate of the daily accruals for prior calendar quarters, and decreased (but
not below zero) by the amount of loss allocated to a holder and the amount of
distributions made on the Residual Interest Certificate before the beginning
110
<PAGE>
of the quarter. The long-term federal rate, which is announced monthly by the
Treasury Department, is an interest rate that is based on the average market
yield of outstanding marketable obligations of the United States government
having remaining maturities in excess of nine years.
The Small Business Job Protection Act ("SBJPA") of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from Residual Interest Certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to Residual Interest
Certificates continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
holder of a Residual Interest Certificate. First, alternative minimum taxable
income of a holder of a Residual Certificate is determined without regard to
the special rule that taxable income cannot be less than excess inclusions.
Second, the alternative minimum taxable income of a holder of a Residual
Interest Certificate for a taxable year cannot be less than the excess
inclusions for the year. Third, the amount of any alternative minimum tax net
operating loss deduction must be computed without regard to any excess
inclusions. These rules are effective for taxable years beginning after
December 31, 1986, unless a holder of a Residual Interest Certificate elects to
have such rules apply only to taxable years beginning after August 20, 1996.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Certificates may be disregarded. See "-- Restrictions on Ownership and
Transfer of Residual Certificates" and "-- Tax Treatment of Foreign Investors"
below.
Restrictions on Ownership and Transfer of Residual Interest
Certificates. As a condition to qualification as a REMIC, reasonable
arrangements must be made to prevent the ownership of a REMIC residual interest
by any "Disqualified Organization." Disqualified Organizations include the
United States, any State or political subdivision thereof, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
Section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Pooling and Servicing
Agreement will prohibit Disqualified Organizations from owning a Residual
Interest Certificate. In addition, no transfer of a Residual Interest
Certificate will be permitted unless the proposed transferee shall have
furnished to the Trustee an affidavit representing and warranting that it is
neither a Disqualified Organization nor an agent or nominee acting on behalf of
a Disqualified Organization.
If a Residual Interest Certificate is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a substantial
tax will be imposed on the transferor of such Residual Interest Certificate at
the time of the transfer. In addition, if a Disqualified Organization holds an
interest in a pass-through entity (including, among others, a partnership,
trust, real estate investment trust, regulated investment company, or any
person holding as nominee an interest in a pass-through entity) that owns a
Residual Interest Certificate, the pass-through entity will be required to pay
an annual tax on its allocable share of the excess inclusion income of the
REMIC. For taxable years beginning after December 31, 1997, all partners of
certain electing partnerships having 100 or more
111
<PAGE>
partners ("electing large partnerships") will be treated as disqualified
organizations for purposes of the tax imposed on pass-through entities if such
electing large partnerships hold residual interests in a REMIC. However, the
electing large partnership would be entitled to exclude the excess inclusion
income from gross income for purposes of determining the taxable income of the
partners.
The REMIC Regulations provide that a transfer of a "noneconomic residual
interest" will be disregarded for all federal income tax purposes unless
impeding the assessment or collection of tax was not a significant purpose of
the transfer. A residual interest will be treated as a "noneconomic residual
interest" unless, at the time of the transfer (i) the present value of the
expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35%, and (ii) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from
the REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had "improper knowledge") that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that
(a) the transferee understands that it might incur tax liabilities in excess of
any cash received with respect to the residual interest and (b) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. The Treasury Department has proposed an amendment to the REMIC
Regulations that would add a third condition, effective February 4, 2000. Under
the proposed amendment, a transferor of a residual interest would be presumed
not to have improper knowledge only if the present value of the anticipated tax
liabilities associated with holding the residual interest is less than or equal
to the present value of the sum of (i) any consideration given to the
transferee to acquire the residual interest, (ii) expected future distributions
on the residual interest and (iii) anticipated tax savings associated with
holding the residual interest as the related REMIC generates losses. The
application of the proposed amendment to an actual transfer is uncertain, and
you should consult your own tax advisor regarding its effect on the transfer of
a residual interest. A different formulation of this rule applies to transfers
of Residual Interest Certificate by or to foreign transferees. See "Tax
Treatment to Foreign Investors" herein.
Mark to Market Rules. Treasury regulations provide that any REMIC Residual
Interest acquired after January 3, 1995 is not a security and cannot be marked
to market under Section 475.
5. ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction or credit, by the IRS in a
unified administrative proceeding.
112
<PAGE>
D. TAX STATUS AS A GRANTOR TRUST
General. As specified in the related Prospectus Supplement, if a REMIC or
partnership election is not made and the Certificates are not treated as debt
for federal income tax purposes, an opinion of Federal Tax Counsel will be
obtained that the Trust relating to a Series of Certificates will be classified
for federal income tax purposes as a grantor trust under Subpart E, Part I of
Subchapter J of Chapter 1 of Subtitle A of the Code and not as an association
taxable as a corporation (the Certificates of such Series, "Pass-Through
Certificates"). Accordingly, each holder of a Pass-Through Certificate is
treated for federal income tax purposes as the owner of an undivided interest
in the Mortgage Loans included in the Trust. As further described below, each
holder of a Pass-Through Certificate therefore must report on its federal
income tax return the gross income from the portion of the Trust assets that is
allocable to such Pass-Through Certificate and may deduct the portion of the
expenses incurred or accrued by the Trust that is allocable to such
Pass-Through Certificate, at the same time and to the same extent as such items
would be reported by such holder if it had purchased and held directly such
interest in the Trust assets and received or accrued directly its share of the
payments on the Trust assets and incurred or accrued directly its share of
expenses incurred or accrued by the Trust when those amounts are received,
incurred or accrued by the Trust.
A holder of a Pass-Through Certificate that is an individual, estate, or
trust will be allowed deductions for such expenses only to the extent that the
sum of those expenses and the holder's other miscellaneous itemized deductions
exceeds 2% of such holder's adjusted gross income. Moreover, a holder of a
Pass-Through Certificate that is not a corporation cannot deduct such expenses
for purposes of the alternative minimum tax (if applicable). Such deductions
will include servicing, guarantee and administrative fees paid to the servicer
of the Mortgage Loans. As a result, the Trust will report additional taxable
income to holders of Pass-Through Certificates in an amount equal to their
allocable share of such deductions, and individuals, estates, or trusts holding
Pass-Through Certificates may have taxable income in excess of the cash
received.
Status of the Pass-Through Certificates. The Pass-Through Certificates
will be "real estate assets" for purposes of Section 856(c)(4)(A) of the Code
and "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code (assets qualifying under one or both of
those sections, applying each section separately, "qualifying assets") to the
extent that the Trust's assets are qualifying assets. The Pass-Through
Certificates may not be qualifying assets under any of the foregoing sections
of the Code to the extent that the Trust's assets include Buydown Funds,
reserve funds, or payments on mortgages held pending distribution to
Certificateholders. Further, the Pass-Through Certificates may not be "real
estate assets" to the extent Mortgage Loans held by the trust are not secured
by real property, and may not be "loans . . . secured by an interest in real
property" to the extent Mortgage Loans held by the trust are not secured by
residential real property or real property used primarily for church purposes.
In addition, to the extent that the principal amount of a Mortgage Loan exceeds
the value of the property securing the Mortgage Loan, it is unclear and Federal
Tax Counsel is unable to opine whether the Mortgage Loans will be qualifying
assets.
