<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration File No. 333-61863
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 17, 1998)
$2,100,000,000
CONTIMORTGAGE HOME EQUITY LOAN TRUST 1998-3
[LOGO] ContiMortgage
SELLER AND SERVICER
CONTIWEST CORPORATION
SELLER
CONTISECURITIES ASSET FUNDING CORP.
DEPOSITOR
------------------
The ContiMortgage Home Equity Loan Pass-Through Certificates, Series 1998-3
will consist of (i) twenty-two Classes of senior Certificates, including two
Classes of senior Interest-Only Certificates (collectively, the "Class A
Certificates"), (ii) two Classes of subordinate Certificates (collectively, the
"Class B Certificates" and together with the Class A Certificates the "Offered
Certificates") and (iii) several more deeply subordinated Classes which are not
being offered hereby (collectively, the "Retained Certificates"). Only the
Offered Certificates are offered hereby.
On or before the issuance of the Offered Certificates, MBIA Insurance
Corporation (the "Certificate Insurer") will issue two financial guaranty
insurance policies (each, a "Certificate Insurance Policy" and collectively, the
"Certificate Insurance Policies"). The Certificate Insurance Policies will
guarantee the timely payment of interest on, and the ultimate payment of
principal of, the Class A Certificates. The Class B Certificates will not be
covered by either Certificate Insurance Policy. See "Summary of Terms--Credit
Enhancement."
[LOGO]
------------------
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENT IN THE OFFERED
CERTIFICATES, SEE "RISK FACTORS" BEGINNING ON PAGE S-12 HEREIN, "PREPAYMENT AND
YIELD CONSIDERATIONS" BEGINNING ON PAGE S-23 HEREIN AND "RISK FACTORS" BEGINNING
ON PAGE 6 IN THE PROSPECTUS.
(Cover continued on next page)
------------------
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST OR THE SWAP
TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR,
THE SELLERS, THE SERVICER, THE CERTIFICATE INSURER OR ANY OF THEIR
AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE HOME
EQUITY LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE PASS-THROUGH PRICE TO UNDERWRITING PROCEEDS TO
CLASS PRINCIPAL BALANCE RATE PUBLIC(1) DISCOUNT DEPOSITOR(1)(2)
- -------------- ----------------- ------------ ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Class A-1..... $80,000,000 5.512% 100.0000% 0.1000% 99.9000%
Class A-2..... $154,000,000 6.02% 99.9989% 0.1500% 99.8489%
Class A-3..... $188,000,000 5.77% 99.9965% 0.1750% 99.8215%
Class A-4..... $64,000,000 5.76% 99.9928% 0.2000% 99.7928%
Class A-5..... $83,000,000 5.99% 99.9693% 0.2250% 99.7443%
Class A-6..... $56,000,000 6.08%(3) 99.9848% 0.2500% 99.7348%
Class A-7..... $65,000,000 6.34%(3) 99.9911% 0.2750% 99.7161%
Class A-8..... $80,000,000 5.85%(3) 99.9884% 0.2500% 99.7384%
Class A-9..... $231,725,000 (4) 100.0000% 0.2000% 99.8000%
Class A-10.... $78,000,000 5.84%(5) 99.9791% 0.2000% 99.7791%
Class A-11.... $75,000,000 5.512% 100.0000% 0.1000% 99.9000%
Class A-12.... $130,000,000 (6) 100.0000% 0.1000% 99.9000%
<CAPTION>
INITIAL
CERTIFICATE PASS-THROUGH PRICE TO UNDERWRITING PROCEEDS TO
CLASS PRINCIPAL BALANCE RATE PUBLIC(1) DISCOUNT DEPOSITOR(1)(2)
- -------------- ----------------- ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Class A-13.... $192,000,000 (7) 100.0000% 0.1250% 99.8750%
Class A-14.... $42,000,000 (8) 100.0000% 0.1500% 99.8500%
Class A-15.... $70,000,000 (9) 100.0000% 0.1750% 99.8250%
Class A-16.... $25,000,000 (10) 100.0000% 0.2000% 99.8000%
Class A-17.... $66,602,000 6.22%(11) 99.9664% 0.2750% 99.6914%
Class A-18.... $124,200,000 (12) 100.0000% 0.2100% 99.7900%
Class A-19.... $77,946,000 6.04%(13) 99.9978% 0.1200% 99.8778%
Class A-20.... $126,427,000 5.87%(13) 99.9726% 0.1900% 99.7826%
Class N-IO.... (14) 6.50% 14.6228% 0.0609% 14.5619%
Class P-IO.... (15) 6.50% 14.6228% 0.0532% 14.5696%
Class B-I..... $30,000,000 8.10%(3) 96.4773% 0.7500% 95.7273%
Class B-II.... $61,100,000 8.25%(16) 97.2066% 0.8000% 96.4066%
------------- -------------- ---------- -------------
Total......... $2,100,000,000 2,122,192,464 4,362,420 2,117,830,044
</TABLE>
(Footnotes on next page)
The Offered Certificates are offered by the Underwriters when, as and if
issued, delivered to and accepted by the Underwriters and subject to certain
other conditions. It is expected that delivery of the Offered Certificates will
be made against payment therefor in book-entry form through the book-entry
facilities of The Depository Trust Company, Cedel Bank, S.A. and the Euroclear
System on or about September 25, 1998.
------------------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
CONTIFINANCIAL SERVICES CORPORATION
CREDIT SUISSE FIRST BOSTON
GREENWICH CAPITAL MARKETS, INC.
MERRILL LYNCH & CO.
NATIONSBANC
MONTGOMERY SECURITIES LLC
------------------
UNDERWRITER OF THE CLASS N-IO AND CLASS P-IO CERTIFICATES
MORGAN STANLEY DEAN WITTER
------------------
UNDERWRITER OF THE CLASS A-18 CERTIFICATES
BEAR, STEARNS & CO. INC.
------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 18, 1998
<PAGE>
(Footnotes from previous page)
(1) Plus accrued interest, if any, from September 16, 1998 with respect to the
Fixed Rate Certificates (excluding the Class A-1 and Class A-11
Certificates).
(2) Before deducting expenses estimated to be $1,300,000.
(3) The Pass-Through Rate for such Class for each Payment Date will equal the
lesser of (x) the Pass-Through Rate for such Class set out above and (y) the
Group I Available Funds Cap.
(4) On each Payment Date, the Pass-Through Rate for the Class A-9 Certificates
will equal the lesser of (x)(i) with respect to any Payment Date which
occurs on or prior to the Clean-Up Call Date LIBOR plus 0.25% per annum and
(ii) for any Payment Date thereafter, LIBOR plus 0.50% per annum and
(y) the Group IIa Available Funds Cap.
(5) On each Payment Date, the Pass-Through Rate for the Class A-10 Certificates
will equal the lesser of (x) the Pass-Through Rate for such Class set out
above and (y) the Group IIa Available Funds Cap.
(6) On each Payment Date, the Pass-Through Rate for the Class A-12 Certificates
will equal the lesser of (x) LIBOR plus 0.16% per annum and (y) 11% per
annum.
(7) On each Payment Date, the Pass-Through Rate for the Class A-13 Certificates
will equal the lesser of (x) LIBOR plus 0.24% per annum and (y) 12% per
annum.
(8) On each Payment Date, the Pass-Through Rate for the Class A-14 Certificates
will equal the lesser of (x) LIBOR plus 0.25% per annum and (y) 12% per
annum.
(9) On each Payment Date, the Pass-Through Rate for the Class A-15 Certificates
will equal the lesser of (x) LIBOR plus 0.27% per annum and (y) 13% per
annum.
(10) On each Payment Date, the Pass-Through Rate for the Class A-16 Certificates
will equal the lesser of (x) LIBOR plus 0.32% per annum and (y) 13% per
annum.
(11) On each Payment Date, the Pass-Through Rate for the Class A-17 Certificates
will equal the lesser of (x) the Pass-Through Rate for such class set out
above and (y) the Group IIb Available Funds Cap.
(12) The Pass-Through Rate for the Class A-18 Certificates for the first Payment
Date will equal 5.635% per annum. For each Payment Date thereafter, the
Pass-Through Rate for the Class A-18 Certificates will equal the lesser of
(x) the rate determined in accordance with the Auction Procedures described
in Annex III hereto and (y) the Group IIb Available Funds Cap.
(13) On each Payment Date, the Pass-Through Rate for such Class will equal the
lesser of (x) the Pass-Through Rate for such Class set out above and
(y) the Group IIb Available Funds Cap.
(14) The Class N-IO Certificates do not have a Certificate Principal Balance,
but will accrue interest on their Notional Amount. The "Class N-IO Notional
Amount" will equal (a) during the period commencing on the first Payment
Date and ending on the 30th Payment Date, the then outstanding Certificate
Principal Balance of the Class A-8 Certificates and (b) after the 30th
Payment Date, zero.
(15) The Class P-IO Certificates do not have a Certificate Principal Balance,
but will accrue interest on their Notional Amount. The "Class P-IO Notional
Amount" will equal (a) during the period commencing on the first Payment
Date and ending on the 30th Payment Date, the then outstanding aggregate
Certificate Principal Balance of the Class A-16 Certificates and the
Class A-17 Certificates and (b) after the 30th Payment Date, zero.
(16) On each Payment Date, the Pass-Through Rate for the Class B-II Certificates
will equal the lesser of (a) the Pass-Through Rate for such Class as set
out above and (b) the lesser of (x) the Group IIa Available Funds Cap and
(y) the Group IIb Available Funds Cap.
2
<PAGE>
(Cover continued from previous page)
As described under "ERISA Considerations" herein, the Offered
Certificates (other than the Class B Certificates) may be purchased by
employee benefit plans that are subject to ERISA. The Class B Certificates may
not be purchased by employee benefit plans that are subject to ERISA except as
provided herein. See "ERISA Considerations" herein and in the Prospectus.
By purchasing a Class A-18 Certificate (the "Auction Rate
Certificates"), whether in an Auction or otherwise, each prospective purchaser
will be deemed to have agreed (i) to participate in Auctions on the terms
described herein and (ii) so long as the beneficial ownership of the Auction
Rate Certificates is maintained in book-entry form, to sell, transfer or
otherwise dispose of the Auction Rate Certificates only pursuant to a Bid or a
Sell Order in an Auction, or through a Broker-Dealer, provided that in the
case of all transfers other than those pursuant to an Auction, the owner of
the Auction Rate Certificates so transferred, its Participant or Broker-Dealer
advises the Auction Agent of such transfer.
The Trust Estate will make one or more elections to treat certain
assets thereof as a "real estate mortgage investment conduit" (a "REMIC") for
federal income tax purposes. As described more fully herein, all Classes of
Offered Certificates (other than the Swapped Certificates) will constitute
"regular interests" in a REMIC. The Swapped Certificates will each represent
an interest in a "grantor trust" for federal income tax purposes. See "Certain
Federal Income Tax Consequences" herein and in the Prospectus.
Prior to their issuance there has been no market for the Offered
Certificates, and there can be no assurance that one will develop or if it
does develop, that it will provide the Owners of the Offered Certificates with
liquidity or will continue for the life of the Offered Certificates. The
Underwriters intend, but are not obligated, to make a market in the Offered
Certificates.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
OFFERED CERTIFICATES, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES SEE "UNDERWRITING" IN THIS PROSPECTUS SUPPLEMENT.
UNTIL THE EXPIRATION OF 90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
The Certificates offered by this Prospectus Supplement will be part
of a separate series of Certificates being offered by the Depositor pursuant
to its Prospectus dated September 17, 1998 of which this Prospectus Supplement
is a part and which accompanies this Prospectus Supplement. The Prospectus
contains important information regarding this offering which is not contained
herein, and prospective investors are urged to read the Prospectus and this
Prospectus Supplement in full.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement under the Securities Act of 1933
with respect to the Offered Certificates. This Prospectus Supplement and the
related Prospectus, which form a part of the Registration Statement, omit
certain information contained in such Registration Statement pursuant to the
Rules and Regulations of the Commission. The Registration Statement can be
inspected and copied at the Public Reference Room of the Commission at 450
Fifth Street, N.W., Washington, D.C., and the Commission's regional offices at
Seven World Trade Center, 13th Floor, New York, New York 10048, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and electronically through the Commission's Electronic Data
Gathering, Analysis and Retrieval system at the Commission's web site
(http://www.sec.gov).
REPORTS TO OWNERS
Monthly and annual reports concerning the Certificates and the Trust
will be sent by the Trustee to the Owners of Offered Certificates and the
Certificate Insurer. So long as any Offered Certificate is in book-entry form,
such reports will be sent to Cede & Co., as the nominee of DTC and as Owner of
such Offered Certificates pursuant to the Pooling and Servicing Agreement. DTC
will supply such reports to Owners of any such Offered Certificates in
accordance with its procedures. The Depositor will file or cause to be filed
with the Commission such periodic reports with respect to the Trust as are
required under the Securities Exchange Act of 1934 and the rules and
regulations of the Commission thereunder. It is the Depositor's intent to
suspend the filing of such reports as soon as such reports are no longer
statutorily required.
S-1
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SUMMARY OF TERMS..............................................................2
RISK FACTORS.................................................................13
THE SELLERS AND THE SERVICER.................................................19
General................................................................19
Credit and Underwriting Guidelines.....................................20
Indemnification by the Depositor.......................................21
Delinquency, Loan Loss and Foreclosure Information.....................21
USE OF PROCEEDS..............................................................24
THE DEPOSITOR................................................................25
THE HOME EQUITY LOANS........................................................25
PREPAYMENT AND YIELD CONSIDERATIONS..........................................26
General................................................................26
PAC Certificates.......................................................28
Companion Certificates.................................................28
Maximum Maturity Certificates..........................................28
Auction Rate Certificates..............................................29
Interest-Only Certificates.............................................29
"NAS" or "Lockout" Certificates........................................30
Payment Lag Feature of Fixed Rate Certificates.........................31
Decrement Tables.......................................................31
FORMATION OF THE TRUST AND TRUST PROPERTY....................................31
The Swapped Certificates and the Swap Agreement:.......................32
ADDITIONAL INFORMATION.......................................................33
DESCRIPTION OF THE OFFERED CERTIFICATES......................................33
General................................................................33
Payment Dates..........................................................33
Distributions..........................................................34
Calculation of LIBOR...................................................45
Book-Entry Registration of the Offered Certificates....................45
Assignment of Rights...................................................49
CREDIT ENHANCEMENT...........................................................49
The Certificate Insurance Policies.....................................55
THE CERTIFICATE INSURER......................................................57
THE POOLING AND SERVICING AGREEMENT..........................................59
Covenant of the Sellers to Take Certain Actions
with Respect to the Home Equity Loans in Certain Situations............59
Assignment of Home Equity Loans........................................60
Servicing and Sub-Servicing............................................61
Removal and Resignation of Servicer....................................65
The Trustee............................................................65
Reporting Requirements.................................................65
Removal of Trustee for Cause...........................................67
The Auction Agent......................................................68
Governing Law..........................................................68
Amendments.............................................................68
Termination of the Trust...............................................68
Optional Termination...................................................68
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......................................69
REMIC Election.........................................................69
A-i
<PAGE>
ERISA CONSIDERATIONS.........................................................71
The Class A Certificates...............................................71
RATINGS......................................................................75
LEGAL INVESTMENT CONSIDERATIONS..............................................76
UNDERWRITING.................................................................76
REPORT OF EXPERTS............................................................77
CERTAIN LEGAL MATTERS........................................................78
A-ii
<PAGE>
[This page intentionally left blank]
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Index of Principal Defined
Terms for the location of certain capitalized terms.
Issuer: ContiMortgage Home Equity Loan Trust 1998-3
(the "Trust").
Structural Overview: The Trust contains, as its principal assets,
a pool of home equity loans (the "Home
Equity Loans"). The Swap Trust contains, as
its principal assets, certain fixed-rate
interests issued by the Trust and the Swap
Agreements. The Trust will issue the
Certificates other than Swapped
Certificates; the Swap Trust will issue the
Swapped Certificates. For amortization
purposes (i.e., for purposes of those
provisions which relate the amortization of
certain Home Equity Loans to certain Offered
Certificates, considered as a group), the
Home Equity Loans have been segregated into
three sets: "Loan Group I", which contains
all fixed-rate Home Equity Loans; "Loan
Group IIa", which contains all adjustable
rate Home Equity Loans and "Loan Group IIb",
which contains a mixture of fixed-rate and
hybrid ARMs ("hybrid ARMS") being those
loans which have a fixed rate of interest
for the first two ("2/28 Loans") or three
years ("3/27 Loans"), which fixed rate then
converts to an adjustable rate).
For purposes of the credit enhancement
provided by the Class B Certificates, as
well as the application of excess cash flow,
the Home Equity Loans have been segregated
into two groups: "Loan Group I" is a single
Loan Group, and "Loan Group II" is comprised
of the Home Equity Loans in both Loan Group
IIa and in Loan Group IIb.
Certain of the amortization provisions also
relate to the credit enhancement mechanics
of the Trust. These provisions govern the
balances of the Class A Certificates and the
Class B Certificates which may be
outstanding relative to the related Loan
Group.
The Class B-I Certificates relate only to
Loan Group I, and act to provide a level of
credit support for the Group I Class A
Certificates. The Class B-II Certificates
relate to both Loan Group IIa and Loan Group
IIb, and act to provide a level of credit
support for the Group II Class A
Certificates.
Each Loan Group is further
"cross-collateralized" by the other Loan
Group through the application of Monthly
Excess Cashflow which may, or may not, be
available from the other Loan Group.
The Trust and the Swap Trust: The Trust and the Swap Trust will each be
created pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing
Agreement") to be dated as of September 1,
1998, among ContiSecurities Asset Funding
Corp., as the Depositor, ContiMortgage
Corporation, as a Seller, and the Servicer,
ContiWest Corporation, as a Seller, and
Manufacturers and Traders Trust Company, as
the Trustee (the "Trustee").
Certificates Offered: $2,100,000,000 ContiMortgage Home Equity
Loan Pass-Through Certificates, Series
1998-3, to be issued in the following
Classes (each, a "Class") and original
Certificate Principal Balances (each, a
"Certificate Principal Balance"), set forth
below:
S-2
<PAGE>
<TABLE>
<CAPTION>
Class Loan Tranche Type(1) Initial Certificate Pass-
----------------- Group ------------------ Principal Through
------- Balance Rate
-------------------- -----------
<S> <C> <C> <C> <C> <C>
Class A-1 I Fixed 2a-7 $ 80,000,000 5.512%
Class A 2 I Fixed Seq $ 154,000,000 6.02%
Class A 3 I Fixed Seq $ 188,000,000 5.77%
Class A 4 I Fixed Seq $ 64,000,000 5.76%
Class A 5 I Fixed Seq $ 83,000,000 5.99%
Class A 6 I Fixed Seq $ 56,000,000 6.08%(2)
Class A 7 I Fixed Seq $ 65,000,000 6.34%(2)
Class A 8 I Fixed NAS $ 80,000,000 5.85%(2)
Class A 9 IIa ARM Floater $ 231,725,000 (3)
Class A 10 IIa Fixed ARM NAS $ 78,000,000 5.84%(4)
Class A 11 IIb Fixed 2a 7 $ 75,000,000 5.512%
Class A 12 IIb Swapped PAC $ 130,000,000 (5)
Class A 13 IIb Swapped PAC $ 192,000,000 (6)
Class A 14 IIb Swapped PAC $ 42,000,000 (7)
Class A 15 IIb Swapped PAC $ 70,000,000 (8)
Class A 16 IIb Swapped PAC $ 25,000,000 (9)
Class A 17 IIb Fixed PAC $ 66,602,000 6.22%(10)
Class A 18 IIb Auction Companion $ 124,200,000 (11)
Class A 19 IIb Fixed Max Mat $ 77,946,000 6.04%(12)
Class A 20 IIb Fixed Max Mat $ 126,427,000 5.87%(12)
Class N IO I Fixed NAS IO (13) 6.50%
Class P IO IIb Fixed PAC IO (14) 6.50%
Class B I I Fixed Sub $ 30,000,000 8.10%
Class B II IIa and Fixed Sub $ 61,100,000 8.25%
IIb
</TABLE>
1. Tranche Types are as follows:
o The related Home Equity Loans are designated by a "I",
"IIa" or "IIb", for example, the Class A-1 Certificates
relate to Loan Group I, the Class A-16 Certificates
relate to Loan Group IIb, etc.
o "Seq" means a Certificate in a "sequential pay"
structure.
o "2a-7" means a Certificate which, for legal investment
purposes, is eligible for investment by money-market
funds in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended.
o "NAS" means a Certificate having a "non-accelerating
senior" (also known as a "lockout") amortization
provision.
o "IO" means a Certificate which is an Interest-Only
Certificate.
o "Max Mat" means a Certificate having a "maximum
maturity" amortization provision.
o "PAC" means a Certificate in a "planned amortization
class" structure.
o "Companion" means a Certificate which is the "companion"
in a PAC/companion structure.