Taxation of Pass-Through Certificates Under Stripped Bond Rules. The
federal income tax treatment of the Pass-Through Certificates will depend on
whether they are subject to the rules of Section 1286 of the Code (the
"stripped bond rules"). The
113
<PAGE>
Pass-Through Certificates will be subject to those rules if stripped
interest-only Certificates are issued. In addition, whether or not stripped
interest-only Certificates are issued, the IRS may contend that the stripped
bond rules apply on the ground that the Servicer's servicing fee, or other
amounts, if any, paid to (or retained by) the Servicer or its affiliates, as
specified in the applicable Prospectus Supplement, represent greater than an
arm's length consideration for servicing the Mortgage Loans and should be
characterized for federal income tax purposes as an ownership interest in the
Mortgage Loans. The IRS has concluded in Revenue Ruling 91-46 that a retained
interest in excess of reasonable compensation for servicing is treated as a
"stripped coupon" under the rules of Code Section 1286.
If interest retained for the Servicer's servicing fee or other interest is
treated as a "stripped coupon," the Pass-Through Certificates will be subject
to the OID rules and/or the market discount rules. A holder of a Pass-Through
Certificate generally will account for any discount on the Pass-Through
Certificate as market discount rather than OID if either (i) the amount of OID
attributable to such Mortgage Loan was treated as zero under the OID de minimis
rule when such Pass-Through Certificate was stripped or (ii) no more than 100
basis points (including any amount of servicing in excess of reasonable
servicing) is stripped off from such Mortgage Loan. If neither of the above
exceptions applies, the OID rules will apply to the Pass-Through Certificates.
Section 1272(a)(6) of the Code provides for use of a prepayment assumption
in determining OID for any pool of debt instruments the yield on which may be
affected by reason of prepayments. Therefore, if there is OID, the holder of a
Pass-Through Certificate (whether a cash or accrual method taxpayer) will be
required to report interest income from the Pass-Through Certificate in each
taxable year equal to the income that accrues on the Pass-Through Certificate
in that year calculated under a constant yield method based on the yield of the
Pass-Through Certificate (or, possibly, the yield of each Mortgage Loan
underlying such Pass-Through Certificate) to such holder. Such yield would be
computed at the rate (assuming monthly compounding) that, if used in
discounting the holder's share of the payments on the Mortgage Loans, would
cause the present value of those payments to equal the price at which the
holder purchased the Pass-Through Certificate. If required to report interest
income on the Pass-Through Certificates to the IRS under the stripped bond
rules, it is anticipated that the Trustee will calculate the yield of the
Pass-Through Certificates based on a representative initial offering price of
the Pass-Through Certificates and a reasonable assumed rate of prepayment of
the Mortgage Loans (although such yield may differ from the yield to any
particular holder that would be used in calculating the interest income of such
holder). The Prospectus Supplement for each series of Pass-Through Certificates
will describe the prepayment assumption that will be used for this purpose, but
no representation is made that the Mortgage Loans will prepay at that rate or
at any other rate.
If a Mortgage Loan is prepaid in full, the holder of a Pass-Through
Certificate acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Mortgage Loan that is allocable to the Pass-Through
Certificate and the portion of the adjusted basis of the Pass-Through
Certificate (see "Sales of Pass-Through Certificates" below) that is allocable
to the Mortgage Loan.
Taxation of Pass-Through Certificates If Stripped Bond Rules Do Not
Apply. If the stripped bond rules do not apply to a Pass-Through Certificate,
then the holder will be
114
<PAGE>
required to include in income its share of the interest payments on the
Mortgage Loans in accordance with its tax accounting method. In addition, if
the holder purchased the Pass-Through Certificate at a discount or premium, the
holder will be required to account for such discount or premium in the manner
described below. The treatment of any discount will depend on whether the
discount is OID as defined in the Code and, in the case of discount other than
OID, whether such other discount exceeds a de minimis amount. In the case of
OID, the holder (whether a cash or accrual method taxpayer) will be required to
report as additional interest income in each month the portion of such discount
that accrues in that month, calculated based on a constant yield method. In
general it is not anticipated that the amount of OID to be accrued in each
month, if any, will be significant relative to the interest paid currently on
the Mortgage Loans. However, OID could arise with respect to a Mortgage Loan
that provides for interest at a rate equal to the sum of an index of market
interest rates and a fixed number ("ARM"). The OID for ARMs generally will be
determined under the principles discussed in "-- Taxation of Debt Certificates
(Including Regular Certificates) -- Variable Rate Debt Certificates" herein.
If discount other than OID exceeds a de minimis amount (described below),
the holder will also generally be required to include in income in each month
the amount of such discount accrued through such month and not previously
included in income, but limited, with respect to the portion of such discount
allocable to any Mortgage Loan, to the amount of principal on such Mortgage
Loan received by the Trust in that month. Because the Mortgage Loans will
provide for monthly principal payments, such discount may be required to be
included in income at a rate that is not significantly slower than the rate at
which such discount accrues (and therefore at a rate not significantly slower
than the rate at which such discount would be included in income if it were
OID). The holder may elect to accrue such discount under a constant yield
method based on the yield of the Pass-Through Certificate to such holder (or
possibly based on the yields of each Mortgage Loan). In the absence of such an
election, it may be necessary to accrue such discount under a more rapid
straight-line method. Under the de minimis rule, market discount with respect
to a Pass-Through Certificate will be considered to be zero if it is less than
the product of (i) 0.25% of the principal amount of the Mortgage Loans
allocable to the Pass-Through Certificate and (ii) the weighted average life
(in complete years) of the Mortgage Loans remaining at the time of purchase of
the Pass-Through Certificate.
If a holder purchases a Pass-Through Certificate at a premium, such holder
may elect under Section 171 of the Code to amortize the portion of such premium
that is allocable to a Mortgage Loan under a constant yield method based on the
yield of the Mortgage Loan to such holder, provided that such Mortgage Loan was
originated after September 27, 1985. Premium allocable to a Mortgage Loan
originated on or before that date should be allocated among the principal
payments on the Mortgage Loan and allowed as an ordinary deduction as principal
payments are made or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for discount or premium
would be made based on the scheduled payments on the Mortgage Loans or taking
account of a reasonable prepayment assumption, and Federal Tax Counsel is
unable to opine on this issue.
If a Mortgage Loan is prepaid in full, the holder of a Pass-Through
Certificate acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal
amount of the Mortgage Loan that is allocable
115
<PAGE>
to the Pass-Through Certificate and the portion of the adjusted basis of the
Pass-Through Certificate (see "-- Tax Characterization of the Trust as a
Partnership; Tax Consequences To Holders of the Certificates Issued by a
Partnership -- Disposition of Certificates" below) that is allocable to the
Mortgage Loan. The method of allocating such basis among the Mortgage Loans may
differ depending on whether a reasonable prepayment assumption is used in
calculating the yield of the Pass-Through Certificates for purposes of accruing
OID. Other adjustments might be required to reflect differences between the
prepayment rate that was assumed in accounting for discount or premium and the
actual rate of prepayments.
E. TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP; TAX CONSEQUENCES TO
HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
Tax Characterization of the Trust as a Partnership. Federal Tax Counsel
will deliver its opinion that a Trust which is intended to be a partnership for
federal income tax purposes will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the Pooling and
Servicing Agreement and related documents will be complied with, and on
counsel's conclusions that (i) the Trust will not be classified as an
association taxable as a corporation and (ii) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships
are taxable as corporations or the issuance of the Certificates has been
structured as a private placement under an IRS safe harbor, so that the Trust
will not be characterized as a publicly traded partnership taxable as a
corporation.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income. Any such
corporate income tax could materially reduce cash available to make
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust. In addition, distributions to the
Certificateholders would be taxable as dividends.
Treatment of the Trust as a Partnership. In the case of a Trust intended
to qualify as a partnership for federal income tax purposes, the Trust and the
related Transferor will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the Trust and the partners of the partnership being the Certificateholders,
or if there is a single Certificateholder for federal income tax purposes to
disregard the Trust as an entity separate from the single Certificateholder.
However, the proper characterization of the arrangement involving the
Certificates and the Servicer is not clear because there is no authority on
transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust. Generally, provided such
Certificates are issued at or close to face value, any such characterization
would not result in materially adverse tax consequences to Certificateholders
as compared to the consequences from treatment of the Certificates as equity in
a partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
The following discussion assumes that all payments on the Certificates are
denominated in U.S. dollars, none of the Certificates have interest rates which
would qualify as contingent
116
<PAGE>
interest under the OID regulations, that a Series of Certificates includes a
single Class of Certificates and that there are multiple Certificateholders for
federal income tax purposes. If these conditions are not satisfied with respect
to any given Series of Certificates, additional tax considerations with respect
to such Certificates will be disclosed in the applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such Certificateholder's allocated share of
income, gains, losses, deductions and credits of the Trust. The Trust's income
will consist primarily of interest and finance charges earned on the Mortgage
Loans (including appropriate adjustments for market discount, OID and bond
premium) and any gain upon collection or disposition of Mortgage Loans. The
Trust's deductions will consist primarily of servicing and other fees, and
losses or deductions upon collection or disposition of Mortgage Loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury Department regulations and the partnership agreement
(here, the Pooling and Servicing Agreement and related documents). The Pooling
and Servicing Agreement will provide, in general, that the Certificateholders
will be allocated taxable income of the Trust for each month equal to the sum
of (i) the interest that accrues on the Certificates in accordance with their
terms for such month, including interest accruing at the Pass Through Rate for
such month and interest on amounts previously due on the Certificates but not
yet distributed; (ii) any Trust income attributable to discount on the Mortgage
Loans that corresponds to any excess of the principal amount of the
Certificates over their initial issue price; (iii) prepayment premium payable
to the Certificateholders for such month; and (iv) any other amounts of income
payable to the Certificateholders for such month. Such allocation will be
reduced by any amortization by the Trust of premium on Mortgage Loans that
corresponds to any excess of the issue price of Certificates over their
principal amount. All remaining taxable income of the Trust will be allocated
to the related Transferor. Based on the economic arrangement of the parties,
this approach for allocating Trust income should be permissible under
applicable Treasury Department regulations, although no assurance can be given
that the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through
Rate plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on
Trust income even if they have not received cash from the Trust to pay such
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable
income that is greater or less than the amount reported to them by the Trust.
If Bonds are also issued, all of the taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute "unrelated business taxable income" generally taxable to a
Certificateholder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions
117
<PAGE>
might be disallowed to the individual in whole or in part and might result in
such holder being taxed on an amount of income that exceeds the amount of cash
actually distributed to such holder over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Trust might be required to incur additional expense, but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Mortgage Loans were not
issued with OID and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Mortgage Loans may be greater or
less than the remaining principal balance of the Mortgage Loans at the time of
purchase. If so, the Mortgage Loan will have been acquired at a premium or
discount, as the case may be. (As indicated above, the Trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
Mortgage Loan by Mortgage Loan basis.)
If the Trust acquires the Mortgage Loans at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Mortgage Loans or to offset any such premium
against interest income on the Mortgage Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
contribute its assets and liabilities to a new partnership in exchange for
interests in that new partnership, and the Trust (as part of the termination)
would be treated as distributing the newly-created partnership interests to the
partners in liquidation. The Trust will not comply with certain technical
requirements that might apply when such a constructive termination occurs. As a
result, the Trust may be subject to certain tax penalties and may incur
additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificateholder's adjusted tax basis in a Certificate will generally
equal the Certificateholder's cost increased by the Certificateholder's share
of Trust income (includable in income) and decreased by any distributions
received with respect to such Certificate. In addition, both the adjusted tax
basis in the Certificates and the amount realized on a sale of a Certificate
would include the Certificateholder's share of liabilities of the Trust. A
holder acquiring Certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in such Certificates, and, upon sale or
other disposition of some of the Certificates, allocate a portion of such
aggregate adjusted tax basis to the Certificates sold (rather than maintaining
a separate adjusted tax basis in each Certificate for purposes of computing
gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Mortgage Loans would generally
be treated as ordinary
118
<PAGE>
income to the holder and would give rise to special tax reporting requirements.
The Trust does not expect to have any other assets that would give rise to such
special reporting requirements. Thus, to avoid those special reporting
requirements, the Trust will elect to include market discount in income as it
accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability
and tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Trust's
method of allocation between transferors and transferees may be revised to
conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets would not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would
be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust currently does not intend
to make such election. As a result, Certificateholders might be allocated a
greater or lesser amount of Trust income than would be appropriate based on
their own purchase price for Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of
Trust income and expense to Certificateholders and the IRS on Schedule K-1. The
Trust will provide the Schedule K-I information to nominees that fail to
provide the Trust with the information statement described below and such
nominees will be required to forward such information to the beneficial owners
of the Certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such
person, (y) whether such person is a United States person, a tax-exempt
119
<PAGE>
entity or a foreign government, an international organization, or any wholly
owned agency or instrumentality of either of the foregoing, and (z) certain
information on Certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to
the Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not
required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described
above may be subject to penalties.
The related Transferor will be designated as the tax matters partner in
the related Pooling and Servicing Agreement and, as such, will be responsible
for representing the Certificateholders in any dispute with the IRS. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations
for partnership items does not expire before three years after the date on
which the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust. An adjustment could also result in an audit of a Certificateholder's
returns and adjustments of items not related to the income and losses of the
Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to Foreign
Investors (as defined below) because there is no clear authority dealing with
that issue under facts substantially similar to those described herein.
Although it is not expected that the Trust would be engaged in a trade or
business in the United States for such purposes, the Trust will withhold as if
it were so engaged, in order to protect the Trust from possible adverse
consequences of a failure to withhold. The Trust expects to withhold pursuant
to Section 1446 of the Code on the portion of its taxable income that is
allocable to Certificateholders that are Foreign Investors, as if such income
were effectively connected to a U.S. trade or business, at a rate of 35% for
Foreign Investors that are taxable as corporations and 39.6% for all other
Foreign Investors. Subsequent adoption of Treasury Department regulations or
the issuance of other administrative pronouncements may require the Trust to
change its withholding procedures.
Each Certificateholder that is a Foreign Investor might be required to
file a U.S. individual or corporate income tax return (including, in the case
of a corporation, the branch profits tax) on its share of the Trust's income. A
Foreign Investor generally would be entitled to file with the IRS a claim for
refund with respect to taxes withheld by the Trust taking the position that no
taxes were due because the Trust was not engaged in a U.S. trade or business.