S-3
<PAGE>
o "Auction" mean a Certificate the Pass-Through Rate on
which is established through the Auction Procedures.
o "Fixed" means a Certificate having a fixed rate of
interest.
o "Floater" means a Certificate having a floating rate of
interest.
o "ARM" means a Certificate backed by Adjustable Rate
Loans.
o "Swapped" means a Certificate the interest rate on which
has been "swapped" from fixed to floating.
o "Sub" means a subordinate Certificate.
2. The Pass-Through Rate for such Class for each Payment
Date will be the lesser of (x) the Pass-Through Rate for
such Class set out above and (y) the Group I Available
Funds Cap.
3. On each Payment Date, the Pass-Through Rate for the
Class A-9 Certificates will equal the lesser of (x)(i)
with respect to any Payment Date which occurs on or
prior to the Clean-Up Call Date LIBOR plus 0.25% per
annum and (ii) for any Payment Date thereafter, LIBOR
plus 0.50% per annum and (y) the Group IIa Available
Funds Cap.
4. On each Payment Date, the Pass-Through Rate for the
Class A-10 Certificates will be equal to the lesser of
(x) the Pass-Through Rate for such Class set out above
and (y) the Group IIa Available Funds Cap.
5. On each Payment Date, the Pass-Through Rate for the
Class A-12 Certificates will equal the lesser of (x)
LIBOR plus 0.16% per annum and (y) 11% per annum.
6. On each Payment Date, the Pass-Through Rate for the
Class A-13 Certificates will equal the lesser of (x)
LIBOR plus 0.24% per annum and (y) 12% per annum.
7. On each Payment Date, the Pass-Through Rate for the
Class A-14 Certificates will equal the lesser of (x)
LIBOR plus 0.25% per annum and (y) 12% per annum.
8. On each Payment Date, the Pass-Through Rate for the
Class A-15 Certificates will equal the lesser of (x)
LIBOR plus 0.27% per annum and (y) 13% per annum.
9. On each Payment Date, the Pass-Through Rate for the
Class A-16 Certificates will equal the lesser of (x)
LIBOR plus 0.32% per annum and (y) 13% per annum.
10. On each Payment Date, the Pass-Through Rate for the
Class A-17 Certificates will equal the lesser of (x) the
Pass-Through Rate for such Class set out above and (y)
the Group IIb Available Funds Cap.
11. The Pass-Through Rate for the Class A-18 Certificates
for the first Payment Date will equal 5.635% per annum.
For each Payment Date thereafter, the Pass-Through Rate
for the Class A-18 Certificates will equal the lesser of
(x) the rate determined in accordance with the Auction
Procedures described in Annex III hereto and (y) the
Group IIb Available Funds Cap.
12. On each Payment Date, the Pass-Through Rate for such
Class will equal the lesser of (x) the Pass-Through Rate
for such Class set out above and (y) the Group IIb
Available Funds Cap.
13. The Class N-IO Certificates do not have a Certificate
Principal Balance, but will accrue interest on their
Notional Amount. The "Class N-IO Notional Amount" will
equal (a) during the period commencing on the first
Payment Date and ending on the 30th Payment Date, the
outstanding Certificate Principal Balance of the Class
A-8 Certificates and (b) after the 30th Payment Date,
zero.
14. The Class P-IO Certificates do not have a Certificate
Principal Balance, but will accrue interest on their
Notional Amount. The "Class P-IO Notional Amount" will
equal (a) during the period commencing on the first
Payment Date and ending on the 30th Payment Date, the
then
S-4
<PAGE>
outstanding aggregate Certificate Principal Balance of the
Class A-16 and the Class A-17 Certificates and (b) after
the 30th Payment Date, zero.
15. On each Payment Date, the Pass-Through Rate for the
Class B-II Certificates will equal the lesser of (a) the
Pass-Through Rate for such Class as set out above and
(b) the lesser of (x) the Group IIa Available Funds Cap
and (y) the Group IIb Available Funds Cap.
Class B Certificates: The Class B-I Certificates are subordinate in right of
distribution to the Group I Class A Certificates to the
extent described herein. The initial aggregate
Certificate Principal Balance of the Class B-I
Certificates will equal 3.75% of the initial aggregate
Certificate Principal Balance of the Group I
Certificates.
The Class B-II Certificates are subordinate in right of
distribution to the Group II Class A Certificates to the
extent described herein. The initial aggregate
Certificate Principal Balance of the Class B-II
Certificates will equal 4.70% of the initial aggregate
Certificate Principal Balance of the Group II
Certificates.
Interest Only
Certificates: The Class N-IO Certificates and the Class P-IO
Certificates are "interest only" certificates and are
not entitled to distributions in respect of principal.
The yield to maturity of such Interest-Only Certificates
will be sensitive to very high rates of prepayments on
the related Home Equity Loans. Investors in such
Interest-Only Certificates should consider the
associated risks, including the risk that if the rate of
prepayments is very high, such investors may fail to
recover their initial investments.
Certain Designation: For purposes of this Prospectus Supplement, the
following designations will refer to the Classes of
Certificates indicated.
Certificates: The Offered Certificates and the Retained Certificates.
Offered Certificates: The Class A Certificates and the Class B Certificates.
Class A Certificates: The Group I Class A Certificates and the Group II Class A
Certificates.
Group I Class A
Certificates: The Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6, Class A-7, Class A-8 and Class N-IO
Certificates.
Group I Certificates: The Group I Class A Certificates and the Class B-I
Certificates.
Group II Class A
Certificates: The Group IIa Class A Certificates and the Group IIb
Class A Certificates.
Group IIa Class A
Certificates: The Class A-9 and Class A-10 Certificates.
Group IIb Class A
Certificates: The Class A-11, Class A-12, Class A-13, Class A-14,
Class A-15, Class A-16, Class A-17, Class A-18, Class
A-19, Class A-20 and Class P-IO Certificates.
Group II
Certificates: The Group II Class A Certificates and the Class B-II
Certificates.
Subordinate
Certificates: The Class B-I and Class B-II Certificates.
Floating Rate
Certificates: The Class A-9, Class A-12, Class A-13, Class A-14, Class
A-15, and Class A-16; Auction Rate Certificates.
Auction Rate
Certificates: The Class A-18 Certificates.
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Fixed Rate
Certificates: The Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6, Class A-7, Class A-8, Class A-10, Class
A-11, Class A-17, Class A-19, Class A-20, Class N-IO,
Class P-IO, Class B-I and Class B-II Certificates.
PAC Certificates: The Class A-12, Class A-13, Class A-14, Class A-15,
Class A-16, and Class A-17 Certificates.
Swapped Certificates: The Class A-12, Class A-13, Class A-14, Class A-15 and
Class A-16 Certificates.
Maximum
Maturity
Certificates: The Class A-19 and Class A-20 Certificates.
Interest-Only
Certificates: The Class N-IO and Class P-IO Certificates.
Companion
Certificates: The Class A-18 Certificates.
Depositor: ContiSecurities Asset Funding Corp. (the "Depositor"), a
Delaware corporation.
Servicer: ContiMortgage Corporation (the "Servicer"), a Delaware
corporation.
Sellers: ContiMortgage Corporation, a Delaware corporation and
ContiWest Corporation, a Nevada corporation (each a
"Seller" and collectively, the "Sellers").
Originator: ContiMortgage Corporation (the "Originator"), a Delaware
corporation.
Trustee: Manufacturers and Traders Trust Company (the "Trustee"),
a New York banking corporation.
Auction Agent: Bankers Trust Company (the "Auction Agent"), a New York
banking corporation.
Modeled PAC Bands: Based on the Modeling Assumptions, the PAC Certificates
would adhere to their Planned Principal Balance
schedules if the Fixed Rate Loans in Group IIb were to
prepay anywhere between 125% Fixed Prepayment Assumption
and 175% Fixed Prepayment Assumption, and the Adjustable
Rate Loans in Loan Group IIb were to prepay anywhere
between 95% Adjustable Prepayment Assumption and 130%
Adjustable Prepayment Assumption (or any other
combination of Prepayment Assumptions which result in a
paydown identical to that defined by such prepayment
assumptions) until the PAC Certificates are retired.
Such Prepayment Assumption ranges are the "Modeled PAC
Bands". The Modeling Assumptions and Prepayment
Assumptions are described in Annex V hereof.
Cut-Off Date: As of the close of business on September 15, 1998. The
Trust will be entitled to all moneys due and received on
the Home Equity Loans after such date.
Statistical
Calculation
Date: As of the close of business on August 24, 1998.
Closing Date: On or about September 25, 1998.
Denominations: The Offered Certificates are issuable in book entry form
in minimum original principal amounts (or a Notional
Amount in the case of the Interest-Only
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Certificates) of (a) except with respect to the Auction
Rate Certificates, $1,000 and integral multiples in
excess thereof and (b) $25,000 and integral multiples
thereof, in the case of the Auction Rate Certificates.
Final Scheduled
Payment
Dates: The Final Scheduled Payment Dates for each of the
respective Classes of Offered Certificates are as
follows, although it is anticipated that the actual
final Payment Date for each Class (other than
Interest-Only Certificates) will occur earlier than the
Final Scheduled Payment Date. See "Prepayment and Yield
Considerations" herein. The payment of the outstanding
Certificate Principal Balance, if any remains then
outstanding, of the Class A-1 and Class A-11
Certificates on their respective Final Scheduled Payment
Dates is guaranteed by the Certificate Insurer.
Class Final Scheduled Payment Date
----- ----------------------------
Class A-1 September 15, 1999
Class A-2 March 15, 2019
Class A-3 February 15, 2024
Class A-4 May 15, 2025
Class A-5 November 15, 2026
Class A-6 September 15, 2027
Class A-7 October 15, 2029
Class A-8 October 15, 2029
Class A-9 September 15, 2028
Class A-10 May 15, 2016
Class A-11 September 15, 1999
Class A-12 May 15, 2013
Class A-13 May 15, 2013
Class A-14 May 15, 2013
Class A-15 May 15, 2013
Class A-16 June 15, 2013
Class A-17 October 15, 2029
Class A-18 October 15, 2029
Class A-19 September 15, 2003
Class A-20 September 15, 2008
Class N-IO March 15, 2001
Class P-IO March 15, 2001
Class B-I October 15, 2029
Class B-II October 15, 2029
The Home Equity
Loans: The Home Equity Loans will consist of fixed and
adjustable rate conventional home equity loans evidenced
by promissory notes (the "Notes") secured by first and
second lien deeds of trust, security deeds or mortgages
(the "Mortgages"). The properties securing the Home
Equity Loans (the "Properties") consist primarily of
single-family residences (which may be attached,
detached, part of a two-to-four family dwelling, a
condominium unit or a unit in a planned unit
development) and also include mixed use properties and
manufactured housing. The Properties may be
owner-occupied or non-owner occupied investment
properties. No Combined Loan-to-Value Ratio (based upon
appraisals made at the time of origination) exceeded
100% as of the Statistical Calculation Date. The Home
Equity Loans are not insured by either primary or pool
mortgage insurance policies. The Home Equity Loans are
not guaranteed by the Sellers or any affiliate thereof.
The Home Equity Loans will be serviced by the Servicer
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generally in accordance with the standards and
procedures required by FannieMae for FannieMae
mortgage-backed securities.
The Home Equity Loans in Loan Group I conform to Fannie
Mae's guidelines for maximum original loan balances.
The statistical information presented in this Prospectus
Supplement concerning the pool of Home Equity Loans is
based on the pool of Home Equity Loans as of the
Statistical Calculation Date. Additional Home Equity
Loans will be purchased by the Trust from the Depositor
on the Closing Date. The pools aggregated
$603,883,420.30 with respect to Loan Group I,
$262,361,536.79 with respect to Loan Group IIa and
$820,530,148.05 with respect to Loan Group IIb, as of
the Statistical Calculation Date. The Depositor expects
that the actual pools as of the Closing Date will
represent approximately $800,000,000 in Loan Group I,
approximately $325,000,000 in Loan Group IIa and
$975,000,000 in Loan Group IIb. The additional Home
Equity Loans will represent Home Equity Loans acquired
or to be acquired by the Depositor on or prior to the
Closing Date. In addition, with respect to the Home
Equity Loans as of the Statistical Calculation Date as
to which statistical information is presented herein,
some amortization of the Home Equity Loans will occur
prior to the Closing Date. Moreover, certain loans
included in the pools as of the Statistical Calculation
Date may prepay in full, or may be determined not to
meet the eligibility requirements for the final pools,
and may not be included in the final pools. As a result
of the foregoing, the statistical distribution of
characteristics as of the Closing Date for the final
Home Equity Loan pools will vary from the statistical
distribution of such characteristics as of the
Statistical Calculation Date as presented in this
Prospectus Supplement. Unless otherwise noted, all
statistical percentages in this Prospectus Supplement
are measured by the aggregate principal balance of the
Fixed Rate Loans or the Adjustable Rate Loans (with
respect to each Pool), as applicable, as of the
Statistical Calculation Date.
See "Additional Information" in this Prospectus
Supplement and "ANNEX IV --THE HOME EQUITY LOAN POOL".
Distributions: Distributions will be made on each Payment Date. A
"Payment Date" is the 15th day of each month, or, if
such day is not a Business Day, then on the next
succeeding Business Day, commencing in October 1998.
In summary, on each Payment Date the Available Funds for
each Loan Group will be applied in the following order
of priority:
(i) first, for the payment of certain fees;
(ii) second, interest on the related Class A
Certificates;
(iii) third, interest on the related Class B
Certificates;
(iv) fourth, to reimburse the Certificate Insurer,
up to a specified maximum amount;
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(v) fifth, principal on the related Class A
Certificates, to the extent necessary to reduce the
related aggregate Class A Certificate Principal Balance to
the related Class A Optimal Balance;
(vi) sixth, principal on the related Class B
Certificates to the extent necessary to reduce the
related Class B Certificate Principal Balance to the
related Class B Optimal Balance;
(vii) seventh, the Interest Carry Forward Amount
for the related Class B Certificates;
(viii) eighth, to pay losses which resulted in
prior "write-downs" of the related Class B Certificates;
and
(ix) ninth, to cross-collateralize the other Loan
Group.
The principal allocated with respect to the Group II
Class A Certificates in the aggregate is then further
allocated among the Group IIa Class A Certificates on
the one hand, and the Group IIb Class A Certificates on
the other hand, pursuant to a formula which takes into
account the amortization and losses experienced by Loan
Group IIa and Loan Group IIb during the related
Remittance Period.
Amounts allocated to the payment of principal of the
Group I Class A Certificates, the Group IIa Class A
Certificates and the Group IIb Class A Certificates,
will, in summary, be applied as follows:
Group I Class A
Certificates: (i) first, Class A-8, its "lockout" distribution;
(ii) second, Class A-1, to zero;
(iii) third, Class A-2 through Class A-7, sequentially,
to zero; and
(iv) fourth, Class A-8, any remainder, to zero.
Group IIa Class A
Certificates: (i) first, Class A-10, its "lockout" distribution;
(ii) second, Class A-9, to zero; and
(iii) third, Class A-10, any remainder, to zero.
Group IIb Class A
Certificates: (i) first, Class A-19 and Class A-20, sequentially, to
reduce them to their respective Maximum Principal
Balances;
(ii) second, Class A-11, to zero;
(iii) third, Class A-12 through A-17, to reduce them to
their respective Planned Principal Balance;
(iv) fourth, Class A-18, any remainder, to zero;
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(v) fifth, Class A-12 through Class A-17, sequentially,
to zero; and
(vi) sixth, Class A-19 through Class A-20, sequentially,
to zero.
No principal will be payable with respect to the Class
B-I Certificates until the Stepdown Date with respect to
Loan Group I has occurred, and no principal will be
payable with respect to the Class B-II Certificates
until the Stepdown Date with respect to Loan Group II
has occurred (unless the aggregate Certificate Principal
Balance of the related Class A Certificates has
previously been reduced to zero). Such Stepdown Dates
will not occur until October 2001 at the earliest.
Credit Enhancement: The Credit Enhancement provided for the benefit of the
Owners of the Offered Certificates consists of the rules
relating to the calculations of the Class A Optimal
Balance and the Class B Optimal Balance, which require
that a level of overcollateralization be maintained with
respect to the related Loan Group in a "first loss"
position, as well as the priority of application of
Realized Losses. Additional Credit Enhancement for the
benefit of the Owners of the Class A Certificates with
respect to a Loan Group will be provided by the
subordination of the Class B Certificates with respect
to such Loan Group, the cross-collateralization
provisions of the Trust, and by the Certificate
Insurance Policy relating to the Class A Certificates
with respect to the related Loan Group.
Optional Termination: The Owners of the Class R Certificates of the first-tier
REMIC will have the right to purchase all the Home
Equity Loans on any Monthly Remittance Date in or after
the month in which the Total Loan Balance has declined
to less than 10% of the Original Total Loan Balance (the
"Clean-Up Call Date"). See "The Pooling and Servicing
Agreement-Optional Termination" herein.
Book-Entry
Registration of
the Offered
Certificates: The Offered Certificates will initially be issued in
book-entry form. Persons acquiring beneficial ownership
interests in such Offered Certificates ("Beneficial
Owners") may elect to hold their interests through The
Depository Trust Company ("DTC"), in the United States,
or Cedel Bank, S.A. ("Cedel") or the Euroclear System
("Euroclear"), in Europe. See "Description of the
Offered Certificates-Book-Entry Registration of the
Offered Certificates" herein, and Annex II hereto, and
"Description of the Certificates-Book-Entry
Registration" in the Prospectus.
Ratings: It is a condition of issuance of the Offered
Certificates that each Class of the Offered Certificates
receive at least the ratings set out below from Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services, a division of the McGraw-Hill
Companies ("Standard & Poor's") and Fitch IBCA, Inc.
("Fitch"):
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Class Moody's Standard Fitch
----- ------- -------- & Poor's
--------
Class A-1 and Class A- P-1 A-1+ F-1+
11 Certificates
Class A Certificates Aaa AAA AAA
(other than the Class
A-1, Class A-11 and the
Interest-Only
Certificates)
Interest-Only Aaa AAAr AAA
Certificates
Class B Certificates Baa3 BBB- BBB
Moody's, Standard & Poor's and Fitch are referred to
herein collectively as the "Rating Agencies." A security
rating is not a recommendation to buy, sell or hold
securities, and may be subject to revision or withdrawal
at any time by the assigning entity. See "Prepayment and
Yield Considerations" and "Ratings" herein.
Risk Factors: Credit Considerations. For information with regard to
the Home Equity Loans and their related risks, see "The
Home Equity Loan Pool" herein.
Prepayment Considerations. For information regarding the
consequences of prepayments of the Home Equity Loans,
see "Prepayment and Yield Considerations" and "Risk
Factors-Sensitivity to Prepayments" herein.
Other Considerations. For a discussion of other risk
factors that should be considered by prospective
investors in the Offered Certificates, see "Risk
Factors" herein and in the Prospectus.
Federal Tax Aspects: For federal income tax purposes, the Trust Estate
created by the Pooling and Servicing Agreement will
consist of one or more segregated asset pools (each, a
"REMIC") with respect to which an election will be made
to treat each such pool as a "real estate mortgage
investment conduit" ("REMIC"). The Class A and Class B
Certificates, other than the Swapped Certificates, will
constitute "regular interests" in a REMIC; the Swapped
Certificates will constitute ownership interests in a
"grantor trust" for federal income tax purposes, the
property of which consists primarily of "regular
interests" in a REMIC and the Swap Agreements. See
"Certain Federal Income Tax Consequences" herein.