However, interest payments made (or accrued) to a Certificateholder who is a
Foreign Investor generally will be considered guaranteed payments to the extent
such payments are determined without regard to the income of the Trust. If
these interest payments are properly characterized as guaranteed payments, then
the interest probably will not be considered "portfolio interest." As a result,
Certificateholders will be subject to United States federal income tax and
withholding tax at a rate of 30%, unless reduced or
120
<PAGE>
eliminated pursuant to an applicable treaty. In such case, a Foreign Investor
would be entitled to claim a refund only for that portion of the taxes, if any,
in excess of the taxes that should be withheld with respect to the guaranteed
payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
F. CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
Upon the issuance of Certificates which are intended to be treated as
indebtedness for federal income tax purposes, Federal Tax Counsel will opine
that based upon its analysis of the factors discussed below, the Certificates
will be characterized as indebtedness for federal income tax purposes of the
related Transferor that is secured by the Mortgage Loans. Opinions of counsel
are not binding on the IRS, however, and there can be no assurance that the IRS
could not successfully challenge this conclusion.
The related Transferor will express in the Pooling and Servicing Agreement
its intent that the Certificates be indebtedness secured by the Mortgage Loans
for federal, state and local income or franchise tax purposes. The related
Transferor, by entering into the Pooling and Servicing Agreement, has agreed
and each Certificateholder, by the acceptance of a Certificate, will agree to
treat the Certificates as indebtedness for federal, state and local income or
franchise tax purposes. However, because different criteria are used to
determine the non-tax accounting characterization of the transactions
contemplated by the Pooling and Servicing Agreements, the Transferors expect to
treat such transactions, for financial accounting purposes, as a transfer of an
ownership interest in the Mortgage Loans and not as a debt obligation.
A basic premise of federal income tax law is that the economic substance
of a transaction generally determines the tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its
economic substance. In appropriate circumstances, the courts have allowed
taxpayers, as well as the IRS, to treat a transaction in accordance with its
economic substance, as determined under federal income tax law, notwithstanding
that the participants characterize the transaction differently for non-tax
purposes. In some instances, however, courts have held that a taxpayer is bound
by the particular form it has chosen for a transaction, even if the substance
of the transaction does not accord with its form. Federal Tax Counsel believes
that the rationale of those cases will not apply to the issuance of the
Certificates.
The determination of whether the economic substance of a transfer of an
interest in property is a sale or a loan secured by the transferred property
depends on numerous factors that indicate whether the transferor has
relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among the primary factors considered are whether the
transferee has obtained the opportunity for gain if the property increases in
value and has assumed the risk of loss if the property decreases in value.
Based upon its analysis of such factors, Federal Tax Counsel will conclude that
the Certificateholders do not own or have an equity interest in the Mortgage
Loans for federal income tax purposes. As a result, Federal Tax Counsel will
opine that the Certificates will properly be characterized for federal income
tax purposes as indebtedness. Contrary characterizations that could be asserted
by the IRS are described under "-- Possible Characterization of the Transaction
as
121
<PAGE>
a Partnership or as an Association Taxable as a Corporation" below. In this
regard, it should be noted that the IRS has recently issued a notice stating
that, upon examination, it will scrutinize instruments treated as debt for
federal income tax purposes but as equity for regulatory, rating agency or
financial accounting purposes to determine if their purported status as debt
for federal income tax purposes is appropriate.
Certificateholders as the holders of debt instruments for federal tax
purposes will be taxed in the manner described above in "-- Taxation of Debt
Certificates (Including Regular Certificates)" for Debt Certificates that are
not Regular Certificates.
Possible Characterization of the Transaction as a Partnership or as
Association Taxable as a Corporation. As stated above, the opinion of Federal
Tax Counsel with respect to the Certificates will not be binding on the courts
or the IRS, and no assurance can be given that the characterization of the
Certificates as debt would prevail. It is possible that the IRS would assert
that, for purposes of the Code, the transaction described herein constitutes a
transfer of the Mortgage Loans (or an interest therein) to the
Certificateholders and that the proper classification of the legal relationship
between the related Transferor and the Certificateholders resulting from the
transaction is that of a partnership, a publicly traded partnership taxed as a
corporation, or an association taxable as a corporation. Because it is
anticipated that Federal Tax Counsel will advise that the Certificates will be
treated as indebtedness for federal income tax purposes, the Transferors
generally will not attempt to comply with the federal income tax reporting
requirements that would apply if Certificates were treated as interests in a
partnership, a publicly traded partnership or a corporation.
If a partnership were deemed to be created between the related Transferor
and the Certificateholders, the partnership itself would not be subject to
federal income tax (unless it were to be characterized as a publicly traded
partnership taxable as a corporation); rather, the partners of such
partnership, including the Certificateholders, would be taxed individually on
their respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deduction
of a Certificateholder would differ to the degree the Certificates were held to
constitute partnership interests, rather than indebtedness. Moreover, an
individual's share of expenses of the partnership would be miscellaneous
itemized deductions that, in the aggregate, are allowed as deductions only to
the extent they exceed 2% of the individual's adjusted gross income, and would
be subject to reduction under Section 68 of the Code if the individual's
adjusted gross income exceeded certain limits. As a result, the individual
might be taxed on a greater amount of income than would be the case if the
Certificates were treated as a debt instrument.
If it were determined that the transaction created an entity classified as
an association or as a publicly traded partnership taxable as a corporation,
the Trust would be subject to federal income tax at corporate income tax rates
on the income it derives from the Mortgage Loans, which would reduce the
amounts available for distribution to the Certificateholders. Such
classification may also have adverse state and local tax consequences that
would reduce amounts available for distribution to Certificateholders.
Moreover, distributions on the Certificates would most likely not be deductible
in computing the entity's taxable income, and cash distributions to the
Certificateholders generally would be treated as dividends for tax purposes to
the extent of such entity's earnings and profits.
Foreign Investors. If the IRS were to contend successfully that the
Certificates are interests in a partnership and if such partnership were
considered to be engaged in a trade
122
<PAGE>
or business in the United States, the partnership would be subject to a
withholding tax on income allocable to a Foreign Investor, and such holder
would be credited for his or her share of the withholding tax paid by the
partnership. In such case, the holder generally would be subject to United
States federal income tax at regular federal income tax rates, and possibly a
branch profits tax in the case of a corporate holder.
Alternatively, although there may be arguments to the contrary, if such a
partnership is not considered to be engaged in a trade or business within the
United States and if income with respect to the Certificates is not otherwise
effectively connected with the conduct of a trade or business in the United
States by the Foreign Investor, the Foreign Investor would be subject to United
States federal income tax and withholding at a rate of 30% (unless reduced by
an applicable tax treaty) on the holder's distributive share of the
partnership's interest income.
If the Trust were taxable as a corporation, distributions to Foreign
Investors, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced or eliminated by
an applicable income tax treaty.
II. TAXATION OF BONDS
With respect to each Series of Bonds, no regulations, published rulings,
or judicial decisions exist that discuss the characterization for federal
income tax purposes of securities with terms substantially the same as the
Bonds. However, Federal Tax Counsel, counsel to the Transferors, will deliver
their opinion that the Bonds will be treated for federal income tax purposes as
indebtedness, and the related Bond Issuer will not be a separate association
taxable as a corporation. The following summary of the anticipated federal
income tax consequences of the purchase, ownership and disposition of Bonds, to
the extent it relates to matters of law or legal conclusions with respect
thereto, is based on such opinion. Such statements do not purport to furnish
information in the level of detail or with the attention to an investor's
specific tax circumstances that would be provided by an investor's own tax
advisor. Accordingly, each investor is advised to consult its own tax advisors
with regard to the tax consequences to it of investing in Bonds.
For federal income tax purposes, (i) Bonds held by a thrift institution
taxed as a domestic building and loan association will not constitute "loans .
. . secured by an interest in real property" within the meaning of Code Section
7701(a)(19)(C)(v); (ii) interest on Bonds held by a real estate investment
trust will not be treated as "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); (iii) Bonds held by a real estate investment trust will
not constitute "real estate assets" or "Government securities" within the
meaning of Code Section 856(c)(4)(A); and (iv) Bonds held by a regulated
investment company will not constitute "Government securities" within the
meaning of Code Section 851(b)(3)(A)(i).
Bonds will be subject to the same rules of taxation as Debt Certificates
that are not Regular Certificates, as described above under the heading
"Certain Federal Income Tax Consequences -- Taxation of Certificates --
Taxation of Debt Certificates (Including Regular Certificates)," except that
income reportable on Bonds (other than original issue discount, if any) is not
required to be reported under the accrual method unless the Bondholder
otherwise uses the accrual method.
III. MISCELLANEOUS TAX ASPECTS
Backup Withholding. A holder, other than a holder of a Residual Interest
Certificate, may, under certain circumstances, be subject to "backup
withholding" at a rate of 31% with
123
<PAGE>
respect to distributions or the proceeds of a sale of Securities to or through
brokers that represent interest or original issue discount on the Securities.
This withholding generally applies if the holder of a Security (i) fails to
furnish the Trustee with its taxpayer identification number ("TIN"); (ii)
furnishes the Trustee an incorrect TIN; (iii) fails to report properly
interest, dividends or other "reportable payments" as defined in the Code; or
(iv) under certain circumstances, fails to provide the Trustee or such holder's
securities broker with a certified statement, signed under penalty of perjury,
that the TIN provided is its correct number and that the holder is not subject
to backup withholding. Backup withholding will not apply, however, with respect
to certain payments made to holders, including payments to certain exempt
recipients (such as exempt organizations) and to certain Foreign Investors
(defined below). Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
The Trustee will report to the holders and to the Servicer for each
calendar year the amount of any "reportable payments" during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
IV. TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion above with respect to Trusts that are treated as
partnerships for federal income tax purposes, unless interest (including OID)
paid on a Security (other than a Residual Interest Certificate) is considered
to be "effectively connected" with a trade or business conducted in the United
States by a Foreign Investor, such interest will normally qualify as portfolio
interest (except where (i) the recipient is a holder, directly or by
attribution, of 10% or more of the capital or profits interest in the issuer,
or (ii) the recipient is a controlled foreign corporation to which the issuer
is a related person) and will be exempt from federal income tax. See "-- Tax
Consequences to Holders of the Certificates Issued by a Partnership -- Tax
Consequences to Foreign Certificateholders" herein. For purposes of this
summary, the term "United States holder" means a holder who is a citizen or
resident of the United States, a corporation or partnership including an entity
treated as a corporation or partnership for United States tax purposes or other
entity created or organized under the laws of the United States or any
political subdivision thereof, an estate whose income is includable in gross
income for United States federal income tax purposes regardless of its source,
or a trust if (i) a court within the United States is able to exercise primary
supervision over the administration of the trust, and (ii) one or more United
States persons have authority to control all substantial decisions of the
trust. The term "Foreign Investor" means any holder who for United States
federal income tax purposes is not a "United States holder." Upon receipt of
appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless such rate were
reduced or eliminated by an applicable tax treaty) on, among other things,
interest and other fixed or determinable, annual or periodic income paid to
Foreign Investors. Holders of Pass-Through Certificates however, may be subject
to withholding to the extent that the Mortgage Loans were originated on or
before July 18, 1984.
Interest and OID of a Foreign Investor are not subject to withholding if
they are effectively connected with a United States business conducted by the
holder and the holder timely provides an IRS Form 4224. They will, however,
generally be subject to the regular United States income tax.
124
<PAGE>
Payments to holders of Residual Certificates who are Foreign Investors
will generally be treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Holders should assume that such income
does not qualify for exemption from United States withholding tax as "portfolio
interest." It is clear that, to the extent that a payment represents a portion
of REMIC taxable income that constitutes excess inclusion income, a holder of a
Residual Interest Certificate will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) United States withholding tax. If
the payments are subject to United States withholding tax, they generally will
be taken into account for withholding tax purposes only when paid or
distributed (or when the Residual Interest Certificate is disposed of). The
Treasury Department has statutory authority, however, to promulgate regulations
which would require such amounts to be taken into account at an earlier time in
order to prevent the avoidance of tax. Such regulations could, for example,
require withholding prior to the distribution of cash in the case of Residual
Certificates that do not have significant value. Under the REMIC Regulations,
if a Residual Interest Certificate has tax avoidance potential, a transfer of a
Residual Interest Certificate to a Foreign Investor will be disregarded for all
federal tax purposes. A Residual Interest Certificate has tax avoidance
potential unless, at the time of the transfer, the transferor reasonably
expects that the REMIC will distribute to the transferee residual interest
holder amounts that will equal at least 30% of each excess inclusion, and that
such amounts will be distributed at or after the time at which the excess
inclusions accrue and not later than the calendar year following the calendar
year of accrual. If a Foreign Investor transfers a Residual Interest
Certificate to a United States holder, and if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions, then the
transfer is disregarded and the transferor continues to be treated as the owner
of the Residual Interest Certificate for purposes of the withholding tax
provisions of the Code. See "Taxation of Holders of Residual Interest
Securities -- Excess Inclusions" herein.
Subject to the discussion in the previous paragraph, any capital gain
realized on the sale, redemption, retirement or other taxable disposition of a
Security by a foreign person will be exempt from United States federal income
and withholding tax, provided that (i) such gain is not effectively connected
with the conduct of a trade or business in the United States by the foreign
person and (ii) in the case of an individual foreign person, the foreign person
is not present in the United States for 183 days or more in the taxable year.
Final regulations dealing with withholding tax on income paid to foreign
persons and related matters (the "New Withholding Regulations") were issued by
the Treasury Department. The New Withholding Regulations will generally be
effective for payments made after December 31, 2000, subject to certain
transition rules. Foreign Investors are strongly urged to consult their own tax
advisors with respect to the New Withholding Regulations.
125
<PAGE>
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described herein under
"Certain Federal Income Tax Consequences," potential investors should consider
the state income tax consequences of the acquisition, ownership, and
disposition of the Securities. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Securities.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain fiduciary and prohibited transaction restrictions on employee
pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section
4975 of the Code imposes essentially the same prohibited transaction
restrictions on tax-qualified retirement plans described in Section 401(a) of
the Code ("Qualified Retirement Plans") and on Individual Retirement Accounts
("IRAs") described in Section 408 of the Code (collectively, "Tax-Favored
Plans"). ERISA Plans and Tax-Favored Plans are collectively referred to herein
as "Plans."