Owners of the Offered Certificates, including Owners
that generally report income on the cash method of
accounting, will be required to include interest on the
Offered Certificates in income in accordance with the
accrual method of accounting. In addition, each Class of
Interest-Only Certificates will be considered to have
been issued with original issue discount. Any such
original issue discount will be includible in the income
of the Owner as it accrues under a method taking into
account the compounding of interest and using the
prepayment assumption set forth in "Certain Federal
Income Tax Consequences." See "Prepayment and Yield
Considerations" and "Certain Federal Income Tax
Consequences" herein. No representation is made as to
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whether the Home Equity Loans will prepay in accordance
with the Prepayment Assumption, or any other rate.
ERISA Considerations: As described under "ERISA Considerations" herein, the
Offered Certificates (other than the Class B
Certificates) may be purchased by employee benefit plans
that are subject to ERISA. The Class B Certificates may
not be purchased by employee benefit plans that are
subject to ERISA except as provided herein. See "ERISA
Considerations" herein and in the Prospectus.
Legal Investment
Considerations: None of the Certificates will constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"). The
appropriate characterization of the Offered Certificates
under various legal investment restrictions applicable
to the investment activities of certain institutions,
and thus the ability of investors subject to these
restrictions to purchase the Offered Certificates, may
be subject to significant interpretive uncertainties. In
addition, institutions whose activities are subject to
review by federal or state regulatory authorities may be
or may become subject to restrictions, which may be
retroactively imposed by such regulatory authorities, on
the investment by such institutions in certain forms of
mortgage related securities. All investors whose
investment authority is subject to legal restrictions
should consult their own legal advisors to determine
whether, and to what extent, the Offered Certificates
will constitute legal investments for them.
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<PAGE>
RISK FACTORS
Prospective investors in the Offered Certificates should consider the
following risk factors (as well as the risk factors set forth under "Risk
Factors" in the Prospectus) in connection with the purchase of the Offered
Certificates.
Sensitivity to Prepayments. Certain of the Home Equity Loans may be
prepaid in whole or in part at any time without penalty. In addition, a
substantial portion of the Home Equity Loans contain due-on-sale provisions
which, to the extent enforced by the Servicer, will result in prepayment of
such Home Equity Loans. See "Prepayment and Yield Considerations" herein and
"Certain Legal Aspects of Mortgage Assets-Enforceability of Certain
Provisions" in the Prospectus. The rate of prepayments on fixed-rate mortgage
loans, such as the Fixed Rate Loans, is sensitive to prevailing interest
rates. Generally, if prevailing interest rates fall significantly below the
interest rates on the Home Equity Loans, the Home Equity Loans are likely to
be subject to higher prepayment rates than if prevailing rates remain at or
above the interest rates on the Home Equity Loans. Conversely, if prevailing
interest rates rise significantly above the interest rates on the Home Equity
Loans, the rate of prepayments is likely to decrease. The average life of the
Offered Certificates and, if purchased at other than par, the yields realized
by Owners of the Offered Certificates will be sensitive to levels of payment
(including prepayments relating to the Home Equity Loans (the "Prepayments")
on the Home Equity Loans. In general, the yield on an Offered Certificate that
is purchased at a premium from the outstanding principal amount thereof may be
adversely affected by a higher than anticipated level of Prepayments of the
Home Equity Loans. Conversely, the yield on an Offered Certificate that is
purchased at a discount from the outstanding principal amount thereof may be
adversely affected by a lower than anticipated level.
The prepayment experience on Adjustable Rate Loans, including the
2/28 Loans and the 3/27 Loans, may differ from the prepayment experience on
Fixed Rate Loans due to the provisions providing for adjustment to the Coupon
Rate and related monthly payment and the applicable periodic reset caps and
maximum rates. In particular, the Adjustable Rate Loans may be subject to
higher prepayment rates as they approach their initial Coupon Change Dates
(which is six months following origination for Six-Month LIBOR Loans, two
years following origination for 2/28 Loans, and three years following
origination for 3/27 Loans). Because cashflows from both Fixed Rate Loans and
Adjustable Rate Loans will be used to make the required distributions on the
Group IIb Class A Certificates and Class B-II Certificates, the prepayment
experience of the Group IIb Class A Certificates and Class B-II Certificates
will not reflect solely the prepayment experience of Fixed Rate Loans or
Adjustable Rate Loans. See "Prepayment and Yield Considerations" herein.
Subordination-Allocation of Losses to Class B Certificates. The
rights of the Owners of the Class B Certificates to receive distributions of
principal with respect to the related Home Equity Loans will be subordinate to
the rights of the Owners of the Class A Certificates (other than the
Interest-Only Certificates), to receive such distributions. See "Credit
Enhancement-Subordination of Class B Certificates" herein.
The yields to maturity on the Class B Certificates will be sensitive
to delinquencies and defaults on the related Home Equity Loans (and the timing
thereof). Credit enhancement for the Class B Certificates is limited to the
amounts which would otherwise be distributed with respect to the Retained
Certificates and the overcollateralization provisions of the Trust. Investors
should fully consider the risks associated with an investment in the Class B
Certificates, including the possibility that such investors may not fully
recover their initial investment as a result of Realized Losses on the Home
Equity Loans. See "Credit Enhancement-Application of Realized Losses" and
"Prepayment and Yield Considerations-Projected Payment and Yield for Offered
Certificates" herein. The Owners of the Class B Certificates are not entitled
to the benefits of either Certificate Insurance Policy.
The Class B Certificates will not be entitled to any principal
distributions until at least the Stepdown Date has occurred with respect to
the related Loan Group (unless the aggregate Certificate Principal Balance of
the related Class A Certificates has been reduced to zero). In addition, on
and after the related Stepdown Date, principal distributions on the Class B
Certificates are subject to the effects of a Delinquency Trigger Event or a
Cumulative Realized Loss Trigger Event occurring with respect to the related
Loan Group. As a result, the weighted average life
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of the Class B Certificates will be extended, in the event of the occurrence
of a Delinquency Trigger Event, and will be shorter in the event of the
occurrence of a Cumulative Loss Trigger Event.
The Class B-I Certificates relate to Loan Group I; therefore, the
occurrence of a Delinquency Trigger Event or a Cumulative Realized Loss
Trigger Event with respect to Loan Group I is likely to affect principal
distributions on the Class B-I Certificates. The Class B-II Certificates
relate to Loan Group II (i.e., Loan Group IIa and Loan Group IIb together);
therefore, the occurrence of a Delinquency Trigger Event or a Cumulative
Realized Loss Trigger Event with respect to Loan Group II is likely to affect
principal distributions on the Class B-II Certificates. The calculations
relating to the Delinquency Trigger Event and the Cumulative Realized Loss
Trigger Event for Loan Group II are made across the entire Loan Group, and are
not made separately, for Loan Group IIa and Loan Group IIb.
If, on any Payment Date after taking into account all Realized Losses
experienced with respect to a Loan Group during the prior Remittance Period
and after taking into account the distribution of principal with respect to
the related Class A Certificates and Class B Certificates with respect to such
Loan Group on such Payment Date, the aggregate Certificate Principal Balance
of all such Class A and Class B Certificates exceeds the aggregate Loan
Balance of the Home Equity Loans in such Loan Group (i.e., if the level of
overcollateralization with respect to such Loan Group is negative), then the
Certificate Principal Balance of the related Class B Certificates will be
reduced (in effect, "written down") such that the level of
overcollateralization with respect to such Loan Group Is zero, rather than
negative. Such a negative level of overcollateralization is an "Applied
Realized Loss Amount," which will be applied as a reduction in the Certificate
Principal Balance of the related Class B Certificates. The Pooling and
Servicing Agreement does not permit the "write down" of the Certificate
Principal Balance of any Class A Certificate.
Once the Certificate Principal Balance of a Class of Class B
Certificate has been "written down," the amount of such write down will no
longer bear interest, nor will such amount thereafter be "reinstated" or
"written up," although the amount of such write down may, on future Payment
Dates be paid to Owners of such Class B Certificates. The source of funding of
such payments will be the amount, remaining on such future Payment Dates after
the payment of the Interest Carry Forward Amount with respect to the Class B
Certificates, together with the Monthly Excess Cashflow Amount, if any,
available from the other Loan Group on such Payment Date.
Variability of Principal Distributions to Companion Certificates. The
Companion Certificates will support the relative principal payment stability
of the PAC Certificates by absorbing any amounts available for distribution of
principal of the Group IIb Class A Certificates (other than the Class P-IO
Certificates) in excess of that necessary to reduce the Certificate Principal
Balance of the applicable Class of PAC Certificates to its Planned Principal
Balance on the applicable Payment Date. In addition, if the amount available
for distributions of principal of the Group IIb Class A Certificates (other
than the Class P-IO Certificates) is insufficient to reduce the Certificate
Principal Balance of the applicable Class of PAC Certificates to its Planned
Principal Balance on a Payment Date, the Companion Certificates will not
receive any distributions of principal until such time as the Class
Certificate Balance of such Class of PAC Certificates is reduced to its
applicable Planned Principal Balance on the applicable Payment Date. As a
result, the amount and timing of principal distributions on the Companion
Certificates is subject to substantial variability from Payment Date to
Payment Date and over the lives of such Certificates.
Nature of Collateral. Because 6.28% of the Fixed Rate Loans by Loan
Balance as of the Statistical Calculation Date are secured by second liens
subordinate to the rights of the mortgagee or beneficiary under the related
first mortgage or deed of trust, the proceeds from any liquidation, insurance
or condemnation proceedings with respect to such Home Equity Loans will be
available to satisfy the outstanding balance of a Home Equity Loan only to the
extent that the claims of such first mortgagee or beneficiary have been
satisfied in full, including any related foreclosure costs. In addition, a
second mortgagee may not foreclose on the property securing a second mortgage
unless it forecloses subject to the first mortgage, in which case it must
either pay the entire amount due on the first mortgage to the first mortgagee
at or prior to the foreclosure sale or undertake the obligation to make
payments on the first mortgage. In servicing second mortgages in its
portfolio, it is generally the Servicer's practice to satisfy the first
mortgage at or prior to the foreclosure sale. The Servicer may also advance
funds to keep the first mortgage current until such time as the Servicer
satisfies the first mortgage. The Trust will have no source of funds
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(and may not be permitted under the REMIC provisions of the Code) to satisfy
the first mortgage or make payments due to the first mortgagee. See "The
Pooling and Servicing Agreement-Servicing and Sub-Servicing" herein.
An overall decline in the residential real estate market, the general
condition of a Property, or other factors, could adversely affect the value of
the Property such that the outstanding balance of the related Home Equity
Loan, together with any senior liens on the Property, equal or exceed the
value of the Property. A decline in the value of a Property would affect the
interest of the Trust in the Property before having any effect on the interest
of the related first mortgagee, and could cause the Trust's interest in the
Property to be extinguished. If such a decline occurs, the actual rates of
delinquencies, foreclosures and losses on the Home Equity Loans could be
higher than those currently experienced in the mortgage lending industry in
general. In addition, adverse economic conditions (which may or may not affect
real property values) may affect the timely payment by borrowers of scheduled
payments of principal and interest on the Home Equity Loans and, accordingly,
the actual rates of delinquencies, foreclosures and losses with respect to the
Trust.
Risk of Home Equity Loan Rates Reducing the Pass-Through Rate on
Certain Offered Certificates.
Class A-6, Class A-7, Class A-8 and Class B-I Certificates
(collectively, the "Group I Capped Certificates"). The Group I Capped
Certificates are all subject to the Group I Available Funds Cap. Even
though the Group I Capped Certificates are all Fixed-Rate
Certificates issued against Fixed-Rate Loans, there is a dispersion
among the Coupon Rates applicable to the Group I Home Equity Loans.
Consequently, the weighted average Coupon Rate of the Group I Home
Equity Loans could be reduced over time, if the high-Coupon Rate Home
Equity Loans prepay or amortize more quickly than Home Equity Loans
having low-Coupon Rates. Were the weighted average Coupon Rate to
reduce significantly, under a relatively high prepayment speed, the
Pass-Through Rates on the Group I Class A Capped Certificates could
be subject to the limitation imposed by the Group I Available Funds
Cap; the Class B-I Certificates' Pass-Through Rate will be relatively
more sensitive to reductions in such weighted average Coupon Rate.
Class A-17, Class A-18, Class A-19 and Class A-20
Certificates (collectively, the "Group IIb Capped Certificates"). The
Home Equity Loans in Loan Group IIb consisted, by aggregate Loan
Balance as of the Statistical Calculation Date, of 89.58% Fixed Rate
Loans, 1.70% 2/28 Home Equity Loans having Coupon Rates based on
Six-Month LIBOR, and 8.72% 3/27 Home Equity Loans having Coupon Rates
based on Six-Month LIBOR. Due to the different indexes and rate
adjustment dates, the Weighted Average Coupon Rate of the Group IIb
Home Equity Loans may be reduced if high-Coupon Rate Home Equity
Loans prepay or amortize more quickly than low-Coupon Rate Home
Equity Loans. As a result, the Group IIb Capped Certificates could be
subject to the limitation imposed by the Group IIb Available Funds
Cap.
Class A-9 and Class A-10 Certificates (collectively, the
"Group IIa Capped Certificates"). The Class A-9 Certificates have a
Pass-Through Rate based on one-month LIBOR, while the Class A-10
Pass-Through Rate is a fixed rate, in each case subject to the Group
IIa Available Funds Cap. The Home Equity Loans in Group IIa consist,
by aggregate Loan Balance as of the Statistical Calculation Date, of
16.13% Home Equity Loans having Coupon Rates based upon Six-Month
LIBOR, and 83.87% Home Equity Loans which are 2/28 Loans, bearing
interest for the two years following origination at Six-Month LIBOR,
and which then convert to a fixed rate for the next 28 years. Since
the indexes and rate adjustment dates on the Home Equity Loans in
Group IIa differ from the Pass-Through Rates on the Group IIa Capped
Certificates, and since 83.87% of such Home Equity Loans have
provisions which fix the Coupon Rates at levels which cannot now be
determined and which may on a weighted average basis, in the future,
be reduced if high-Coupon Rate Home Equity Loans prepay or amortize
more quickly than low-Coupon Rate Home Equity Loans, the
weighted-average Coupon Rate on such Home Equity Loans could be
reduced to a level such that the Pass-Through Rates on such
Certificates may be limited by the Group IIa Available Funds Cap.
Class B-II Certificates. The Class B-II Certificates are
Fixed Rate Certificates backed by all Group II Home Equity Loans,
which contain a mixture of Fixed Rate Loans and Adjustable Rate
Loans, including 2/28 Loans and 3/27 Loans. The "Group II Available
Funds Cap" is the lesser of the Group IIa
S-15
<PAGE>
Available Funds Cap and the Group IIb Available Funds Cap, and, for
the same reasons set forth above with respect to the Group IIa Capped
Certificates and the Group IIb Capped Certificates, the Class B-II
Certificates could be subject to the limitation imposed by the Group
II Available Funds Cap.
S-16
<PAGE>
Principal Cashflow Considerations for Group II Class A Certificates
The Group II Class A Principal Distribution Amount is comprised of
collections of principal from all Home Equity Loans in Loan Group IIa and Loan
Group IIb. While the payment priorities seek to maintain the relationship
between collections received on Loan Group IIa and Loan Group IIb and the
related Certificates, distributions on the related Group II Class A
Certificates may, under certain circumstances, be affected by the amount of
collections received with respect to the Home Equity Loans underlying the
other Group II Class A Certificates. Specifically, distributions on the Group
IIa Class A Certificates may be affected by the amount of collections received
on the Home Equity Loans in Loan Group IIb, and vice versa. Consequently, the
amortization of the Group II Class A Certificates may be affected by the rate
and timing of payments on all the Home Equity Loans in Loan Group II. In
making any investment in the Group II Class A Certificates, an investor should
consider the potential effects of both Loan Group IIa and Loan Group IIb on
the credit quality and expected yield on its class of Certificates.
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosure, and require
licensing of the Sellers. In addition, other state laws, public policy and
general principles of equity relating to the protection of consumers, unfair
and deceptive practices and debt collection practices may apply to the
origination, servicing and collection of the Home Equity Loans. The related
Seller will be required to repurchase any Home Equity Loans which, at the time
of origination, did not comply with applicable federal and state laws and
regulations. Depending on the provisions of the applicable law and the
specific facts and circumstances involved, violations of these laws, policies
and principles may limit the ability of the Trust to collect all or part of
the principal of or interest on the Home Equity Loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could
subject the Sellers to damages and administrative enforcement. See "Certain
Legal Aspects of Mortgage Assets" in the Prospectus.
The Home Equity Loans are also subject to federal laws, including:
O the Federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain
disclosures to the borrowers regarding the terms of the
Home Equity Loans;
O 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; and
O the Fair Credit Reporting Act, which regulates the use
and reporting of information related to the borrower's
credit experience.
Violations of certain provisions of these federal laws may limit the ability
of the Sellers to collect all or part of the principal of or interest on the
Home Equity Loans and in addition could subject the Sellers to damages and
administrative enforcement. The related Seller will be required to repurchase
any Home Equity Loans which, at the time of origination, did not comply with
such federal laws or regulations. See "Certain Legal Aspects of the Mortgage
Assets" in the Prospectus.
The federal Soldiers' and Sailors' Civil Relief Act of 1940 may
affect the ability of the Servicer to collect full amounts of interest on
certain Home Equity Loans and could interfere with the ability of the Servicer
to foreclose on certain properties. See "Certain Legal Aspects of the Mortgage
Assets-Soldiers' and Sailors' Civil Relief Act of 1940" in the Prospectus.
Up to 10% of the Original Aggregate Loan Balance may represent Home
Equity Loans that are 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 non-purchase money mortgage loans
with high interest rates or high upfront fees and charges. In general,
mortgage loans within the purview of the Riegle Act
S-17
<PAGE>
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 within the purview
thereof originated on or after October 1, 1995. These provisions can impose
specific statutory liabilities upon creditors who fail to comply with their
provisions and may affect the enforceability of the related loans. In
addition, any assignee of the creditor would generally be subject to all
claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
Risk of Higher Default Rates for Home Equity Loans with Balloon
Payments. Approximately 29.17% of the Fixed Rate Loans by Loan Balance as of
the Statistical Calculation Date represent Home Equity Loans which are
"balloon loans" that provide for the payment of the unamortized Loan Balance
of such Home Equity Loan in a single payment at maturity ("Balloon Loans").
None of the Adjustable Rate Loans as of the Statistical Calculation Date
represent Home Equity Loans which are "balloon loans". Such Balloon Loans
provide for equal monthly payments, consisting of principal and interest,
generally based on a 30-year amortization schedule, and a single payment of
the remaining balance of the Balloon Loan 15 years after origination.
Amortization of a Balloon Loan based on a scheduled period that is longer than
the term of the loan results in a remaining principal balance at maturity that
is substantially larger than the regular scheduled payments. The Depositor
does not have any information regarding the default history or prepayment
history of payments on Balloon Loans. Because borrowers of Balloon Loans are
required to make substantial single payments upon maturity, it is possible
that the default risk associated with the Balloon Loans is greater than that
associated with fully-amortizing Home Equity Loans.
Risk of Seller Insolvency. Each Seller believes that the transfer of
the Home Equity Loans to the Depositor and by the Depositor to the Trust
constitutes a sale by such Seller to the Depositor and by the Depositor to the
Trust and, accordingly, that such Home Equity Loans will not be part of the
assets of either Seller in the event of the insolvency of such Seller and will
not be available to the creditors of such Seller. However, in the event of an
insolvency of a Seller, it is possible that a bankruptcy trustee or a creditor
of such Seller may argue that the transaction between such Seller and the
Depositor was a pledge of such Home Equity Loans in connection with a
borrowing by such Seller rather than a true sale. Such an attempt, even if
unsuccessful, could result in delays in distributions on the Certificates.
On the Closing Date, the Trustee, the Certificate Insurer and the
Sellers will have received an opinion of Dewey Ballantine LLP, counsel to the
Sellers, with respect to the true sale of the Home Equity Loans from each of
the Sellers to the Depositor and from the Depositor to the Trustee, in form
and substance satisfactory to the Trustee, the Certificate Insurer and the
Rating Agencies.
Ratings of Class A Certificates. The ratings assigned to the Class A
Certificates by the Rating Agencies will be based on the credit and other
characteristics of the Home Equity Loans and on the respective ratings
assigned to the claims paying ability of the Certificate Insurer. Any
reduction in the ratings so assigned to the Certificate Insurer by the Rating
Agencies could result in the reduction of the ratings assigned to the Class A
Certificates. Any such reduction in the ratings assigned to the Class A
Certificates could adversely affect the liquidity and market value of such
Certificates.
S-18
<PAGE>
THE SELLERS AND THE SERVICER
General
ContiMortgage Corporation, a Delaware corporation, will act as the
Servicer and the Originator as well as one of the two Sellers and has been
engaged in the mortgage banking business since 1987. It is engaged in
originating or purchasing and servicing home equity loans secured by first and
second mortgages and deeds of trust in at least 49 states and the District of
Columbia. It is a subsidiary of ContiFinancial Corporation, a subsidiary of
Continental Grain Company and an affiliate of ContiFinancial Services
Corporation, one of the Underwriters and ContiWest Corporation, the other
Seller. ContiFinancial Corporation's common stock is publicly traded on the
New York Stock Exchange.
ContiWest Corporation, a Nevada corporation, will act as the other
Seller and has been engaged in the mortgage banking business since September
1996. It is engaged in the purchase of home equity loans secured by first and
second mortgages and deeds of trust. It is a wholly-owned subsidiary of
ContiFinancial Corporation, a subsidiary of Continental Grain Company and an
affiliate of ContiFinancial Services Corporation, one of the Underwriters and
ContiMortgage Corporation.
The Originator has originated or purchased each of the Home Equity
Loans. A portion of the Home Equity Loans were purchased by ContiWest
Corporation from the Originator. ContiWest Corporation and the Originator (in
its capacity as a Seller) are selling the Home Equity Loans to the Depositor.
The Sellers will sell and assign their respective Home Equity Loans to the
Depositor in consideration of the net proceeds from the sale of the Offered
Certificates and the Retained Certificates which are being issued to
affiliates of the Sellers. The Servicer will service each Home Equity Loan.
The Servicer may not assign its obligations under the Pooling and
Servicing Agreement, in whole or in part, unless it shall have first obtained
the written consent of the Trustee and the Certificate Insurer, which consent
is required not to be unreasonably withheld; provided, however, that any
assignee must meet the eligibility requirements for a successor servicer set
forth in the Pooling and Servicing Agreement.
With the consent of the Certificate Insurer, the Servicer may enter
into sub-servicing agreements (the "Sub-Servicing Agreements") with qualified
sub-servicers (the "Sub-Servicers") with respect to the servicing of the Home
Equity Loans. Under the Pooling and Servicing Agreement, such sub-servicing
arrangements will not discharge the Servicer from its servicing obligations.
See "The Pooling and Servicing Agreement-Servicing and Sub-Servicing" herein.
The Trustee at the direction of the Certificate Insurer, unless a
Certificate Insurer Default has occurred and is continuing, or the Certificate
Insurer (unless a Certificate Insurer Default has occurred) may remove the
Servicer, and the Servicer may resign, only in accordance with the terms of
the Pooling and Servicing Agreement. No removal or resignation shall become
effective until the Trustee or a successor servicer shall have assumed the
Servicer's responsibilities and obligations in accordance therewith.
Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Trustee and remitted directly to the Trustee.
Upon removal or resignation of the Servicer, the Trustee may solicit
bids for a successor Servicer and, pending the appointment of a successor
Servicer as a result of soliciting such bids, will be required to serve as
Servicer. If the Trustee is unable to obtain a qualifying bid and is prevented
by law from acting as servicer, the Trustee will be required to appoint, or
petition a court of competent jurisdiction to appoint, an eligible successor.
Any successor is required to be a housing and home finance institution, bank
or mortgage servicing institution which has been designated as an approved
seller-servicer by FannieMae or FHLMC for second mortgage loans, having equity
of not less than $5,000,000 as determined in accordance with generally
accepted accounting principles, which
S-19
<PAGE>
is acceptable to the Certificate Insurer and which shall assume all of the
responsibilities, duties or liabilities of the Servicer.
The Certificates will not represent an interest in or obligation of,
nor are the Home Equity Loans guaranteed by, the Sellers or any of their
affiliates or the Certificate Insurer.
Credit and Underwriting Guidelines
The following is a description of the underwriting guidelines
customarily employed by the Originator with respect to home equity loans which
it purchases or originates. Each Home Equity Loan was underwritten according
to these guidelines. The Originator believes its standards are consistent with
those utilized by home equity lenders generally. The underwriting process is
intended to assess both the prospective borrower's ability to repay and the
adequacy of the real property security as collateral for the loan granted. In
certain cases, loans may be made outside of those guidelines with the prior
approval of an underwriting manager of the Originator.
The Originator generally originates or purchases loans which either
fully amortize over a period not to exceed 360 months or provide for
amortization over a 360 month schedule with a "balloon" payment required at
the maturity date, which will not be less than five years after origination.
The loan amounts generally range from a minimum of $10,000 to a maximum of
$350,000 unless a higher amount is specifically approved by a senior official
of the Originator. The Originator primarily originates or purchases
non-purchase money first or second mortgage loans although the Originator has
programs for origination of certain purchase money first mortgages.
The homes used for collateral to secure the loans may be either
primary residential (which includes second and vacation homes) or investor
owned one- to four- family homes, condominiums or townhouses and may include
manufactured housing. Generally, each home must have a minimum Appraised Value
(as defined below) of $35,000. Mobile housing or agricultural land are not
accepted as collateral. In addition, mixed-use loans secured by owner-occupied
properties, including one-to-four family and small multifamily residences, are
made where the proceeds may be used for business purposes. In some cases, the
loan may be secured by the owner-occupied residence plus additional collateral
such as rental units and small multifamily properties which may have a
storefront.
Each property proposed as security for a loan must be appraised not
more than 6 months prior to the date of such loan; provided that in the case
of a loan originated as part of the Originator's retention program, the
property must be appraised not more than 18 months prior to the date of such
loan. The combined loan-to-value ratio of the first and second mortgages
generally may not exceed 90%, and is less than 90% for lower credit grades;
see Annex IV. If a prior mortgage exists, the Originator first reviews the
first mortgage history. If it contains open end, advance or negative
amortization provisions, the maximum potential first mortgage balance is used
in calculating the combined loan-to-value ratio which determines the maximum
loan amount. The Originator does not originate or purchase loans where the
first mortgage contains a shared appreciation clause.
For the Originator's full documentation process, each mortgage
applicant must provide, and the Originator must verify, personal financial
information. The applicant's total monthly obligations (which includes
principal and interest on each mortgage, tax assessments, other loans, charge
accounts and all other scheduled indebtedness) generally cannot exceed 50% of
the applicant's gross monthly income. Applicants who are salaried employees
must provide current employment information in addition to two recent years of
employment history and the Originator verifies this information. Verifications
are based on written confirmation from employers or a combination of the two
most recent pay stubs, the two most recent years' W-2 tax forms and telephone
confirmation from the employer. Self-employed applicants must be self-employed
in the same field for a minimum of two years. The self-employed applicant must
provide signed copies of complete federal income tax returns (including
schedules) filed for the most recent two years.
For the Originator's non-income verifier program, proof of two year's
history of self employment plus proof of current self-employed status is
required. The applicant's debt-to-income ratio is calculated based on income
as certified by the borrower on the application and must, in the credit
underwriter's judgment, be reasonable. The maximum loan-to-value ratio
generally may not exceed 75% for the non-income verifier program. Non-income
S-20
<PAGE>
verifier loans are also available to borrowers other than self-employed
borrowers on one-to-four family, owner-occupied properties up to a
loan-to-value ratio generally not to exceed 65%.
The Originator has a "pay for performance" program, permitting the
lower-credit borrower to which the program applies to receive pre-determined
reductions of the Coupon Rate (0.5% per year) at the end of each of the first
three years of the loan, which reductions are dependent upon the borrower's
making monthly payments on the loan on time and in accordance with its terms.
A credit report by an independent credit reporting agency is required
reflecting the applicant's complete credit history. The credit report should
reflect all delinquencies of 30 days or more, repossessions, judgments,
foreclosures, garnishments, bankruptcies, divorce actions and similar adverse
credit practices that can be discovered by a search of public records. If the
report is obtained more than 60 days prior to the loan closing, the lender
must determine that the reported information has not changed. Written
verification is obtained of any first mortgage balance, its status and whether
local taxes, interest, insurance and assessments are included in the
applicant's monthly payment. All taxes and assessments not included in the
payment must be verified as current.
Generally, the applicant should have an acceptable credit history
given the amount of equity available, the strength of the applicant's
employment history and the level of the applicant's income to debt
obligations. The rescission period must have expired prior to funding a loan.
The rescission period may not be waived by the applicant except as permitted
by law. Either an ALTA title insurance policy or an attorney's opinion of
title is required for all loans.
The applicant is required to secure property insurance in an amount
sufficient to cover the new loan and any prior mortgage. If the sum of the
outstanding first mortgage, if any, and the home equity loan exceeds
replacement value, insurance equal to replacement value may be accepted. The
Originator must ensure that its name and address is properly added to the
"Mortgagee Clause" of the insurance policy. In the event the Originator's name
is added to a "Loss Payee Clause" and the policy does not provide for written
notice of policy changes or cancellation, an endorsement adding such provision
is required.
The Originator's credit underwriting guidelines require that any
major deferred maintenance on any property must be cured from the proceeds of
the loan.
Indemnification by the Depositor
Under the Pooling and Servicing Agreement, the Depositor agrees to
indemnify and hold the Trustee, the Certificate Insurer and each Owner
harmless against any and all claims, losses, penalties, fines, forfeitures,
legal fees and related costs, judgments, and any other costs, fees and
expenses that the Trustee or any Owner may sustain in any way related to the
failure of the Depositor to perform its duties in compliance with the terms of
the Pooling and Servicing Agreement. The Depositor will immediately notify the
Trustee, the Certificate Insurer and each Owner if a claim is made by a third
party with respect to the Pooling and Servicing Agreement, and the Depositor
will assume (with the consent of the Trustee) the defense of any such claim
and pay all expenses in connection therewith, including reasonable counsel
fees, and promptly pay, discharge and satisfy any judgment or decree which may
be entered against the Servicer, the Sellers, the Trustee, the Certificate
Insurer and/or the Owner in respect of such claim. The Trustee may, if
necessary, reimburse the Depositor from amounts otherwise distributable on the
Retained Certificates for all amounts advanced by the Depositor pursuant to
the immediately preceding sentence, except when the claim relates directly to
the failure of the Servicer, if it is an affiliate of the Depositor to perform
its duties in compliance with the terms of the Pooling and Servicing Agreement
or the failure of the Depositor to perform its duties in compliance with the
terms of the Pooling and Servicing Agreement.
Delinquency, Loan Loss and Foreclosure Information
The following tables set forth information relating to the
delinquency, loan loss and foreclosure experience of the Servicer for its
servicing portfolio of home equity loans for the past three years.
S-21
<PAGE>
The information in the tables below has not been adjusted to
eliminate the effect of the significant growth in the size of the Servicer's
home equity loan portfolio during the periods shown. Accordingly, loss and
delinquency information as percentages of aggregate principal balance of Home
Equity Loans serviced for each period would be higher than those shown if a
group of Home Equity Loans were artificially isolated at a point in time and
the information showed the activity only in that isolated group.
S-22
<PAGE>
Delinquency and Foreclosure Information (Dollars in Thousands)(1)
<TABLE>
<CAPTION>
As of December 31,
As of ---------------------------------------------------
June 30, 1998
--------------
1997 1996 1995
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Portfolio At $ 11,154,731 $ 9,122,792 $ 5,699,145 $ 3,427,190
Delinquency
Percentage (2)
- ---------------
30 59 days 2.57% 2.37% 3.09% 2.02%
60 89 days 0.85% 0.74% 0.72% 0.70%
90 days and over 0.49% 0.31% 0.36% 1.01%
======================== ============== ============= ============= =============
Total Delinquency 3.91% 3.42% 4.17% 3.73%
Total Delinquency Amount $ 435,927 $ 311,821 $ 237,642 $ 128,063
============== ============= ============= =============
Default
Percentage (3)
- ---------------
Foreclosure 2.14% 2.78% 2.62% 1.15%
Bankruptcy 1.54% 1.53% 1.12% 0.69%
Real Estate Owned 0.92% 0.65% 0.49% 0.08%
Loss Mitigation(4) 0.76% 0.59% 0.15% 0.12%
======================== ============== ============= ============= =============
Total Default 5.36% 5.55% 4.38% 2.04%
Total Default Amount $ 598,226 $ 506,774 $ 249,714 $ 69,962
============== ============= ============= =============
</TABLE>
- -------------
(1) Columns may not add due to rounding.
(2) The period of the delinquency is based on the number of days payments are
contractually past due. The delinquency percentage for the period
represents the ratio of the dollar value of home equity loans
contractually past due, exclusive of home equity loans in foreclosure,
bankruptcy, real estate owned or forbearance to the total dollar value of
the total portfolio.
(3) The default percentage represents the ratio of the dollar value of
delinquent home equity loans in foreclosure, bankruptcy, real estate
owned or forbearance to the total dollar value of the total portfolio.
(4) As a result of a reporting change, this category has been renamed to
"Loss Mitigation" from "Forebearance", and includes non-performing
accounts specifically identified for accelerated resolution under the
Servicer's loss mitigation program. Resolution strategies include
refinances, reinstatements, and full payoffs; forbearance plans;
pre-foreclosure sales for less than full payoff; third party foreclosure
sales; deed-in-lieu (or "cash for keys"); and charge-offs. Accordingly,
this category now includes some home equity loans that, prior to the
fourth quarter of 1997, would have been reported in one of the three
Delinquency categories or in the Foreclosure category.
S-23
<PAGE>
Loan Loss Experience on the
Servicer's Servicing Portfolio
of Home Equity Loans(1)
<TABLE>
<CAPTION>
Year Ending December 31,
--------------------------------------------------------------
Six Months 1997 1996 1995 1994
Ending ----------- ----------- ----------- -----------
June 30, 1998
-----------
<S> <C> <C> <C> <C> <C>
Average Amount Outstanding (2) $10,159,757 $ 7,248,686 $ 4,261,983 $ 2,641,686 $ 1,400,163
Gross REMIC Losses (3) 32,112 30,146 9,487 2,754 1,203
Recoveries (4) 423 116 77 65 0
Net REMIC Losses (5) 31,689 30,030 9,410 2,689 1,203
Net Losses on Loans and
Properties Purchased Out
of REMICs 6,680 20,671 ------ ------ ------
----------- ----------- ----------- ----------- -----------
Total Net Losses $ 38,369 $ 50,701 $ 9,410 $ 2,689 $ 1,203
=========== =========== =========== =========== ===========
Net Losses as a Percentage of
Average Amount
Outstanding(6):
REMIC Losses 0.62% 0.41% 0.22% 0.10% 0.09%
Loans and properties
purchased out of
REMICs 0.13% 0.29% 0.00% 0.00% 0.00%
----------- ----------- ----------- ----------- -----------
Total Net Losses 0.76% 0.70% 0.22% 0.10% 0.09%
=========== =========== =========== =========== ===========
</TABLE>
- -----------------
(1) Columns may not add due to rounding.
(2) "Average Amount Outstanding" during the period is the arithmetic average
of the principal balances of the home equity loans outstanding on the
last business day of each month during the period.
(3) "Gross REMIC Losses" are actual losses incurred on liquidated properties
in the existing REMIC trusts for each respective period. Losses include
all principal, foreclosure costs and all accrued interest.
(4) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(5) "Net REMIC Losses" means "Gross REMIC Losses" minus "Recoveries".
(6) For the six months ending June 30, 1998, the percentages shown were
annualized by multiplying the corresponding dollar amounts by two prior
to calculating the percentages.
USE OF PROCEEDS
The Depositor will sell the Home Equity Loans to the Trust
concurrently with delivery of the Certificates. Net proceeds from the sale of
the Offered Certificates will be applied by the Depositor to the purchase of
the Home Equity Loans from the Sellers. Such net proceeds will (together with
the Retained Certificates retained by the Depositor or its affiliates)
represent the purchase price to be paid by the Trust to the Depositor for the
Home Equity Loans. The Depositor or its affiliates may apply all or any
portion of such net proceeds to the repayment of debt, including "warehouse"
debt secured by the Home Equity Loans (prior to their sale to the Trust). One
or more of the Underwriters (or their respective affiliates) may have acted as
a "warehouse lender" to the Depositor or its affiliates, and may receive a
portion of such proceeds as repayment of such "warehouse" debt.
S-24
<PAGE>
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on January
31, 1991 and is a wholly-owned subsidiary of ContiFinancial Corporation and an
affiliate of ContiFinancial Services Corporation, one of the Underwriters. The
Depositor maintains its principal offices at 3811 West Charleston Boulevard,
Las Vegas, Nevada 89102. Neither the Depositor, the Sellers nor the Servicer
nor any of their affiliates will insure or guarantee distributions on the
Certificates. ContiFinancial Corporation's common stock is publicly traded on
the New York Stock Exchange.
THE HOME EQUITY LOANS
The Home Equity Loans will consist of fixed and adjustable rate
conventional home equity loans evidenced by promissory notes (the "Notes")
secured by first and second lien deeds of trust, security deeds or mortgages
(the "Mortgages"). The properties securing the Home Equity Loans (the
"Properties") consist primarily of single-family residences (which may be
attached, detached, part of a two-to-four family dwelling, a condominium unit
or a unit in a planned unit development) and also include mixed use properties
and manufactured housing. The Properties may be owner-occupied or non-owner
occupied investment properties. No Combined Loan-to-Value Ratio (based upon
appraisals made at the time of origination) exceeded 100% as of the
Statistical Calculation Date. The Home Equity Loans are not insured by either
primary or pool mortgage insurance policies. The Home Equity Loans are not
guaranteed by the Sellers or any affiliate thereof. The Home Equity Loans will
be serviced by the Servicer generally in accordance with the standards and
procedures required by FannieMae for FannieMae mortgage-backed securities.
The Home Equity Loans in Loan Group I conform to Fannie Mae's
guidelines for maximum original loan balances.
The statistical information presented in this Prospectus Supplement
concerning the pool of Home Equity Loans is based on the pool of Home Equity
Loans as of the Statistical Calculation Date. Additional Home Equity Loans
will be purchased by the Trust from the Depositor on the Closing Date. The
pools aggregated $603,883,420.30 with respect to Loan Group I, $262,361,536.79
with respect to Loan Group IIa and $820,530,148.05 with respect to Loan Group
IIb of the Statistical Calculation Date. The Depositor expects that the actual
pools as of the Closing Date will represent approximately $800,000,000 in Loan
Group I, approximately $325,000,000 in Loan Group IIa and $975,000,000 in Loan
Group IIb. The additional Home Equity Loans will represent Home Equity Loans
acquired or to be acquired by the Depositor on or prior to the Closing Date.
In addition, with respect to the Home Equity Loans as of the Statistical
Calculation Date as to which statistical information is presented herein, some
amortizations of the Home Equity Loans will occur prior to the Closing Date.
Moreover, certain loans included in the pools as of the Statistical
Calculation Date may prepay in full, or may be determined not to meet the
eligibility requirements for the final pools, and may not be included in the
final pools. As a result of the foregoing, the statistical distribution of
characteristics as of the Closing Date for the final Home Equity Loan pools
will vary from the statistical distribution of such characteristics as of the
Statistical Calculation Date as presented in this Prospectus Supplement.
Unless otherwise noted, all statistical percentages in this Prospectus
Supplement are measured by the aggregate principal balance of the Fixed Rate
Loans or the Adjustable Rate Loans (with respect to each Pool), as applicable,
as of the Statistical Calculation Date.
The Home Equity Loan pool consists of fixed-rate and adjustable-rate
Home Equity Loans with remaining terms to maturity of not more than 360 months
(including both fully amortizing Home Equity Loans and Balloon Loans). The
Home Equity Loans have the characteristics set forth below as of the
Statistical Calculation Date. Percentages expressed herein based on Loan
Balances and number of Home Equity Loans have been rounded, and in the tables
set forth herein the sum of the percentages may not equal the respective
totals due to such rounding.
The Loan-to-Value Ratios and Combined Loan-to-Value Ratios shown
below were calculated based upon the appraised values of the Properties at the
time of origination (the "Appraised Values"). In a limited number of
circumstances, and within the Originator's underwriting guidelines, the
Originator has reduced the Appraised Value of Properties where the Properties
are unique, have a high value or where the comparables are not within
FannieMae
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guidelines. The purpose for making these reductions is to value the
Properties more conservatively than would otherwise be the case if the
appraisal were accepted as written.