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA), are not subject to the ERISA requirements discussed herein.
Accordingly, assets of such plans may be invested in Securities without regard
to the ERISA considerations described below, subject to the provisions of
applicable federal and state law. Any such church or governmental plan that is
a Qualified Retirement Plan and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
Section 404 of ERISA imposes general fiduciary requirements, including
those of investment prudence and diversification and the requirement that the
investments of ERISA Plans be made in accordance with the documents governing
the ERISA Plan. In addition, Section 406 of ERISA and Section 4975 of the Code
prohibit a broad range of transactions involving Plan assets and persons
("Parties in Interest" under ERISA or "Disqualified Persons" under the Code)
who have certain specified relations to the Plans, unless a statutory,
regulatory or administrative exemption is available. Certain Parties in
Interest (or Disqualified Persons) that participate in a prohibited transaction
may be subject to a penalty (or an excise tax) imposed pursuant to Section
502(i) of ERISA or Section 4975 of the Code, unless a statutory, regulatory or
administrative exemption is available.
PLAN ASSET REGULATIONS
A Plan's investment in the Securities may cause the Mortgage Loans
included in a Mortgage Pool to be deemed Plan assets. The U.S. Department of
Labor (the "DOL") has promulgated regulations (the "DOL Regulations")
describing whether or not a Plan's assets will be deemed to include an interest
in the underlying assets of an entity (such as a Trust), for purposes of
applying the general fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of ERISA and the Code, when a Plan acquires
an "equity interest" (such as a Certificate) in such entity. Depending upon the
circumstances of a particular transaction under the DOL Regulations, an
investing Plan's assets either may be
126
<PAGE>
deemed to include an interest in the underlying assets included in a Trust or
Trust Estate, as applicable, or a Transferor (or a Bond Issuer, if applicable)
or may be deemed merely to include its interest in the Securities. Bonds
treated as indebtedness under applicable local law and that have no substantial
equity features do not constitute equity interests.
Under Title I of ERISA and Section 4975 of the Code, the Transferor (or a
Bond Issuer, if applicable), the Servicer, any Sub-Servicer, the Trustee, the
obligor under any credit enhancement mechanism or certain affiliates thereof
may be considered to be or may become Parties in Interest or Disqualified
Persons with respect to an investing Plan. If so, the acquisition or holding of
Securities by or on behalf of the investing Plan could also give rise to a
prohibited transaction under ERISA and the Code, unless some statutory,
regulatory or administrative exemption is available. Securities acquired by a
Plan would be assets of that Plan. Special caution should be exercised before
the assets of a Plan are used to acquire a Security in such circumstances,
especially if, with respect to such assets, the related Transferor (or a Bond
Issuer, if applicable), the Servicer, any Sub-Servicer, the Trustee, the
obligor under any credit enhancement mechanism or an affiliate thereof either
(i) has investment discretion with respect to the investment of Plan assets; or
(ii) has authority or responsibility to give (or regularly gives) investment
advice with respect to Plan assets for a fee pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such assets.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides
investment advice with respect to such assets for a fee (in the manner
described above), is a fiduciary of the investing Plan. If the Mortgage Loans
were to constitute Plan assets then any party exercising management or
discretionary control regarding those assets may be deemed to be a Plan
"fiduciary," and thus subject to the fiduciary requirements of ERISA and the
prohibited transaction provisions of ERISA and Section 4975 of the Code with
respect to the investing Plan. In addition, if the Mortgage Loans were to
constitute Plan assets, then the acquisition or holding of Securities by a
Plan, as well as the operation of the Trust or a Transferor (or a Bond Issuer,
if applicable) issuing Bonds, may constitute or involve a prohibited
transaction under ERISA and the Code.
PROHIBITED TRANSACTION CLASS EXEMPTION
The DOL has issued an administrative exemption, Prohibited Transaction
Class Exemption 83-1 ("PTCE 83-1"), which, under certain conditions, exempts
from the application of the prohibited transaction provisions of ERISA and
Section 4975 of the Code transactions involving a Plan in connection with the
operation of a "mortgage pool" and the purchase, sale and holding of "mortgage
pool pass-through certificates." A "mortgage pool" is defined as an investment
pool, consisting solely of interest-bearing obligations secured by first or
second mortgages or deeds of trust on single-family residential property,
property acquired in foreclosure and undistributed cash. A "mortgage pool
pass-through certificate" is defined as a certificate which represents a
beneficial undivided interest in a mortgage pool which entitles the holder to
pass through payments of principal and interest from the mortgage loans.
For the exemption to apply, PTCE 83-1 requires that (i) the related
Transferor and the Trustee maintain a system of insurance or other protection
for the Mortgage Loans and the property securing such Mortgage Loans, and for
indemnifying holders of Certificates against
127
<PAGE>
reductions in pass-through payments due to defaults in loan payments or
property damage in an amount at least equal to the greater of 1% of the
aggregate principal balance of the Mortgage Loans, or 1% of the principal
balance of the largest covered pooled Mortgage Loan, (ii) the Trustee may not
be an affiliate of the related Transferor; and (iii) the payments made to and
retained by the related Transferor in connection with the Trust, together with
all funds inuring to its benefit for administering the Trust, represent no more
than "adequate consideration" for assigning the Mortgage Loans, plus reasonable
compensation for services provided to the Trust.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a Plan
with respect to which the related Transferor, the Servicer, the Trustee or the
Securities Insurer, if any, is a party in interest if the Plan does not pay
more than fair market value for such Certificates and the rights and interests
evidenced by such Certificates are not subordinated to the rights and interests
evidenced by other Certificates of the same pool. PTCE 83-1 also exempts from
the prohibited transaction rules transactions in connection with the servicing
and operation of the Mortgage Pool, provided that any payments made to the
related Transferor in connection with the servicing of the Trust are made in
accordance with a binding agreement, copies of which must be made available to
prospective investors.
In the case of any Plan with respect to which the Servicer, the related
Transferor, the Trustee or a Securities Insurer, if any, is a fiduciary, PTCE
83-1 will only apply if, in addition to the other requirements: (i) the initial
sale, exchange or transfer of Certificates is expressly approved by an
independent fiduciary who has authority to manage and control those plan assets
being invested in Certificates; (ii) the Plan pays no more for the Certificates
than would be paid in an arm's length transaction; (iii) no investment
management, advisory or underwriting fee, sales commission, or similar
compensation is paid to the Servicer with regard to the sale, exchange or
transfer of Certificates to the Plan; (iv) the total value of the Certificates
purchased by such Plan does not exceed 25% of the amount issued; and (v) at
least 50% of the aggregate amount of Certificates is acquired by persons
independent of the related Transferor, the Trustee, the Servicer, and the
Securities Insurer, if any.
Before purchasing Certificates in reliance on PTCE 83-1, a fiduciary of a
Plan should confirm that the Trust is a "mortgage pool," that the Certificates
constitute "mortgage pool pass-through certificates," and that the conditions
set forth in PTCE 83-1 would be satisfied. In addition to making its own
determination as to the availability of the exemptive relief provided in PTCE
83-1, the Plan fiduciary should consider the availability of any other
prohibited transaction exemptions. The Plan fiduciary also should consider its
general fiduciary obligations under ERISA in determining whether to purchase
any Certificates on behalf of a Plan.