No assurance can be given that values of the Properties have remained
or will remain at their levels on the dates of origination of the related Home
Equity Loans. If the residential real estate market has experienced or should
experience an overall decline in property values such that the outstanding
balance of any Home Equity Loan, together with the outstanding balance of any
first mortgage, become equal to or greater than the value of the Property, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
Certain statistical information regarding the Home Equity Loans is
set forth in Annex IV hereto.
Interest Payments on the Home Equity Loans
There are a number of Home Equity Loans on which interest is charged
to the obligor (the "Mortgagor") at the Coupon Rate on the outstanding
principal balance calculated based on the number of days elapsed between
receipt of the Mortgagor's last payment through receipt of the Mortgagor's
most current payment (such Home Equity Loans, "Date-of-Payment Loans"). Such
interest is deducted from the Mortgagor's payment amount and the remainder, if
any, of the payment is applied as a reduction to the outstanding principal
balance of such Note. Although the Mortgagor is required to remit equal
monthly payments on a specified monthly payment date that would reduce the
outstanding principal balance of such Note to zero at such Note's maturity
date, payments that are made by the Mortgagor after the due date therefor
would cause the outstanding principal balance of such Note not to be reduced
to zero on its maturity date. In such a case, the Mortgagor would be required
to make an additional principal payment at the maturity date for such Note. If
it were assumed that all the Mortgagors on the Date-of-Payment Loans were to
pay on the latest date possible without the Date-of-Payment Loans being in
default, the amount of such additional principal payment would be a de minimis
amount of the aggregate Loan Balance of the Home Equity Loans. On the other
hand, if a Mortgagor makes a payment (other than a Prepayment) before the due
date therefor, the reduction in the outstanding principal balance of such Note
would occur over a shorter period of time than would have occurred had it been
based on the schedule of amortization in effect on the Cut-Off Date.
Accordingly, the timing of principal payments to the Owners of the Offered
Certificates may be affected by the fact that actual Mortgagor payments on the
Date-of-Payment Loans may not be made on the due date therefor.
The Home Equity Loans which are not Date-of-Payment Loans (the
"Actuarial Loans") provide that interest is charged to the Mortgagors
thereunder, and payments are due from such Mortgagors, as of a scheduled day
of each month which is fixed at the time of origination. Scheduled monthly
payments made by the Mortgagors on the Actuarial Loans either earlier or later
than the scheduled due dates thereof will not affect the amortization schedule
or the relative application of such payments to principal and interest.
PREPAYMENT AND YIELD CONSIDERATIONS
General
The weighted average life of, and, if purchased at other than par
(disregarding, for purposes of this discussion, the effect on an investor's
yield resulting from the timing of the settlement date and those
considerations discussed below under "Payment Lag Feature of Fixed Rate
Certificates"), the yield to maturity on the Offered Certificates will relate
to the rate of payment of principal of the Home Equity Loans in the related
Loan Group, including for this purpose Prepayments, liquidations due to
defaults, casualties and condemnations, and repurchases by the Sellers of Home
Equity Loans and any accelerated payment of principal and the effect of a
Delinquency Trigger Event or a Cumulative Realized Loss Trigger Event with
respect to the related Loan Group. The actual rate of principal prepayments on
pools of mortgage loans is influenced by a variety of economic, tax,
geographic, demographic, social, legal and other factors and has fluctuated
considerably in recent years. In addition, the rate of principal prepayments
may differ among pools of mortgage loans at any time because of specific
factors relating to the mortgage loans in the particular pool, including,
among other things, the age of the mortgage loans, the
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geographic locations of the properties securing the loans and the extent of
the mortgagors' equity in such properties, and changes in the mortgagors'
housing needs, job transfers and unemployment.
As with fixed rate obligations generally, the rate of prepayment on a
pool of home equity loans with fixed rates such as the Fixed Rate Home Equity
Loans are affected by prevailing market rates for home equity loans of a
comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
home equity loans. Depending on prevailing market rates, the future outlook
for market rates and economic conditions generally, some mortgagors may sell
or refinance mortgaged properties in order to realize their equity in the
mortgaged properties, to meet cash flow needs or to make other investments.
All of the Adjustable Rate Loans are adjustable-rate home equity
loans. As is the case with conventional fixed-rate home equity loans,
adjustable-rate home equity 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 home equity
loans could be subject to higher prepayment rates than if prevailing interest
rates remain constant because the availability of fixed-rate home equity loans
at competitive interest rates may encourage mortgagors to refinance their
adjustable-rate home equity loan to "lock in" a lower fixed interest rate.
However, no assurance can be given as to the level of prepayments that the
Home Equity Loans will experience.
The prepayment behavior of the 2/28 Loans and 3/27 Loans may differ
from that of the other Adjustable Rate Loans. As a 2/28 Loan or 3/27 Loan
approaches its initial adjustment date (which is two years after origination
for the 2/28 Loans and three years after origination for the 3/27 Loans), the
borrower may become more likely to refinance such loan to avoid an increase in
the Coupon Rate, even if fixed rate loans are only available at rates that are
slightly lower or higher than the Coupon Rate before adjustment. The existence
of the applicable periodic rate cap, maximum rate and minimum rate also may
affect the likelihood of prepayments resulting from refinancings. In addition,
the delinquency and loss experience on Adjustable Rate Loans may differ from
that on Fixed Rate Loans because the amount of the monthly payments on
Adjustable Rate Loans are subject to adjustment on each adjustment date.
Because cashflows from both Fixed Rate Loans and Adjustable Rate Loans will be
used to make the required distributions on the Group IIb Class A Certificates
and Class B-II Certificates, the prepayment experience of the Group IIb Class
A Certificates and Class B-II Certificates will not reflect solely the
prepayment experience of Fixed Rate Loans or Adjustable Rate Loans.
The prepayment experience on non-conventional mortgage loans may
differ from that on conventional first mortgage loans, primarily due to the
credit quality of the typical borrower. Because the credit histories of many
non-conventional borrowers may preclude them from other traditional sources of
financing, such borrowers may be less likely to refinance due to a decline in
market interest rates. Non-conventional mortgage loans may experience more
prepayments in a rising interest rate environment as the borrowers' finances
are stressed to the point of default. Prepayments may also affect the yield to
the Owners of the Offered Certificates, if the weighted average margins are
reduced.
In addition to the foregoing factors affecting the weighted average
life of each Class of the Offered Certificates, the overcollateralization
provisions of the Trust may result in an additional reduction of the Class A
Certificates relative to the amortization of the related Home Equity Loans in
the early months of the transaction (but after the first six months). The
accelerated amortization is achieved by the application of the excess interest
(i.e., interest received on the related Home Equity Loans in excess of that
needed to fund Certificate interest and fees) to the payment of the
Certificate Principal Balance of the related Classes of Class A Certificates
then entitled to distributions of principal. This creates
overcollateralization which results from the excess of the aggregate Loan
Balances of the related Home Equity Loans over the related Aggregate
Certificate Principal Balance. Once the applicable Targeted
Overcollateralization Amount is reached, the application of the excess
interest to pay down principal will cease, unless necessary to maintain the
related Overcollateralization Amount at the applicable Targeted
Overcollateralization Amount.
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PAC Certificates
Distributions of principal of the PAC Certificates are intended to be
relatively stable because such distributions will be made in accordance with
the schedules of the respective Planned Principal Balances of such
Certificates, so long as prepayments on the Home Equity Loans in Loan Group
IIb occur at rates that are neither too fast nor too slow to support such
schedules. Moreover, the PAC Certificates will have a cumulative priority for
future payments if they fall behind their schedules. Based on the Modeling
Assumptions, the PAC Certificates would adhere to their Planned Principal
Balance schedules if the Fixed Rate Loans in Group IIb were to prepay anywhere
between 125% Fixed Prepayment Assumption and 175% Fixed Prepayment Assumption,
and the Adjustable Rate Loans in Loan Group IIb were to prepay anywhere
between 95% Adjustable Prepayment Assumption and 130% Adjustable Prepayment
Assumption (or any other combination of Prepayment Assumptions which result in
a paydown identical to that defined by such prepayment assumptions) until the
PAC Certificates are retired. Such Prepayment Assumption ranges are the
"Modeled PAC Bands". The Modeling Assumptions and Prepayment Assumptions are
described in Annex V hereof.
The Home Equity Loans in Loan Group IIb will have characteristics
that differ from those of the Modeling Assumptions. The initial Modeled PAC
Bands, if calculated using the actual characteristics of the Home Equity Loans
in Loan Group IIb, could differ from that shown. Therefore, even if Home
Equity Loans were to prepay at a constant rate within the initial Modeled PAC
Bands shown, but near its upper or lower end, one or more Classes of PAC
Certificates could fail to adhere to its Planned Principal Balances schedule.
Moreover, the Home Equity Loans in Loan Group IIb will not prepay at any
constant rate. Non-constant prepayment rates can cause any Class of PAC
Certificates not to adhere to its Planned Principal Balances schedule, even if
such rates remain within the initial Modeled PAC Bands. The Modeled PAC Bands
for any Class of PAC Certificates can narrow or "drift" upward or downward
over time. In addition, the occurrence of a Delinquency Trigger Event or a
Cumulative Realized Loss Trigger Event with respect to Loan Group II may
result in one or more Classes of PAC Certificates failing to adhere to its
Planned Principal Balance schedule.
The principal payment stability of the PAC Certificates will be
supported by the Companion Certificates. When the Companion Certificates are
retired, any outstanding Class of PAC Certificates will become more sensitive
to Home Equity Loan prepayments in Loan Group IIb.
If the Home Equity Loans in Loan Group IIb prepay at rates that are
generally below the Modeled PAC Bands for prolonged periods, the related Class
A Principal Distribution Amount allocated to the Group IIb Class A
Certificates may be insufficient to reduce one or more Classes of PAC
Certificates to their Planned Principal Balance and the weighted average lives
may be extended, perhaps significantly. If such Home Equity Loans prepay at
rates that are generally above the Modeled PAC Bands, the weighted average
life of one or more Classes of PAC Certificates may be shortened, perhaps
significantly. The weighted average lives are expected to be stable within the
Modeled PAC Bands.
Companion Certificates
The Class of Companion Certificates will support the principal
payment stability of the PAC Certificates. Thus, the Companion Certificates
are likely to be much more sensitive to Home Equity Loan prepayments in Loan
Group IIb than are the PAC Certificates. The Companion Certificates may
receive no principal payments for extended periods of time and may receive
principal payments that vary widely from period to period. Relatively fast
Home Equity Loan prepayments in Loan Group IIb may significantly shorten, and
relatively slow Home Equity Loan prepayments in Loan Group IIb may
significantly extend, the weighted average lives of the Companion
Certificates.
Maximum Maturity Certificates
The Maximum Maturity Certificates have been structured so as to
minimize the "extension risk" to which such Certificates would otherwise be
subject if they were to amortize at the same rate as the Home Equity Loans in
Loan Group IIb. This "extension risk" has been minimized by sizing the
original aggregate Certificate
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Principal Balance of the two Classes of Maximum Maturity Certificates together
such that the original aggregate Certificate Principal Balance would be
reduced to zero by the September 2008 Payment Date (i.e., approximately ten
years) using a 0% Prepayment Assumption, and further assuming that the Group
II Targeted Overcollateralization Amount is zero. Thus, the Maximum Maturity
Certificates have been sized (as two classes together) such that the scheduled
amortization of the Home Equity Loans in Loan Group IIb would, in and of
itself, be sufficient to fully amortize such Certificates within ten years.
A risk of extending the maturity of the Maximum Maturity Certificates
would arise from an extremely high level of losses on the related Home Equity
Loans -- i.e., a level beyond that would/could be absorbed by the Group II
Overcollateralization Amount, the Class B-II Certificates and the Certificate
Insurance Policy relating to the Group II Class A Certificates.
Once the two Classes were sized using this method, they were then
structured as two "sequential-pay" Classes.
Although so protected from "extension risk," the Maximum Maturity
Certificates are to be exposed to "prepayment risk", insofar as their
respective weighted average lives will be shorter as the prepayment rate
applicable to the Home Equity Loans in Loan Group IIb increases. Thus, unlike
the PAC Certificates, the Maximum Maturity Certificates do not have an
"Effective Range" of prepayment speeds which hold their weighted average lives
relatively constant. In addition, the exercise of the optional "clean-up call"
termination provision could result in an earlier than expected maturity of the
Class A-20 Certificates.
Auction Rate Certificates
The Pass-Through Rate for the Auction Rate Certificates for each
Accrual Period after the first Accrual Period will be equal to the lesser of
(i) the per annum rate determined in accordance with the Auction Rate
Procedures set forth in Annex III hereto and (ii) the Group IIb Available
Funds Cap. Although interest on the Auction Rate Certificates will be
distributable on a pro rata basis among all such Certificates, distributions
of principal of the Auction Rate Certificates will be made in round lots of
$25,000 and integral multiples thereof and will be allocated to specific
Auction Rate Certificates as described in Annex III. On any Payment Date on
which principal is to be distributed on the Auction Rate Certificates, one or
more Owners of an Auction Rate Certificate may receive no distributions of
principal while other Owners of such Certificates receive such distributions.
As Companion Certificates, the Auction Rate Certificates, as a Class,
are subject to substantial uncertainty about the amount and timing of receipt
of distributions of principal. Individual Owners of Auction Rate Certificates
are subject to the additional uncertainty regarding the timing of receipt of
such distributions as described above. As a result, the yield on any Auction
Rate Certificate may vary significantly from period to period and over the
life of such Certificates, although this is mitigated to an extent by the
Auction Rate feature, which attempts to establish a monthly market-clearing
rate for the Companion Certificates. The Auction Rate Certificates are not an
appropriate investment for any investor that desires a regular and predictable
stream of principal distributions.
Interest-Only Certificates
Because amounts distributable to the Owners of the two classes of
Interest-Only Certificates, the Class N-IO and Class P-IO Certificates,
consist entirely of interest, the yield to maturity of such Interest-Only
Certificates will be sensitive to the repurchase, prepayment and default
experience of the Home Equity Loans in Loan Group I, with respect to the Class
N-IO Certificates, and in Loan Group IIb, with respect to the Class P-IO
Certificates and prospective investors should fully consider the associated
risks, including the risk that such investors may not fully recover their
initial investment.
The Notional Principal Amount applicable to interest calculations on
the Class N-IO Certificates is (x) through the 30th Payment Date, the Class
A-8 Certificate Principal Balance and (y) thereafter, zero. Since the Class
A-8 Certificates will amortize in accordance with the distributions of the
Class A-8 Principal Distribution Amount (the Class A-8 Certificates being a
"non-accelerating senior" ("NAS") "lockout" Class), the performance of the
Class N-IO Certificates is likely to be more stable than if such Notional
Amount were calculated using the underlying
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Home Equity Loans in Loan Group I directly, and consequently, the yield
sensitivity of such Certificate will only be impacted at high rates of
prepayments.
In addition, the Notional Principal Amount applicable to interest
calculations on the Class P-IO Certificates is (x) through the 30th Payment
Date, the sum of the Class A-16 and Class A-17 Certificate Principal Balance
and (y) thereafter, zero. Since the Class A-16 and A-17 Certificates are
protected from prepayment volatility for the first 30 Payment Dates through a
combination of their position in the sequential order of principal
distribution on the PAC Certificates and through the Companion Certificates,
the performance of the Class P-IO Certificates is likely to be more stable
than if such Notional Principal Amount were calculated using the underlying
Home Equity Loans in Loan Group IIb directly, and consequently, the yield
sensitivity of such Certificates will only be impacted at extremely high rates
of prepayment.
"NAS" or "Lockout" Certificates
Investors in the Class A-8 Certificates should be aware that because
the Class A-8 Certificates do not receive any portion of principal payments
prior to the Payment Date occurring in October 2001 and thereafter, they will
receive a disproportionately small or large portion of principal payments
(unless the Certificate Principal Balance of the Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6 and Class A-7 Certificates have been
reduced to zero). The weighted average life of the Class A-8 Certificates will
be longer or shorter than would otherwise be the case, and the effect on the
market value of the Class A-8 Certificates of changes in market interest rates
or market yields of similar securities will be greater or lesser than for
other classes of Fixed Rate Certificates entitled to such distributions.
Investors in the Class A-10 Certificates should be aware that because
the Class A-10 Certificates do not receive any portion of principal payments
prior to the Payment Date occurring in August 2000 and thereafter, they will
receive a large portion of principal payments (unless the Certificate
Principal Balance of the Class A-9 Certificate has been reduced to zero). The
weighted average life of the Class A-10 Certificates will be longer or shorter
than would otherwise be the case, and the effect on the market value of the
Class A-10 Certificates of changes in market interest rates or market yields
of similar securities will be greater or lesser than for other classes of
Floating Rate Certificates entitled to such distributions.
As indicated above, if purchased at other than par, the yield to
maturity on an Offered Certificate will be affected by the rate of the payment
of principal of the Home Equity Loans in the related Loan Group. If the actual
rate of payments on the Home Equity Loans 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 Home Equity Loans in the related 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 "Final Scheduled Payment Date" for each Class of the Offered
Certificates is as set forth in the Summary of Terms hereof. Such dates
generally are the dates on which the "Initial Certificate Principal Balance"
set forth in the Summary of Terms hereof for the related Class as of the
Closing Date less all amounts previously distributed to the Owners on account
of principal would be reduced to zero assuming that no Prepayments are
received on the Home Equity Loans, that scheduled monthly payments of
principal and interest on each of the Home Equity Loans are timely received
and that no accelerated payments of principal (including as a result of the
optional "clean-up call" termination) are made to the Owners of the Offered
Certificates. The Final Scheduled Payment Date for the Class A-7, Class A-8,
Class A-17, Class A-18 and the Class B Certificates is the thirteenth Payment
Date following the calendar month in which the Loan Balances of all Home
Equity Loans have been reduced to zero assuming that such Home Equity Loans
pay in accordance with their terms. The weighted average life of each Class of
Offered Certificates is likely to be shorter than would be the case if
payments actually made on the Home Equity Loans in the related Loan Group
conformed to the foregoing assumptions, and the final Payment Date with
respect to any Class of Offered Certificates could occur significantly earlier
than the related Final Scheduled Payment Date because (i) Prepayments are
likely to occur and (ii) the owners of the Class R Certificates may cause a
termination of the Trust on or after the Clean-Up Call Date.
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The final Payment Date for the Class A-1 Certificates will be
September 15, 1999, at which time the remaining Certificate Principal Balance,
if any then outstanding, of the Class A-1 Certificates will be paid in full.
If the Group I Class A Principal Distribution Amount on such Payment Date is
not sufficient to pay in full the remaining Certificate Principal Balance of
the Class A-1 Certificates on such final Payment Date, a draw will be made on
the Certificate Insurance Policy with respect to the Group I Class A
Certificates in the amount of such shortfall.
The final Payment Date for the A-9 Certificates will be September 15,
2028, at which time the remaining Certificate Principal Balance, if any then
outstanding, of the Class A-9 Certificates will be paid in full. If the Group
IIa Principal Distribution Amount with respect to such Payment Date is not
sufficient to pay in full the remaining Certificate Principal Balance of the
Class A-9 Certificates on such final Payment Date, a draw will be made on the
Certificate Insurance Policy with respect to the Group II Class A Certificates
in the amount of such shortfall.
The final Payment Date for the A-11 Certificates will be September
15, 1999, at which time the remaining Certificate Principal Balance, if any
then outstanding, of the Class A-11 Certificates will be paid in full. If the
Group IIb Principal Distribution Amount with respect to such Payment Date is
not sufficient to pay in full the remaining Certificate Principal Balance of
the Class A-11 Certificates on such final Payment Date, a draw will be made on
the Certificate Insurance Policy with respect to the Group II Class A
Certificates in the amount of such shortfall.
"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 life of any Class of Offered Certificates will be influenced by, among
other things, the rate at which principal of the Home Equity Loans is paid,
which may be in the form of scheduled amortization or prepayments (for this
purpose, the term "Prepayment" includes Prepayments and liquidations due to
default).
It is very unlikely that the Home Equity Loans will prepay at rates
consistent with the Prepayment Assumption until maturity or that all of the
Home Equity Loans in the related Loan Group will prepay at the same rate.