In addition to PTCE 83-1, the DOL has granted to certain underwriters
and/or placement agents individual prohibited transaction exemptions, commonly
referred to as the Underwriter Exemptions, which may be applicable to avoid
certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of pass-through certificates representing a beneficial undivided
interest in the assets of a trust that consist of certain receivables, loans
and other obligations that meet the conditions and requirements of the
exemption which may be applicable to the Certificates.
One or more other prohibited transaction exemptions issued by the DOL may
be available to a Plan investing in Securities that are Bonds, depending in
part upon the type
128
<PAGE>
of Plan fiduciary making the decision to acquire Securities and the
circumstances under which such decision is made, including but not limited to
PTCE 84-14, regarding investments effected by "qualified plan asset managers,"
PTCE 90-1, regarding investments by insurance company pooled separate accounts,
PTCE 91-38, regarding investments by bank collective investment funds, PTCE
95-60, regarding investments by insurance company general accounts and PTCE
96-23, regarding investments effected by "in-house asset managers." However,
even if the conditions specified in one or more of these other exemptions are
met, the scope of the relief provided might or might not cover all acts which
might be construed as prohibited transactions, particularly if, as described
above, the assets held in the Trust are considered to be Plan assets.
Any Plan fiduciary considering the purchase of a Security should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each Plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Securities is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio. Special caution should be
exercised before a Plan purchases a Security in such circumstances.
LEGAL INVESTMENT CONSIDERATIONS
SMMEA
Unless otherwise specified in the related Prospectus Supplement, the
Securities will not constitute "mortgage related securities" for purposes of
SMMEA. Accordingly, many institutions with legal authority to invest in
comparably rated securities based on first mortgage loans or deeds of trust may
not be legally authorized to invest in the Securities. No representation is
made herein as to whether the Securities will constitute legal investments for
any entity under any applicable statute, law, rule, regulation or order.
Prospective purchasers are urged to consult with their counsel concerning the
status of the Securities as legal investments for such purchasers prior to
investing in any Securities of a given Series.
FFIEC POLICY STATEMENT
The Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Comptroller of the Currency and the Office of Thrift
Supervision have adopted the Federal Financial Institutions Examination
Council's Supervisory Policy Statement on Certificates Activities (the "Policy
Statement"). Although the National Credit Union Administration has not yet
adopted the Policy Statement, it has adopted other regulations affecting
mortgage-backed securities and is expected to consider adoption of the Policy
Statement. The Policy Statement, among other things, places responsibility on a
depository institution to develop and monitor appropriate policies and
strategies regarding the investment, sale and trading of securities and
restricts an institution's ability to engage in certain types of transactions.
The Policy Statement provides that a depository institution must ascertain
and document prior to purchase and no less frequently than annually thereafter
that a non-high-risk mortgage security held for investment remains outside the
high-risk category. If an institution is unable to make these determinations
through internal analysis, it must use information derived from a source that
is independent of the party from whom the
129
<PAGE>
product is being purchased. The institution is responsible for ensuring that
the assumptions underlying the analysis and resulting calculations are
reasonable. Reliance on analyses and documentation from a securities dealer or
other outside party without internal analyses by the institution is
unacceptable.
A "high-risk mortgage security" is not suitable as an investment portfolio
holding for a depository institution. A high-risk mortgage security must be
reported in the trading account at market value or as an asset held for sale at
the lower of cost or market value and generally may only be acquired to reduce
an institution's interest rate risk. However, an institution with strong
capital and earnings and adequate liquidity that has a closely supervised
trading department is not precluded from acquiring high-risk mortgage
securities for trading purposes.
The Policy Statement and any applicable modifications or supplements
thereto should be reviewed prior to the purchase of any Securities by a
depository institution. The summary of the Policy Statement contained herein
does not purport to be complete and should not be relied upon for purposes of
making any regulatory determinations. In addition, any regulator may adopt
modifications or supplements to the Policy Statement or additional restrictions
on the purchase of mortgage-backed or other securities. Investors are urged to
consult their own legal advisors prior to making any determinations with
respect to the Policy Statement or other regulatory requirements.
GENERAL
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities, to purchase
Securities representing more than a specified percentage of the investor's
assets, or to purchase certain types of Certificates, such as residual
interests or stripped mortgage-backed securities. Investors should consult
their own legal advisors in determining whether and to what extent the
Securities of a given Series constitute legal investments for such investors
and comply with any other applicable requirements.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the Prospectus Supplement will be
offered in Series, either directly by the related Transferor or through one or
more underwriters or underwriting syndicates ("Underwriters"). The Prospectus
Supplement for each Series will set forth the terms of the offering of the
Securities of such Series, including the name or names of the Underwriters, the
proceeds to the related Transferor (in the case of a Series of Certificates) or
to the related Bond Issuer (in the case of a Series of Bonds), and either the
initial public offering price, the discounts and commissions to the
Underwriters and any discounts or concessions allowed or reallowed to certain
dealers, or the method by which the price at which the Underwriters will sell
the Securities will be determined.
The Securities may be acquired by Underwriters for their own account and
may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. It is anticipated that the underwriting
agreement pertaining to the sale of any Series of Securities will provide that
the obligations of any Underwriters will be subject to certain conditions
precedent, and such Underwriters will be severally obligated to purchase all of
a Series of Securities described in the related Prospectus Supplement, if they
are purchased and that in
130
<PAGE>
limited circumstances the related Transferor will indemnify any Underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or will contribute to payments any Underwriters may be required to
make in respect thereof.
If Securities of a Series are offered other than through Underwriters, the
related Prospectus Supplement will contain information regarding the nature of
such offering and any agreements to be entered into between the seller and
purchasers of Securities of such Series.
The Transferors anticipate that the Securities will be sold primarily to
institutional investors. Purchasers of Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended, in
connection with reoffers and sales by them of Securities. Securityholders
should consult with their legal advisors in this regard prior to any such
reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Securities of each
Series, including certain federal income tax consequences with respect thereto,
will be passed upon by Stroock & Stroock & Lavan LLP, New York, New York.
FINANCIAL INFORMATION
The Transferors have determined that their financial statements are not
material to the offering made hereby.
A new Trust will be formed to hold the Mortgage Loans in connection with
each Series of Certificates. Each such Trust will have no assets or obligations
prior to the issuance of the Certificates and will not engage in any activities
other than those described herein. Accordingly, no financial statements with
respect to such Trusts will be included in this Prospectus or any Prospectus
Supplement.
Although the Bonds of any Series will represent obligations of the related
Bond Issuer, such obligations will be non-recourse and the proceeds of the
assets included in the related Trust Estate will be the sole source of payments
on the Bonds of such Series. The Bond Issuer for any Series of Bonds (whether
it is ACAC or a trust, partnership, limited liability company or corporation
formed by ACAC solely for the purpose of issuing the Bonds of such Series) will
not have, nor be expected in the future to have, any significant assets
available for payments on such Series of Bonds other than the assets included
in the related Trust Estate. Accordingly, the investment characteristics of a
Series of Bonds will be determined by the assets included in the related Trust
Estate and will not be affected by the identity of the obligor with respect to
such Series of Bonds. Accordingly, no capitalization information or any
historical or pro forma ratio of earnings to fixed charges or any other
financial information with respect to ACAC or any trust, partnership, limited
liability company or corporation formed for the purpose of issuing a Series of
Bonds has been or will be included herein or in the related Prospectus
Supplement.