There will be discrepancies between the actual characteristics of the Home
Equity Loans included in the Trust and the assumed characteristics used in
preparing the following tables. Any discrepancy may have an effect upon the
percentages of Initial Certificate Principal Balance outstanding set forth in
the table and the weighted average lives of the Offered Certificates.
Payment Lag Feature of Fixed Rate Certificates
Pursuant to the Pooling and Servicing Agreement, interest on the
Fixed Rate Certificates (other than the Class A-1 and the Class A-11
Certificates, for which the Accrual Period is Payment Date to Payment Date)
generally accrues during the calendar month immediately preceding the month in
which the related Payment Date occurs. Payment Dates occur on the fifteenth
day of each month (or, if such day is not a Business Day, on the next Business
day). Thus, the effective yield to the Owners of the Fixed Rate Certificates
(other than the Class A-1 and the Class A-11 Certificates) will be below that
otherwise produced by the related Pass-Through Rate because distributions to
Owners of the Fixed Rate Certificates (other than the Class A-1 and the Class
A-11 Certificates) in respect of any given month will not be made until on or
after the 15th day of the following month.
Decrement Tables
The decrement tables are set forth in Annex V hereto.
FORMATION OF THE TRUST AND TRUST PROPERTY
ContiMortgage Home Equity Loan Trust 1998-3 (the "Trust") will be
created and established pursuant to the Pooling and Servicing Agreement. The
Trust will consist of three subtrusts, one of which consists of Loan Group I,
one of which consists of Loan Group IIa and one of which consists of Loan
Group IIb. The Depositor will convey without recourse the Home Equity Loans to
the Trust and the Trust will issue the Certificates.
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The property of the Trust will include (a) the Home Equity Loans
(other than payments received on the Home Equity Loans on or prior to the
Cut-Off Date) together with the related Home Equity Loan documents and the
Seller's interest in any Property which secures a Home Equity Loan and all
payments thereon and proceeds of the conversion, voluntary or involuntary, of
the foregoing, (b) such amounts as may be held by the Trustee in the
Certificate Account and any other accounts held by the Trustee for the benefit
of the Certificateholders and the Certificate Insurer together with investment
earnings on such amounts and such amounts as may be held in the name of the
Trustee in the Principal and Interest Account, if any, exclusive of investment
earnings thereon (except as otherwise provided) whether in the form of cash,
instruments, securities or other properties, (c) the rights of the Trustee
under the Certificate Insurance Policies related to the Class A Certificates,
such agreements are property of the Swap Trust and (d) proceeds of all the
foregoing (including, but not by way of limitation, all proceeds of any hazard
insurance and title insurance policies relating to the Home Equity Loans, cash
proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel
paper, checks, deposit accounts, rights to payment of any and every kind, and
other forms of obligations and receivables which at any time constitute all or
part of or are included in the proceeds of any of the foregoing) to pay the
Certificates as specified in the Pooling and Servicing Agreement
(collectively, the "Trust Estate").
The Offered Certificates will not represent an interest in or an
obligation of, nor will the Home Equity Loans be guaranteed by, the Depositor,
the Sellers, the Servicer, the Certificate Insurer or any of their affiliates.
Prior to its formation the Trust will have had no assets or
obligations. Upon formation, the Trust will not engage in any business
activity other than acquiring, holding and collecting payments on the Home
Equity Loans, issuing the Certificates and distributing payments thereon. The
Trust will not acquire any receivables or assets other than the Home Equity
Loans and the rights appurtenant thereto and will not have any need for
additional capital resources. To the extent that borrowers make scheduled
payments under the Home Equity Loans, the Trust will have sufficient liquidity
to make interest distributions on the Certificates. As the Trust does not have
any operating history and will not engage in any business activity other than
issuing the Certificates and making distributions thereon, there has not been
included any historical or pro forma ratio of earnings to fixed charges with
respect to the Trust.
The Swapped Certificates and the Swap Agreement:
The Class A-12, Class A-13, Class A-14, Class A-15 and Class A-16
Certificates are the "Swapped Certificates". This refers to the provisions of
the Pooling and Servicing Agreement which "swap" the fixed rate which such
Certificates would otherwise pay to investors in exchange for a floating rate
based on LIBOR. The "swap" is effected by having the Trust issue fixed rate
certificates (the "Internal Certificates") to a separate trust (the "Swap
Trust") also created under the Pooling and Servicing Agreement. Each Internal
Certificate corresponds to one of the Swapped Certificates and will have the
same Certificate Principal Balance as the corresponding Swapped Certificate.
Each fixed rate of interest which each such Internal Certificate bears is
referred to as the "Internal Pass-Through Rate" for such Internal Certificate,
and is the rate which the corresponding Swapped Certificate would bear if the
only source of funding of the interest were the cash flows generated by the
Group IIb Home Equity Loans.
Pursuant to a swap agreement (the "Swap Agreement") between the Swap
Trust and National Westminster Bank, Plc (the "Swap Counterparty"), the Swap
Counterparty will be entitled to receive the fixed rate of interest,
calculated at the related Internal Pass-Through Rate, in respect of each
Internal Certificate and will be obligated to pay to the Swap Trust a floating
rate based on one-month LIBOR which is sufficient to pay interest due on the
corresponding Swapped Certificates at its floating Pass-Through Rate.
Pursuant to the Swap Agreement, on each Payment Date, the Swap
Counterparty will be entitled to receive from the Swap Trust the distributions
of interest on the outstanding Certificate Principal Balance of the Internal
Certificates immediately prior to such Payment Date, which accrues at related
Internal Pass-Through Rates. The Swap Counterparty will be obligated to pay to
the Swap Trust prior to each Payment Date an amount equal to one month's
interest at the related Pass-Through Rate on the outstanding Certificate
Principal Balance of the Swapped Certificates immediately prior to such
Payment Date.
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The interest due to be received by the Swap Trust from the Swap
Counterparty under the Swap Agreement will be distributed to the Owners of the
Swapped Certificates. To the extent an insufficient amount is received from
the Swap Counterparty, the Trustee will make a claim under the related
Certificate Insurance Policy.
The Swap Agreements will be property of the Swap Trust, which will be
a "grantor trust" for federal income tax purposes, and the Swap Agreements
will not be included in any REMIC held by the Trust.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Home Equity
Loans and the Properties is based upon the pool as constituted at the close of
business on the Statistical Calculation Date. Prior to the issuance of the
Offered Certificates, Home Equity Loans may be removed from the pool as a
result of incomplete documentation or non-compliance with representations and
warranties set forth in the Pooling and Servicing Agreement, if the Depositor
deems such removal necessary or appropriate. A limited number of other Home
Equity Loans may be included in the pool prior to the issuance of the
Certificates.
A current report on Form 8-K will be available to purchasers of the
Offered Certificates and will be filed and incorporated by reference to the
Registration Statement together with the Pooling and Servicing Agreement with
the Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. In the event Home Equity Loans are
removed from or added to the pool as set forth in the preceding paragraph,
such removal or addition will be noted in a current report on Form 8-K. A
description of the pool of Home Equity Loans as of the Closing Date will be
filed in a current report on Form 8-K within fifteen days after the initial
issuance of the Offered Certificates.
DESCRIPTION OF THE OFFERED CERTIFICATES
General
Each Certificate (other than the Swapped Certificate) will represent
certain undivided, fractional ownership interests in the Trust Estate and each
Swapped Certificate will represent certain individual fractional ownership
interest in the Swap Trust, each created and held pursuant to the Pooling and
Servicing Agreement and, in each case, subject to the limits and the priority
of distribution described therein.
Payment Dates
On each Payment Date, the Owners of each Class of Class A and Class B
Certificates will be entitled to receive, from amounts then on deposit in the
certificate account established and maintained by the Trustee in accordance
with the Pooling and Servicing Agreement (the "Certificate Account") and until
the Certificate Principal Balance (or Notional Amount in the case of the
Interest-Only Certificates) of such Class of Class A and Class B Certificates
is reduced to zero, and to the extent funds are available therefor, the
related Current Interest, any Interest Carry Forward Amount and the portion of
the Principal Distribution Amounts, if any, allocated therefor as of such
Payment Date, allocated among the Classes of Class A and Class B Certificates
as described below. Distributions will be made in immediately available funds
to Owners of Class A and Class B Certificates by wire transfer or otherwise,
to the account of such Owner at a domestic bank or other entity having
appropriate facilities therefor, if such Owner has so notified the Trustee, or
by check mailed to the address of the person entitled thereto as it appears on
the register (the "Register") maintained by the Trustee as registrar (the
"Registrar"). Beneficial Owners may experience some delay in the receipt of
their payments due to the operations of DTC. See "Risk Factors-Book Entry
Registration" in the Prospectus and "Description of the Offered
Certificates-Book Entry Registration of the Offered Certificates" herein and
"Description of the Certificates-Book Entry Registration" in the Prospectus.
The Pooling and Servicing Agreement provides that an Owner, upon
receiving the final distribution on such Owner's Certificate, will be required
to send such Certificate to the Trustee.
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Except with respect to the Auction Rate Certificates, each Owner of
record of the related Class of the Offered Certificates will be entitled to
receive such Owner's Percentage Interest in the amounts due such Class on such
Payment Date. The "Percentage Interest" of an Offered Certificate as of any
date of determination will be equal to the percentage obtained by dividing the
principal balance of such Certificate as of the Cut-Off Date by the
Certificate Principal Balance for the related Class of the Offered
Certificates as of the Cut-Off Date. Distributions of interest on the Auction
Rate Certificates will be allocated among the Owners thereof in accordance
with their Percentage Interests. Distributions of principal, however, will be
made in accordance with the Auction Procedures set forth in Annex III hereto.
Distributions
Upon receipt, the Trustee will be required to deposit into the
Certificate Account with respect to the Home Equity Loans (i) the Monthly
Remittance Amount, together with any Substitution Amount and any Loan Purchase
Price amount and Insurance Proceeds and (ii) the proceeds of any liquidation
of the Trust Estate.
On the 15th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day, commencing in October, 1998 (each such
day being a "Payment Date"), the Trustee will be required, subject to the
availability of amounts therefor, pursuant to the cashflow priorities
hereinafter described, to distribute to the Owners of record of the Fixed Rate
Certificates (other than the Class A-1 and the Class A-11 Certificates) as of
the last day of the calendar month immediately preceding the calendar month in
which such Payment Date occurs and to the Owners of record of the Class A-1
and the Class A-11 Certificates and the Floating Rate Certificates as of the
day immediately preceding such Payment Date (each such date, the "Record
Date") the applicable "Class Distribution Amount" which shall be the sum of
(x) the related Current Interest, (y) the related Interest Carry Forward
Amount and (z) the related Principal Distribution Amount (each as defined
below).
For each Payment Date, interest due with respect to the Fixed Rate
Certificates (other than the Class A-1 and the Class A-11 Certificates) will
be interest which has accrued on the related Certificate Principal Balance
(the related Notional Amount in the case of the Interest-Only Certificates)
during the calendar month immediately preceding the month in which such
Payment Date occurs (or the period from the Cut-Off Date to the end of the
calendar month in the case of the first Payment Date). The interest due with
respect to the Class A-1, Class A-11 and the Floating Rate Certificates will
be the interest which has accrued thereon at the applicable Pass-Through Rate
from the preceding Payment Date (or, in the case of the first Payment Date,
from the Closing Date) to and including the day prior to the current Payment
Date. Each period referred to above relating to the accrual of interest is the
"Accrual Period" for the related Class of Offered Certificates. All
calculations of interest on the Fixed Rate Certificates (other than the Class
A-1 and the Class A-11 Certificates) will be made on the basis of a 360-day
year assumed to consist of twelve 30-day months. Calculations of interest on
the Class A-1, Class A-11 and the Floating Rate Certificates will be made on
the basis of the actual number of days elapsed in the related Accrual Period
and a year of 360 days.
A "Business Day" is 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 is located are
authorized or obligated by law or executive order to close.
Available Funds Caps
Certain of the Offered Certificates are subject to the limitations
which may be imposed by the related Available Funds Cap rate.
Group I Available Funds Cap: With respect to any Payment Date, the
weighted average Coupon Rate of the Home Equity Loans in Loan Group I as of
the opening of business on the first day of the related Remittance Period,
less the sum of (i) the annualized percentage equivalent of a fraction equal
to (a) the sum of the related Premium Amount plus the related Trustee Fee plus
the related Servicing Fee divided by (b) the aggregate Loan Balance of the
Home Equity Loans in Loan Group I as of the opening of business on the first
day of the related Remittance Period, and (ii) during the period commencing on
the first Payment Date and ending on the 30th Payment
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Date, the annualized percentage equivalent of the product of (a) the Class
N-IO Pass-Through Rate and (b) the Class N-IO Notional Principal Amount
divided by the outstanding aggregate Loan Balance of the Home Equity Loans in
Loan Group I as of the opening of business on the first day of the related
Remittance Period.
Group IIa Available Funds Cap: With respect to any Payment Date, the
weighted average Coupon Rate of the Home Equity Loans in Loan Group IIa as of
the opening of business on the first day of the related Remittance Period,
less the sum of (i) the annualized percentage equivalent of a fraction equal
to (a) the sum of the related Premium Amount plus the related Trustee Fee plus
the related Servicing Fee divided by (b) the aggregate Loan Balance of the
Home Equity Loans in Loan Group IIa as of the opening of business on the first
day of the related Remittance Period, and (ii) after the 6th Payment Date,
0.50% per annum.
Group IIb Available Funds Cap: With respect to any Payment Date, the
weighted average Coupon Rate of the Home Equity Loans in Loan Group IIb as of
the opening of business on the first day of the related Remittance Period,
less the sum of (i) the annualized percentage equivalent of a fraction equal
to (a) the sum of the related Premium Amount plus the related Trustee Fee plus
the related Servicing Fee divided by (b) the aggregate Loan Balance of the
Home Equity Loans in Group IIb as of the opening of business on the first day
of the related Remittance Period, (ii) after the 6th Payment Date, 0.50% per
annum, (iii) an amount, expressed as an annualized percentage equivalent of
the outstanding aggregate Loan Balance of Home Equity Loans in Loan Group IIb
as of the opening of business on the first day of the related Remittance
Period, equal to the Auction Agent Fee and the Broker-Dealer Fee for the Class
A-18 Certificates and (iv) during the period commencing on the first Payment
Date and ending on the 30th Payment Date, the annualized percentage equivalent
of the product of (a) the Class P-IO Pass-Through Rate and (b) the Class P-IO
Notional Principal Amount divided by the outstanding aggregate Loan Balance of
the Home Equity Loans in Loan Group IIb as of the opening of business on the
first day of the related Remittance Period.
Distributions on the Auction Rate Certificates:
Distributions of interest on the Auction Rate Certificates will be made among
all Owners of such Certificates pro rata based on the Certificate Principal
Balances of such Certificates. However, distributions of principal of the
Auction Rate Certificates will be made on specific Auction Rate Certificates
selected no later than five Business Days prior to the related Payment Date by
lot or such other manner as may be determined in accordance with the Auction
Rate Procedures in Annex III, and will be made only in amounts equal to
$25,000 and integral multiples in excess thereof.
Cashflow Priority, Flow of Funds:
On each Monthly Remittance Date the Servicer will be required to cause to be
remitted from the Principal and Interest Account, the related Monthly
Remittance Amount with respect to each Loan Group, for deposit into the
Certificate Account.
On the following Payment Date, the Monthly Remittance Amount for a Loan Group
which is then on deposit in the Certificate Account
(such amount, the "Available Funds" with respect to a
Loan Group) will be applied in the following order of
priority:
First, for the payment of certain fees, concurrently, to the Trustee, the
Trustee Fee and to the Certificate Insurer, the Premium
Amount, and in the case of Loan Group II, to the Auction
Agent, the Auction Agent Fee, and to the Broker-Dealer,
the Broker-Dealer Fee, in each case with respect to such
Loan Group;
Second, for the payment of that Loan Group's Class A Certificate interest, to
the extent of the Available Funds then remaining in the
Certificate Account with respect to such Loan Group,
plus the interest component of any related Insured
Payment, (such amount, the "Interest Amount Available"
for such Loan Group), to the Owners of the Class A
Certificates related to such Loan Group, the related
Current Interest plus the
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Interest Carry Forward Amount with respect to each such
Class of related Class A Certificates without any
priority among such Class A Certificates; provided, that
if the Interest Amount Available is not sufficient to
make a full distribution of interest with respect to all
Classes of the related Class A Certificates, then such
amount will be distributed among the outstanding Classes
of related Class A Certificates pro rata based on the
aggregate amount of interest due on each such Class, and
any shortfall will be carried forward with accrued
interest;
Third, for the payment of that Loan Group's Class B Certificate interest, to
the extent of the Available Funds then remaining in the
Certificate Account with respect to such Loan Group, to
the Owners of the Class B Certificates relating to such
Loan Group an amount equal to the Current Interest for
such Class B Certificates related to such Loan Group;
Fourth, for the payment of that Loan Group's Reimbursement Amount, if any,
then due to the Certificate Insurer, to the extent of
the Available Funds then remaining in the Certificate
Account the lesser of (x) the Reimbursement Amount
related to such Loan Group then owed to the Certificate
Insurer and (y) the Maximum Insurer Current
Reimbursement Amount with respect to such Loan Group and
Payment Date;
Fifth, for the payment of that Loan Group's Class A Certificate principal, to
the extent of the Available Funds then remaining in the
Certificate Account with respect to such Loan Group, to
the Owners of the Class A Certificates with respect to
such Loan Group, an amount necessary to reduce the Class
A Certificate Principal Balance of such related Class A
Certificates to the Class A Optimal Balance for such
Payment Date;
Sixth, for the payment of that Loan Group's Class B Certificate principal, to
the extent of the Available Funds then remaining in the
Certificate Account with respect to such Loan Group to
the Owners of the Class B Certificates related to such
Loan Group, an amount necessary to reduce the Class B
Certificate Principal Balance of the related Class B
Certificates to the Class B Optimal Balance for such
Payment Date;
Seventh, to fund the Interest Carry Forward Amount, if any, with respect to
that Loan Group's Class B Certificates, to the extent of
the Available Funds then remaining in the Certificate
Account with respect to such Loan Group, to the Owners
of the Class B Certificates relating to such Loan Group
an amount equal to the Interest Carry Forward Amount for
such Class B Certificates;
Eighth, to fund the Class B Realized Loss Amortization Amount, if any, for
that Loan Group's Class B Certificates for such Payment
Date; to the extent of the Available Funds then
remaining in the Certificate Account with respect to
such Loan Group, to the Owners of the Class B
Certificates relating to such Loan Group an amount equal
to the Class B Realized Loss Amortization Amount for
such Class B Certificates; and
Ninth, the remaining amount, if any, on deposit in the Certificate Account
with respect to both Loan Groups is the "Monthly Excess
Cashflow Amount", which shall be applied in the
following order of priority:
(i) to items "First" through "Eighth" above, in that
order, with respect to the other Loan Group;
(ii) to the Servicer to the extent of any unreimbursed
Delinquency Advances or Servicing Advances and any
other costs and expenses incurred by the Issuer,
including amounts owed to the Auction Agent other
than the Auction Agent Fee;
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(iii) to fund a distribution to Owners of the Class C
Certificates; and
(iv) to fund a distribution to Owners of the Class R
Certificates.
"Class A Principal Distribution Amount" means, with respect to a Loan
Group and any Payment Date, the actual amount distributed as principal to the
Owners of the related Class A Certificates in accordance with priorities
"Fifth" and "Ninth (a)" under "Cashflow Priority, Flow of Funds" above on such
Payment Date.
"Class B Principal Distribution Amount" means, with respect to a Loan
Group and any Payment Date, the actual amount distributed as principal to the
Owners of the related Class B Certificates in accordance with priorities
"Sixth" and "Ninth (a)" under "Cashflow Priority, Flow of Funds" above on such
Payment Date. Since, prior to the related Stepdown Date, the "Class B Optimal
Balance" for the related Class of Class B Certificates is set at a level equal
to the related Class B Initial Certificate Principal Balance, the Owners of
the Class B Certificates with respect to a Loan Group will receive no
distributions of principal prior to the occurrence of the Stepdown Date with
respect to such Loan Group (unless the Certificate Principal Balances of all
Class A Certificates related to such Loan Group are reduced to zero earlier).