RATING
Unless otherwise specified in the related Prospectus Supplement, it is a
condition to the issuance of the Securities of each Series offered hereby that
they shall have been rated in
131
<PAGE>
one of the four highest rating categories by the nationally recognized
statistical rating agency or agencies specified in the related Prospectus
Supplement (each, a "Rating Agency").
Ratings on asset-backed securities address the likelihood of receipt by
the related securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such securities, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on asset-backed
securities do not represent any assessment of the likelihood of principal
prepayments by mortgagors or of the degree by which such prepayments might
differ from those originally anticipated. As a result, the related the related
securityholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped securities in extreme cases might fail to recoup their
underlying investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently of
any other security rating.
132
<PAGE>
INDEX OF PRINCIPAL TERMS
ACAC.................................................................... 1, 7
ACC..................................................................... 1, 7
Accounts.................................................................. 50
Accrual Certificates...................................................... 57
AFC.................................................................... 7, 40
Affiliated Originators.................................................... 42
Amortizable Bond Premium Regulations..................................... 105
ARM...................................................................... 115
ARM Loans................................................................. 31
Available Funds........................................................... 56
Bankruptcy Bond....................................................... 16, 66
Bond Account.............................................................. 56
Bond Issuer............................................................. 1, 8
Bond Rate................................................................. 57
Bondholders............................................................... 49
Bonds................................................................... 1, 7
Buydown Funds............................................................ 106
Capitalized Interest Account.............................................. 13
Cede...................................................................... 22
CERCLA.................................................................... 96
Certain Federal Income Tax Consequences................................... 84
Certificate Account....................................................... 56
Certificate Event of Default.............................................. 83
Certificate Rate.......................................................... 57
Certificateholders........................................................ 49
Certificates............................................................ 1, 7
Class................................................................... 2, 8
Clearstream, Luxembourg................................................... 50
Closing Date.............................................................. 37
Code.................................................................. 19, 97
Collection Account........................................................ 75
Collection Period......................................................... 56
Commission................................................................. 3
Compensating Interest Payment............................................. 78
Contingent Regulations................................................... 103
Cut-off Date.............................................................. 11
Deferred Interest......................................................... 37
Definitive Securities................................................. 22, 50
Deleted Mortgage Loan..................................................... 74
Deposit Date.............................................................. 76
Detailed Description...................................................... 34
Disqualified Persons..................................................... 126
Distribution Date...................................................... 2, 55
DOL...................................................................... 126
DOL Regulations.......................................................... 126
DTC................................................................... 22, 50
EPA....................................................................... 96
133
<PAGE>
ERISA................................................................ 21, 126
ERISA Plans.............................................................. 126
Euroclear................................................................. 50
Exchange Act............................................................... 4
Financial Guaranty Insurance Policy................................... 15, 64
Forward Commitment........................................................ 13
Funding Period............................................................ 12
Indenture............................................................... 1, 8
Insurance Proceeds........................................................ 57
Insured Amount........................................................ 16, 64
Interest Weighted Class................................................... 31
IRAs..................................................................... 126
IRS...................................................................... 100
Junior Loan............................................................... 24
Liquidated Mortgage Loan.................................................. 78
Liquidation Proceeds...................................................... 57
Loan Schedule............................................................. 72
Loan Withdrawal Amount.................................................... 74
Monthly Advance........................................................... 77
Mortgage File............................................................. 72
Mortgage Loans.......................................................... 2, 9
Mortgage Note.............................................................. 9
Mortgage Pool........................................................... 2, 9
Mortgage Pool Insurance Policy........................................ 16, 65
Mortgage Pool Insurer..................................................... 65
Mortgaged Properties...................................................... 34
Mortgaged Property........................................................ 11
Mortgagor............................................................. 15, 24
Multiple Variable Rate Debt Certificate.................................. 102
Negative Amortization..................................................... 37
Net Liquidation Proceeds.................................................. 57
New Withholding Regulations.............................................. 125
OID....................................................................... 98
OID Regulations........................................................... 98
Originators............................................................ 2, 42
Overcollateralization Feature............................................. 63
Parties in Interest...................................................... 126
Pass-Through Certificates................................................ 113
Pay-Through Certificate.................................................. 100
Payment Date........................................................... 2, 55
Plan Asset Regulations.................................................... 21
Plan(s)................................................................... 21
Policy Statement......................................................... 129
Pooling and Servicing Agreement......................................... 1, 7
Prefunding Account........................................................ 13
Prefunding Amount..................................................... 13, 37
Prepayment Assumption.................................................... 100
Presumed Single Qualified Floating Rate.................................. 101
134
<PAGE>
Presumed Single Variable Rate............................................ 102
Principal Prepayments..................................................... 58
Principal Weighted Class.................................................. 31
PTCE 83-1................................................................ 127
Qualified Replacement Mortgage Loan....................................... 74
Qualified Retirement Plans............................................... 126
Rating Agency........................................................ 17, 132
Regular Certificates.................................................. 19, 98
Relief Act................................................................ 29
REMIC.................................................................. 2, 97
REMIC Certificates....................................................... 106
REMIC Regulations......................................................... 97
REO Property.............................................................. 77
Reserve Account....................................................... 15, 63
Residual Certificates..................................................... 19
Residual Interest Certificate............................................ 109
Revolving Period...................................................... 11, 59
Riegle Act............................................................ 29, 95
Sales of Pass-Through Certificates....................................... 114
SBJPA.................................................................... 111
Securities.............................................................. 1, 7
Securities Insurer........................................................ 64
Security Register......................................................... 55
Securityholders........................................................ 2, 49
Senior Certificates.................................................... 8, 49
Senior Lien............................................................... 24
Series.................................................................. 1, 7
Servicer................................................................ 1, 7
Servicing Advance......................................................... 80
Servicing Agreement........................................................ 2
Single Variable Rate Debt Certificate.................................... 102
SMMEA..................................................................... 21
SNAP...................................................................... 44
SNAP program.............................................................. 43
Special Hazard Insurance Policy....................................... 16, 65
Special Hazard Insurer.................................................... 65
Standard Hazard Insurance Policies........................................ 34
Sub-Servicer........................................................... 7, 79
Subordinated Certificates.................................................. 8
Subordinated Classes...................................................... 49
Tax-Favored Plans........................................................ 126
Tiered REMICs............................................................ 107
TIN...................................................................... 124
Title V................................................................... 95
Traditional............................................................... 43
Transferor Interest....................................................... 12
Transferors............................................................. 1, 7
Trust................................................................... 1, 7
135
<PAGE>
Trust Estate............................................................ 1, 8
Trustee................................................................. 1, 7
Unaffiliated Originators.................................................. 42
Underwriters............................................................. 130
Variable Rate Debt Certificate........................................... 101
136
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
$456,233,200
Aames Mortgage Trust
2000-1
MORTGAGE PASS-THROUGH
CERTIFICATES,
SERIES 2000-1
Aames Capital Corporation
as Sponsor
Countrywide Home Loans, Inc.
as Servicer
---------------------------------
PROSPECTUS SUPPLEMENT
September 8, 2000
---------------------------------
GREENWICH CAPITAL MARKETS, INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