"Current Interest" with respect to each Class of Class A Certificates
and Class B Certificates means, with respect to any Payment Date, (i) the
interest accrued during the related Accrual Period on the Certificate
Principal Balance or Notional Amount of such Class plus (ii) the Preference
Amount as it relates to interest previously paid on such Class prior to such
Payment Date.
"Interest Carry Forward Amount" means, with respect to any Class of
Certificates for any Payment Date, the sum of (x) the amount, if any, by which
(i) the sum of the Current Interest and all prior unpaid Interest Carry
Forward Amounts for such Class as of the immediately preceding Payment Date
exceeds (ii) the amount of the actual distribution with respect to interest
made to the Owners of such Class on such immediately preceding Payment Date
plus (y) interest on such amount calculated for the related Accrual Period at
the related Pass-Through Rate in effect with respect to such Class. Assuming
that the Certificate Insurance Policies with respect to the Class A
Certificates are timely and properly drawn upon in the event of an anticipated
shortfall, an Interest Carry Forward Amount would only arise with respect to
the Class A Certificates in the event of an Insurer Default.
"Maximum Insurer Current Reimbursement Amount" means, with respect to
a Loan Group and any Payment Date, the maximum amount which could be used to
repay the Certificate Insurer with respect to reimbursement of prior Insured
Payments by the Certificate Insurer under the Certificate Insurance Policy
related to such Loan Group, rather than used to pay Class A Certificate
Principal on such Payment Date, without causing the Aggregate Class A
Certificate Balance with respect to such Loan Group to exceed the aggregate
Loan Balance with respect to such Loan Group (i.e., without causing there to
be a Class A Overcollateralization Deficit with respect to such Loan Group).
Specifically, the "Maximum Insurer Current Reimbursement Amount" for any
Payment Date equals the lesser of (x) the Available Funds remaining in the
Certificate Account with respect to the related Loan Group after taking into
account all distributions described in clauses "First" through "Third" under
"Cashflow Priority, Flow of Funds" above and (y) the excess of (1) the sum of
(a) the Loan Balance with respect to such Loan Group plus (b) the amount
described in the immediately preceding clause (x) over (2) the aggregate Class
A Certificate Principal Balance prior to taking into account any payment of
principal on such Payment Date.
Optimal Balances: The "Class A Optimal Balance" with respect to Loan Group I
means, as of any Payment Date, as follows, but in no event
less than zero:
I. Prior to the Stepdown Date with respect to Loan Group
I:
(a) if a Cumulative Realized Loss Trigger Event is
not then in effect with respect to Loan Group I,
the excess of (x) the Group I Loan Balance over
(y) an amount equal to (i) prior to the 7th
Payment Date, 3.75% of the Original Group I Loan
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Balance, and (ii) on and after the 7th Payment
Date, 4.75% of the Original Group I Loan
Balance; or
(b) if a Cumulative Realized Loss Trigger Event is
in effect with respect to Loan Group I, the
excess of (x) the Group I Loan Balance over (y)
an amount equal to 6.05% of the Original Group I
Loan Balance.
II. On and after the Stepdown Date with respect to Loan
Group I:
(a) if neither a Delinquency Trigger Event nor a
Cumulative Realized Loss Trigger Event is then
in effect with respect to Loan Group I, the
lesser of:
(i) the product of (x) 89.7875% and (y)
the Group I Loan Balance; and
(ii) the excess of (x) the Group I Loan
Balance over (y) an amount equal to
0.50% of the Original Group I Loan
Balance; or
(b) if a Delinquency Trigger Event is then in effect
with respect to Loan Group I , but as to which a
Cumulative Realized Loss Trigger Event is not in
effect, the lesser of:
(i) the product of (x) 100% minus the
product of 62.25% and the Three-Month
Rolling Average 60+ Delinquency Rate
with respect to Loan Group I and (y)
the Group I Loan Balance; and
(ii) the excess of (x) the Group I Loan
Balance over (y) an amount equal to
0.50% of the Original Group I Loan
Balance; or
(c) if a Cumulative Realized Loss Trigger Event is
in effect but as to which a Delinquency Trigger
Event is not in effect with respect to Loan
Group I, the product of (x) 91.9375% minus the
percentage equivalent of a fraction, the
numerator of which is 2.30% of the Original
Group I Loan Balance and the denominator of
which is the Group I Loan Balance and (y) the
Group I Loan Balance;
(d) if both a Delinquency Trigger Event and a
Cumulative Realized Loss Trigger Event are then
in effect with respect to Loan Group I, the
lesser of:
(i) the product of (x) 100% minus the
product of 62.25% and the Three-Month
Rolling Average 60+ Delinquency Rate
with respect to Loan Group I and (y)
the Group I Loan Balance; and
(ii) the product of (x) 91.9375% minus the
percentage equivalent of a fraction,
the numerator of which is 2.30% of the
Original Group I Loan Balance and
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the denominator of which is the Group I
Loan Balance and (y) the Group I Loan
Balance.
The "Class A Optimal Balance" with respect to Loan
Group II means, as of any Payment Date, as follows,
but in no event less than zero:
I. Prior to the Stepdown Date with respect to Loan Group
II:
(a) if a Cumulative Realized Loss Trigger Event is
not then in effect with respect to Loan Group
II, the excess of (x) the Group II Loan Balance
over (y) an amount equal to (i) prior to the 7th
Payment Date, 4.7% of the Original Group II Loan
Balance, and (ii) on and after the 7th Payment
Date, 6.35% of the Original Group II Loan
Balance; or
(b) if a Cumulative Realized Loss Trigger Event is
in effect with respect to Loan Group II, the
excess of (x) the Group II Loan Balance over (y)
the amount equal to 7.85% of the Original Group
II Loan Balance.
II. On and after the Stepdown Date with respect to Loan
Group II:
(a) if neither a Delinquency Trigger Event nor a
Cumulative Realized Loss Trigger Event is then
in effect, the lesser of:
(i) the product of (x) 86.3475% and (y)
the Group II Loan Balance; and
(ii) the excess of (x) the Group II Loan
Balance over (y) an amount equal to
0.50% of the Original Group II Loan
Balance; or
(b) if a Delinquency Trigger Event is then in
effect, but as to which a Cumulative Realized
Loss Trigger Event is not in effect, the lesser
of:
(i) the product of (x) 100% minus the
product of 74% and the Three-Month
Rolling Average 60+ Delinquency Rate
with respect to Loan Group II and (y)
the Group II Loan Balance; and
(ii) the excess of (x) the Group II Loan
Balance over (y) an amount equal to
0.50% of the Original Group II Loan
Balance; or
(c) if a Cumulative Realized Loss Trigger Event is
in effect with respect to Loan Group II but as
to which a Delinquency Trigger Event is not in
effect with respect to Loan Group II, the
product of (x) 89.895% minus the percentage
equivalent of a fraction, the numerator of which
is 3.15% of the Original Group II Loan Balance
and the denominator of which is the Group II
Loan Balance and (y) the Group II Loan Balance;
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(d) if both a Delinquency Trigger Event and a
Cumulative Realized Loss Trigger Event are then
in effect with respect to Loan Group II, the
lesser of:
(i) the product of (x) 100% minus the
product of 74% and the Three-Month
Rolling Average 60+ Delinquency Rate
and (y) the Group II Loan Balance; and
(ii) the product of (x) 89.895% minus the
percentage equivalent of a fraction,
the numerator of which is 3.15% of the
Original Group II Loan Balance and the
denominator of which is the Group II
Loan Balance and (y) the Group II Loan
Balance.
The "Class B Optimal Balance" with respect to Loan Group I, means, as of any
Payment Date:
I. Prior to the Stepdown Date with respect to Loan Group
I and if the Group I Class A Certificate Principal
Balance is then greater than zero, the Class B-I
Initial Certificate Principal Balance; and
II. On and after the Stepdown Date with respect to Loan
Group I, or if the Group I Class A Certificate
Principal Balance then equals zero, the excess of (a)
the Group I Loan Balance over (b) the Group I Class A
Certificate Principal Balance (after taking into
account any reduction thereof on such Payment Date)
plus the Group I Targeted Overcollateralization
Amount.
The "Class B Optimal Balance" with respect to Loan Group II, means, as of any
Payment Date:
I. Prior to the Stepdown Date with respect to Loan Group
II and if the Group II Class A Certificate Principal
Balance is then greater than zero, the Class B-II
Initial Certificate Principal Balance; and
II. On and after the Stepdown Date with respect to Loan
Group II, or if the Group II Class A Certificate
Principal Balance then equals zero, the excess of (a)
the Group II Loan Balance over (b) the Group II Class
A Certificate Principal Balance (after taking into
account any reduction thereof on such Payment Date)
plus the Group II Targeted Overcollateralization
Amount.
"Group I Loan Balance" means, for any Payment Date, the aggregate
outstanding Loan Balance of the Home Equity Loans in Loan Group I as of the
last day of the related Remittance Period.
"Group II Loan Balance" means, for any Payment Date, the aggregate
outstanding Loan Balance of the Home Equity Loans in Loan Group II as of the
last day of the related Remittance Period.
"Original Group I Loan Balance" means the original aggregate Loan
Balance of the Home Equity Loans in Loan Group I as of the Cut-Off Date.
"Original Group II Loan Balance" means the original aggregate Loan
Balance of the Home Equity Loans in Loan Group II as of the Cut-Off Date.
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Principal Allocations
with respect to
Class A Certificates: Group I Class A Certificates. The Class A
Principal Distribution Amount for Loan Group I is
required to be distributed on each Payment Date in
the following order of priority:
(i) first, to the Class A-8 Certificates, in an
amount (i.e., the "lockout" distribution
amount for such Class), equal to the lesser
of (a) the Class A-8 Principal Distribution
Amount for such Payment Date and (b) the
Class A Principal Distribution Amount for
Loan Group I on such Payment Date;
(ii) second, to the Class A-1 Certificates, 100%
of the remaining Class A Principal
Distribution Amount for Loan Group I, until
the Certificate Principal Balance thereof
has been reduced to zero;
(iii) third, to the Class A-2 Certificates
through Class A-7 Certificates,
sequentially in the order of their
numerical Class designations (beginning
with the Class A-2 Certificates) in an
amount necessary to reduce the respective
Certificate Principal Balances thereof to
zero;
(iv) fourth, to the Class A-8 Certificates,
without regard to the Class A-8 Principal
Distribution Amount, any remaining amount
of the Class A Principal Distribution
Amount for Loan Group I on such Payment
Date, until the Class A-8 Certificate
Principal Balance has been reduced to zero.
The "Class A-8 Principal Distribution Amount" for any Payment Date
occurring during the periods set forth below is the "applicable percentage"
set forth below of the Class A-8 Pro Rata Principal Distribution Amount with
respect to such Payment Date:
Applicable
Period Percentage
---------------------------------------------
October 1998 - September 2001: 0%
October 2001 - September 2003: 45%
October 2003 - September 2004: 80%
October 2004 - September 2005: 100%
October 2005 and thereafter: 300%
The "Class A-8 Pro Rata Principal Distribution Amount" for a Payment Date is
the product of (x) the Class A Principal Distribution
Amount for Loan Group I for such Payment Date and (y) a
fraction, the numerator of which is the Class A-8
Certificate Principal Balance immediately prior to such
Payment Date and the denominator of which is the Class A
Certificate Principal Balance for Loan Group I
immediately prior to such Payment Date.
Group II Class A Certificates. The Class A Principal Distribution Amount for
Loan Group II is required to be distributed on each
Payment Date, pari passu, to (i) the Group IIa Class A
Certificates, in an amount equal to the Group IIa
Principal Distribution Amount and (ii) the Group IIb
Class A Certificates, in an amount equal to the Group
IIb Principal Distribution Amount.
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The "Group IIa Principal Distribution Amount" for any Payment Date is an
amount equal to the lesser of:
(I) the excess of (x) the aggregate
Certificate Principal Balance of the Group IIa
Class A Certificates immediately prior to such
Payment Date over (y) the Group IIa Optimal
Balance with respect to such Payment Date; and
(II) the Class A Principal Distribution
Amount for Loan Group II with respect to such
Payment Date;
provided, however, that in no event will the
aggregate Certificate Principal Balance of the
Group IIa Class A Certificates exceed the
aggregate Loan Balances of the Group IIa Home
Equity Loans as of the last day of the related
Remittance Period.
The "Group IIa Optimal Balance" with respect to any Payment Date is an amount
equal to the product of:
(x) the aggregate Loan Balances of the Home Equity
Loans in Group IIa as of the end of the related
Remittance Period; and
(y) a fraction, the numerator of which is equal to
(i) the Group II Class A Certificate Principal
Balance immediately prior to such Payment Date
minus (ii) the Group II Class A Principal
Distribution Amount for such Payment Date and the
denominator of which is (y) the aggregate Loan
Balances of the Home Equity Loans in Loan Group II
as of the end of the related Remittance Period.
The "Group IIb Principal Distribution Amount" for any Payment Date is an
amount equal to the lesser of:
(I) the excess of (x) the aggregate
Certificate Principal Balance of the Group IIb
Class A Certificates immediately prior to such
Payment Date over (y) the Group IIb Optimal
Balance with respect to such Payment Date; and
(II) the Class A Principal Distribution
Amount for Loan Group II with respect to such
Payment Date;
provided, however, that in no event will the
aggregate Certificate Principal Balance of the
Group IIb Class A Certificates exceed the
aggregate Loan Balances of the Group IIb Home
Equity Loans as of the last day of the related
Remittance Period.
The "Group IIb Optimal Balance" with respect to any Payment Date is an amount
equal to the product of:
(x) the aggregate Loan Balances of the Home Equity
Loans in Group IIb as of the end of the related
Remittance Period; and
(y) a fraction, the numerator of which is equal to
(i) the Group II Class A Certificate Principal
Balance immediately prior to such Payment Date
minus (ii) the Group II Class A Principal
Distribution Amount for such Payment Date and the
denominator of which is (y) the aggregate Loan
Balances of the Home Equity Loans in Loan Group II
as of the end of the related Remittance Period.
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Notwithstanding the foregoing, on any Payment Date on which the
Certificate Principal Balance of the Class B Certificates with respect to a
Loan Group has been reduced to zero and on or after which a Certificate
Insurer Default (as defined herein) has occurred and is continuing,
distributions of principal of the Class A Certificates with respect to such
Loan Group will be made on a pro rata basis without regard to the order of
priority described above.
Group IIa Class A Certificates. The Group IIa Principal Distribution Amount is
required to be distributed on each Payment Date in the following order of
priority:
(i) first, to the Class A-10 Certificates, in
an amount equal to the lesser of (a) the
Class A-10 Principal Distribution Amount
for such Payment Date and (b) the Group IIa
Principal Distribution Amount on such
Payment Date;
(ii) second, to the Class A-9 Certificates,
until the Certificate Principal Balance
thereof has been reduced to zero; and
(iii) third, to the Class A-10 Certificates,
without regard to the Class A-10 Principal
Distribution Amount, any remaining amount
of the Group IIa Principal Distribution
Amount for such Payment Date, until the
Class A-10 Certificate Principal Balance
has been reduced to zero.
Group IIb Class A Certificates. The Group IIb Principal Distribution Amount is
required to be distributed on each Payment Date in the following order of
priority:
(i) first, to the Class A-19 and the Class A-20
Certificates, sequentially, in the amounts
necessary to reduce their respective
Certificate Principal Balances to their
Maximum Principal Balances for such Payment
Date;
(ii) second, to the Class A-11 Certificates,
100% of the remaining Group IIb Principal
Distribution Amount, until the Certificate
Principal Balance thereof has been reduced
to zero;
(iii) third, to the Class A-12 through the Class
A-17 Certificates, in that order, in the
amounts necessary to reduce their
respective Certificate Principal Balances
to their Planned Principal Balances for
such Payment Date;
(iv) fourth, to the Class A-18 Certificates, any
remaining amount of the Group IIb Principal
Distribution Amount, until the Certificate
Principal Balance thereof has been reduced
to zero;
(v) fifth, to the Class A-12 through the Class
A-17 Certificates, in that order, and
without regard to their Planned Principal
Balances, any remaining amount of the Group
IIb Principal Distribution Amount, until
the Certificate Principal Balances thereof
have been reduced to zero; and
(vi) sixth, to the Class A-19 and the Class A-20
Certificates, sequentially, any remaining
amount of the Group IIb Principal
Distribution Amount, until the Certificate
Principal Balances thereof have been
reduced to zero.
The "Class A-10 Principal Distribution Amount" for any Payment Date will be:
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(i) occurring during the periods set forth below is the
"applicable percentage" set forth below of the Class A-10 Pro Rata
Principal Distribution Amount with respect to such Payment Date:
Period Applicable Percentage
------ ---------------------
October 1998 - July 2000: 0%
August 2000 - September 2003: 500%
(ii) occurring in October 2003 or thereafter, shall be 100%
of the Group IIa Principal Distribution Amount for such Payment Date.
The "Class A-10 Pro Rata Principal Distribution Amount" for a Payment Date is
the product of (x) the Group IIa Principal Distribution Amount for such
Payment Date and (y) a fraction, the numerator of which is the Class A-10
Certificate Principal Balance immediately prior to such Payment Date and the
denominator of which is the sum of the Class A-9 and Class A-10 Certificate
Principal Balances immediately prior to such Payment Date.
Maximum Principal Balances and Planned Principal Balances
The "Maximum Principal Balance" with respect to the Maximum Maturity
Certificates (considered together) for any Payment Date is the product of (x)
the Specified Percentage for such Payment Date and (y) the excess of (i) the
aggregate Certificate Principal Balance for the Group IIb Certificates
immediately prior to such Payment Date over (ii) the Group IIb Principal
Distribution Amount with respect to such Payment Date.
The "Specified Percentages" are listed in Annex I hereto.
The "Planned Principal Balances" with respect to the PAC Certificates
for each Payment Date are listed in Annex I hereto.
The PAC Certificates are entitled to receive distributions in
reduction of their Certificate Principal Balances in accordance with the
respective Planned Principal Balances set forth in the Planned Principal
Balance Schedule set forth in Annex I hereof. If the Group IIb Principal
Distribution Amount exceeds the amount necessary to reduce the Certificate
Principal Balance of the applicable Class of PAC Certificates to its Planned
Principal Balance on a Payment Date, such excess will be distributed to the
Companion Certificates. However, if the Group IIb Principal Distribution
Amount is less than the amount necessary to reduce the Certificate Principal
Balance of the applicable Class of PAC Certificates to its Planned Principal
Balance on a Payment Date, the Companion Certificates will not receive any
distributions of principal on such Payment Date and on any future Payment Date
until the Certificate Principal Balance of the applicable Class of PAC
Certificates is reduced to its Planned Principal Balance for the applicable
Payment Date.
Notwithstanding the foregoing, on any Payment Date on which the
Certificate Principal Balance of the Class B Certificates with respect to a
Loan Group has been reduced to zero and on or after which a Certificate
Insurer Default (as defined herein) has occurred and is continuing,
distributions of principal of the Class A Certificates related to such Loan
Group (other than the Interest-Only Certificates related to such Loan Group)
will be made on a pro rata basis without regard to any Planned Principal
Balances or the order of priority described above.
The Trustee or Paying Agent, as the case may be, shall (i) receive as
attorney-in-fact of each Owner of Class A Certificates any Insured Payment
from the Certificate Insurer and (ii) disburse the same to each Owner of Class
A Certificates. The Pooling and Servicing Agreement will provide that to the
extent the Certificate Insurer makes Insured Payments, either directly or
indirectly (as by paying through the Trustee or Paying Agent, as the case may
be), to the Owners of such Class A Certificates, if any, the Certificate
Insurer will be subrogated to the rights of such Owners of Class A
Certificates with respect to such Insured Payments, and shall receive
reimbursement for such Insured Payments as provided in the Pooling and
Servicing Agreement but only from the sources and in the manner provided in
the Pooling and Servicing Agreement for the payment of amounts distributable
to Owners of Class A
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Certificates, if any; such subrogation and reimbursement will have no effect
on the Certificate Insurer's obligations under the related Certificate
Insurance Policy.
Each Owner of a Class A Certificate will be required promptly to
notify the Trustee, as the case may be, in writing upon the receipt of a court
order relating to a Preference Amount and will be required to enclose a copy
of such order with such notice to the Trustee.
Calculation of LIBOR
On each LIBOR Determination Date (as defined below), the Trustee will
determine LIBOR for the next Accrual Period for each Class of the Floating
Rate Certificates.
"LIBOR" means, as of any LIBOR Determination Date, the rate for
deposits in United States dollars for a period equal to the relevant Accrual
Period (commencing on the first day of such Accrual Period) which appears in
the Telerate Page 3750 as of 11:00 a.m., London time, on such date. If such
rate does not appear on Telerate Page 3750, the rate for that day will be
determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m., London
time, on that day to prime banks in the London interbank market for a period
equal to the relevant Accrual Period (commencing on the first day of such
Accrual Period). The Trustee will request the principal London office of each
of the Reference Banks to provide a quotation of its rate. If at least two
such quotations are provided, the rate for that day will be the arithmetic
mean of the quotations. If fewer than two quotations are provided as
requested, the rate for that day will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the Servicer, at
approximately 11:00 a.m., New York City time, on that day for loans in United
States dollars to leading European banks for a period equal to the relevant
Accrual Period (commencing on the first day of such Accrual Period).
"LIBOR Determination Date" means the first London business day
preceding the commencement of each Accrual Period. For purposes of determining
LIBOR, a "London business day" is any day on which dealings in deposits of
United States dollars are transacted in the London interbank market.
"Telerate Page 3750" means the display page currently so designated
on the Dow Jones Telerate Service (or such other page as may replace that page
on that service for the purpose of displaying comparable rates or prices) and
"Reference Banks" means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market.
Book-Entry Registration of the Offered Certificates
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests
in such Book-Entry Certificates ("Beneficial Owners") may elect to hold their
Book-Entry Certificates directly through DTC in the United States, or Cedel or
Euroclear (in Europe) if they are participants of such systems
("Participants") or indirectly through organizations which are Participants.
The Book-Entry Certificates will be issued in one or more certificates per
class of Offered Certificates which in the aggregate equal the principal
balance of such Offered Certificates and will initially be registered in the
name of Cede, the nominee of DTC. Cedel and Euroclear will hold omnibus
positions on behalf of their Participants through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank will act as
depositary for Cedel and Chase will act as depositary for Euroclear (in such
capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing principal
amounts of (a) $1,000 and in integral multiples in excess thereof in the case
of the Offered Certificates, other than the Auction Rate Certificates, and (b)
$25,000 and integral multiples thereof, in the case of the Auction Rate
Certificates. Except as described below, no Beneficial Owner will be entitled
to receive a physical certificate representing such Certificate (a "Definitive
Certificate"), other than the Auction Rate Certificates, and (b) $25,000 and
integral multiples thereof, in the case of the Auction Rate Certificates.
Unless and until definitive Certificates are issued, it is anticipated that
the only "Owner" of such Book-Entry Certificates will be Cede, as nominee of
DTC. Beneficial Owners will not be
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Owners as that term is used in the Pooling and Servicing Agreement. Beneficial
Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on
the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the records
of DTC, if the Beneficial Owner's Financial Intermediary is not a DTC
Participant, and on the records of Cedel or Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While such Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required
to make book-entry transfers among Participants on whose behalf it acts with
respect to such Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Certificates.
Participants and indirect participants with whom Beneficial Owners have
accounts with respect to Book-Entry Certificates are similarly required to
make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not possess certificates, the Rules provide a mechanism by which
Beneficial Owners will receive distributions and will be able to transfer
their interest.
Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Beneficial Owners who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Offered Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Beneficial Owners.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Euroclear or Cedel Participants on such business day. Cash received
in Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant (as defined below) or Euroclear Participant (as defined below) to
a DTC Participant will be received with value on the DTC settlement date but
will be available in the relevant Cedel or Euroclear cash account only as of
the business day following settlements in DTC. For information with respect to
tax documentation procedures relating to the Certificates, see "Certain
Federal Income Tax Consequences -- Taxation of Certain Foreign Investors" and
"-- Backup Withholding" in the Prospectus and "Global Clearance, Settlement
and Tax Documentation Procedures-Certain U.S. Federal Income Tax Documentation
Requirements" in Annex III hereto.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect
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final settlement on its behalf by delivering or receiving securities in DTC,
and making or receiving payment in accordance with normal procedures for same
day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the European
Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC
Participant in the Book-Entry Certificates, whether held for its own account
or as a nominee for another person. In general, beneficial ownership of
Book-Entry Certificates will be subject to the rules, regulations and
procedures governing DTC and DTC Participants as in effect from time to time.
Cedel Bank, S.A. was incorporated in 1970 as a limited company under
Luxembourg law. Cedel is owned by banks, securities dealers and financial
institutions, and currently has about 100 shareholders, including United
States financial institutions or their subsidiaries. No single entity may own
more than five percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject
to regulation by the Institut Monetaire Luxembourgeois, "IML," the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its participant organizations ("Cedel
Participants and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes
in accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement
of certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may now be settled in any of 32 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear Securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of
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specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be
responsible for disbursing funds to the Beneficial Owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede. Distributions with
respect to Certificates held through Cedel or Euroclear will be credited to
the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of Financial Intermediaries, the ability of
a Beneficial Owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Certificates, may be limited due to the lack of
physical certificates for such Book-Entry Certificates. In addition, issuance
of the Book-Entry Certificates in book-entry form may reduce the liquidity of
such Certificates in the secondary market since certain potential investors
may be unwilling to purchase Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust provided by the Servicer to
Cede, as nominee of DTC, may be made available to Beneficial Owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Beneficial Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling and Servicing
Agreement only at the direction of one or more Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates are credited, to the extent
that such actions are taken on behalf of Financial Intermediaries whose
holdings include such Book-Entry Certificates. Cedel or the Euroclear
Operator, as the case may be, will take any action permitted to be taken by an
Owner under the Pooling and Servicing Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to the ability of the Relevant Depositary to
effect such actions on its behalf through DTC. DTC may take actions, at the
direction of the related Participants, with respect to some Offered
Certificates which conflict with actions taken with respect to other Offered
Certificates.
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a)
DTC or the Depositor advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as a
nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor, (b) the
Depositor, at its sole option, elects to terminate a book-entry system through
DTC or (c) DTC, at the direction of the Beneficial Owners representing a
majority of the outstanding Percentage Interests of the Class A Certificates,
advises the Trustee in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of
Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Owners under the Pooling and Servicing Agreement.
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Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, Cedel and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
Assignment of Rights
An Owner may pledge, encumber, hypothecate or assign all or any part
of its right to receive distributions under any Certificate, but such pledge,
encumbrance, hypothecation or assignment shall not constitute a transfer of an
ownership interest sufficient to render the transferee an Owner of the Trust
without compliance with the provisions of the Pooling and Servicing Agreement
described above.
CREDIT ENHANCEMENT
"First Loss" Overcollateralization. The weighted average net Coupon
Rate for the Home Equity Loans with respect to a Loan Group is generally
expected to be higher than the weighted average of the Pass-Through Rates on
the related Class A Certificates and Class B Certificates, thus generating
certain excess interest collections which, subject to the priorities described
in the next sentence, would be available for distribution with respect to the
Retained Certificates. Such distributions are, however, the most subordinate
distributions which may be made by the Trust and are thus available to fund
losses and to make accelerated payments of principal with respect to the
related Class A and Class B Certificates, which results in the Aggregate
Certificate Principal Balance amortizing more rapidly than the Home Equity
Loans, resulting in overcollateralization (i.e., the maintenance of the
Overcollateralization Amount at the level of the Targeted
Overcollateralization Amount).
The Pooling and Servicing Agreement requires that, beginning with the
seventh Payment Date, the Overcollateralization Amount with respect to each
Loan Group shall be initially increased to, and thereafter maintained at, the
Targeted Overcollateralization Amount with respect to such Loan Group.
With respect to the Group I Class A Certificates, the paydown rules
require that, on and after the seventh Payment Date and prior to the
occurrence of the Stepdown Date with respect to Group I, the Group I Loan
Balance exceed the aggregate Certificate Principal Balance of the Group I
Class A Certificates by an amount equal to 4.75% of the Original Group I Loan
Balance (i.e., $38,000,000; subject to the occurrence of a Delinquency Trigger
Event or a Cumulative Realized Loss Trigger Event with respect to Loan Group
I, the 1% overcollateralization level is allowed to reduce or "step down" on
and after the Stepdown Date); this subordinate amount is represented by the
Class B-I Certificate Principal Balance (originally equal to 3.75% of the
Original Group I Loan Balance), together with the Group I
Overcollateralization Amount with respect to Group I; with respect to the
Class B-I Certificates, the overcollateralization is required to be maintained
at the level of the Targeted Overcollateralization Amount with respect to Loan
Group I. This will result in the application of the amounts that would
otherwise be distributed to the Owners of the Retained Certificates being
distributed as principal on the Group I Class A Certificates or Class B-I
Certificates.
"Group I Overcollateralization Amount" as of any Payment Date means
the positive difference, if any, between (x) the Group I Loan Balance and (y)
the Group I Certificate Principal Balance (after taking into account all
distributions of principal on such Payment Date).
"Group I Overcollateralization Floor" means $4,000,000.
"Group I Stepdown Date" means the later to occur of (x) the Payment
Date in October 2001 and (y) the first Payment Date on which the Group I Class
A Principal Balance is less than or equal to the Group I Class A Optimal
Balance for such Payment Date.
"Group I Targeted Overcollateralization Amount" as of any Payment Date
means:
(i) on or prior to the sixth Payment Date, zero;
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(ii) after the sixth Payment Date, but prior to the Stepdown
Date with respect to Group I:
(A) if no Cumulative Realized Loss Trigger Event is in
effect with respect to Loan Group I, 1% of the Original
Group I Loan Balance; or
(B) if a Cumulative Realized Loss Trigger Event is in
effect with respect to Loan Group I, an amount equal to
2.30% of the Original Group I Loan Balance (i.e.,
$18,400,000);
(iii) on and after the Stepdown Date with respect to Group I:
(A) if neither a Delinquency Trigger Event nor a Cumulative
Realized Loss Trigger Event is in effect with respect to
Loan Group I, the greater of (I) 2.15% of the Group I
Loan Balance and (II) the Group I Overcollateralization
Floor; or
(B) if a Delinquency Trigger Event is in effect with respect
to Loan Group I but a Cumulative Realized Loss Trigger
Event is not in effect, the Group I Targeted
Overcollateralization Amount shall be equal to the Group
I Targeted Overcollateralization Amount for the
immediately preceding Payment Date; or
(C) if a Cumulative Realized Loss Trigger Event is in effect
with respect to Loan Group I (whether or not a
Delinquency Trigger Event is in effect with respect to
Loan Group I), an amount equal to 2.30% of the Original
Group I Loan Balance (i.e., $18,400,000).
With respect to the Group II Class A Certificates, the paydown rules
require that, on and after the seventh Payment Date and prior to the
occurrence of the Stepdown Date with respect to Group II, the Group II Loan
Balance exceed the aggregate Certificate Principal Balance of the Group II
Class A Certificates by an amount equal to 6.35% of the Original Group II Loan
Balance (i.e., $82,550,000; subject to the occurrence of a Delinquency Trigger
Event or a Cumulative Realized Loss Trigger Event with respect to Loan Group
I, the 1.65% overcollateralization level is allowed to reduce or "step down"
on and after the Stepdown Date); this subordinate amount is represented by the
Class B-II Certificate Principal Balance (originally equal to 4.7% of the
Original Group II Loan Balance), together with the Group II
Overcollateralization Amount with respect to Group II; with respect to the
Class B-II Certificates, the overcollateralization is required to be
maintained at the level of the Targeted Overcollateralization Amount. This
will result in the application of the amounts that would otherwise be
distributed to the Owners of the Retained Certificates being distributed as
principal on the Group II Class A Certificates or Class B-II Certificates.
"Group II Overcollateralization Amount" as of any Payment Date means
the positive difference, if any, between (x) the Group II Loan Balance and (y)
the Group II Certificate Principal Balance (after taking into account all
distributions of principal on such Payment Date).
"Group II Overcollateralization Floor" means $6,500,000.
"Group II Stepdown Date" means the later to occur of (x) the Payment
Date in October 2001 and (y) the first Payment Date on which the Group II
Class A Principal Balance is less than or equal to the Group II Class A
Optimal Balance for such Payment Date.
"Group II Targeted Overcollateralization Amount" as of any Payment Date
means:
(i) on or prior to the sixth Payment Date, zero;
(ii) after the sixth Payment Date, but prior to the Stepdown
Date with respect to Group II:
(A) if no Cumulative Realized Loss Trigger Event is in
effect with respect to Loan Group II, 1.65% of the
Original Group II Loan Balance; or
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(B) if a Cumulative Realized Loss Trigger Event is
in effect with respect to Loan Group II, an amount
equal to 3.15% of the Original Group II Loan
Balance ($40,950,000).
(iii) on and after the Stepdown Date with respect to Group II:
(A) if neither a Delinquency Trigger Event nor a Cumulative
Realized Loss Trigger Event is in effect with respect to
Loan Group II, the greater of (I) 3.5475% of the Group II
Loan Balance and (II) the Group II Overcollateralization
Floor; or
(B) if a Delinquency Trigger Event is in effect with respect
to Loan Group II but a Cumulative Realized Loss Trigger
Event is not in effect with respect to Loan Group II, the
Group II Targeted Overcollateralization Amount shall be
equal to the Group II Targeted Overcollateralization
Amount for the immediately preceding Payment Date; or
(C) if a Cumulative Realized Loss Trigger Event is in effect
with respect to Loan Group II (whether or not a
Delinquency Trigger Event is in effect with respect to
Loan Group II), an amount equal to 3.15% of the Original
Group II Loan Balance ($40,950,000).
Trigger Events. A "Cumulative Realized Loss Trigger Event" has
occurred with respect to a Loan Group on any date of determination if the
amount of Cumulative Realized Losses expressed as a percentage of the Group I
Original Balance or the Group II Original Loan Balance, as applicable, on any
date of determination equals or exceeds the percentage for such date set
below:
Date Percentage
---- ----------
October 1998 - September 2000 1.05%
October 2000 - September 2001 1.80%
October 2001 - September 2002 2.40%
October 2002 - September 2003 2.85%
October 2003 and thereafter 3.00%
A "Delinquency Trigger Event" with respect to Loan Group I will be
deemed to have occurred with respect to any Payment Date on or after the
Stepdown Date with respect to Loan Group I if 62.25% of the Three-Month
Rolling Average 60+ Day Delinquency Rate with respect to such Loan Group
equals or exceeds the Class A Enhancement Percentage with respect to Loan
Group I for such Payment Date; a "Delinquency Trigger Event" with respect to
Loan Group II will be deemed to have occurred with respect to any Payment Date
on or after the Stepdown Date with respect to Loan Group II if 74% of the
Three-Month Rolling Average 60+ Day Delinquency Rate with respect to such Loan
Group equals or exceeds the Class A Enhancement Percentage with respect to
Loan Group II for such Payment Date.
The "Class A Enhancement Percentage" for any Payment Date and with
respect to either Loan Group is the percentage equivalent of a fraction, the
numerator of which is the excess of:
(x) the Group I Loan Balance or the Group II Loan Balance, as
applicable, for such Payment Date over
(y) the Group I Class A Certificate Principal Balance or the
Group II Class A Certificate Principal Balance, as applicable,
for the related Loan Group after taking into account the payment
of the Class A Principal Distribution Amount for such Loan Group
on such Payment Date, assuming that no Delinquency Trigger Event
is in effect with respect to such Loan Group,
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and the denominator of which is the Group I Loan Balance or the Group
II Loan Balance, as applicable, with respect to such Payment Date.
Application of Realized Losses. If a Home Equity Loan becomes a
Liquidated Loan during a Remittance Period, the Net Liquidation Proceeds
relating thereto and allocated to principal may be less than the Loan Balance
of such Home Equity Loan. The amount of such insufficiency is a "Realized
Loss." Realized Losses experienced by a Loan Group will, in effect, be
absorbed first, by the Retained Certificates (both through a reduction in the
amount of the distribution which would otherwise be made to the Owners of the
Retained Certificates on the related Payment Date, as well as through a
potential reduction in the Overcollateralization Amount), second, by the
Owners of the Class B Certificates relating to such Loan Group and third, with
respect to the Class A Certificates relating to such Loan Group, to the extent
that a Class A Overcollateralization Deficit would occur, by a payment under
the Certificate Insurance Policies.
To the extent that Realized Losses occur, such Realized Losses will
reduce the aggregate outstanding Loan Balance of the Home Equity Loans in the
related Loan Group (i.e., a reduction in the collateral balance will occur).
Since the Overcollateralization Amount with respect to a Loan Group is the
excess, if any, of the outstanding aggregate Loan Balance of the Home Equity
Loans in such Loan Group over the Aggregate Certificate Principal Balance with
respect to such Loan Group (after taking into account distributions of
principal on such Payment Date), Realized Losses, to the extent experienced
and not accounted for by a reduction in the amount of the distribution which
would otherwise be made to the Owners of the Retained Certificates on the
related Payment Date, will in the first instance reduce the
Overcollateralization Amount with respect to such Loan Group.
Subordination of Class B Certificates. The rights of the Owners of
the Class B Certificates and the Retained Certificates to receive
distributions with respect to the Home Equity Loans in the related Loan Group
will be subordinated, to the extent described herein, to such rights of the
Owners of the Class A Certificates with respect to such Loan Group. This
subordination is intended to enhance the likelihood of regular receipt by the
Owners of the Class A Certificates of the full amount of their scheduled
monthly payment of interest and principal and to afford such Owners protection
against Realized Losses.
The protection afforded to the Owners of the Class A Certificates by
means of the subordination of the related Class B Certificates will be
accomplished by the preferential right of the Owners of the Class A
Certificates to receive, on each Payment Date, full payment of the interest
then due with respect to the Class A Certificates prior to the payment of
related Class B Certificate interest, and the full payment of the principal
then due with respect to the Class A Certificates prior to the payment of
related Class B Certificate principal. The rights of the Retained Certificates
to receive distributions are subordinate to the rights of the Class A
Certificates and the Class B Certificates.
In addition, the rights of the Owners of the Retained Certificates to
receive distributions will be subordinated, to the extent described herein, to
such rights of the Owners of the Class A Certificates and the Class B
Certificates. This subordination is intended to enhance the likelihood of
regular receipt by the Owners of the Class A Certificates and the Class B
Certificates of the amount of interest due them and principal available for
distribution and to afford such Owners with protection against Realized
Losses.
If, on any Payment Date after taking into account all Realized Losses
experienced with respect to a Loan Group during the prior Remittance Period
and after taking into account the distribution of principal with respect to
the related Class A Certificates and Class B Certificates with respect to such
Loan Group on such Payment Date, the Aggregate Certificate Principal Balance
exceeds the aggregate Loan Balance of the Home Equity Loans in such Loan Group
(i.e., if the level of overcollateralization with respect to such Loan Group
is negative), then the Certificate Principal Balance of the related Class B
Certificates will be reduced (in effect, "written down") such that the level
of overcollateralization with respect to such Loan Group is zero, rather than
negative. Such a negative level of overcollateralization is an "Applied
Realized Loss Amount," which will be applied as a reduction in the Certificate
Principal Balance of the related Class B Certificates. The Pooling and
Servicing Agreement does not permit the "write down" of the Certificate
Principal Balance of any Class A Certificate.
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Once the Certificate Principal Balance of a Class of Class B
Certificate has been "written down," the amount of such write down will no
longer bear interest, nor will such amount thereafter be "reinstated" or
"written up," although the amount of such write down may, on future Payment
Dates be paid to Owners of such Class B Certificates. The source of funding of
such payments will be the amount, if any, of the Monthly Excess Cashflow
Amount remaining on such future Payment Dates after the payment of the
Interest Carry Forward Amount with respect to the Class B Certificates on such
Payment Date.
Certificate Insurance Policies. MBIA Insurance Corporation, a New
York stock insurance company (the "Certificate Insurer"), will provide a
Certificate Insurance Policy with respect to the Group I Class A Certificates
and a Certificate Insurance Policy with respect to the Group II Class A
Certificates.
Subject to the terms thereof, the Certificate Insurance Policies
unconditionally and irrevocably obligate the Insurer to make Insured Payments
to the Trustee.
The Certificate Insurance Policies are noncancellable for any reason.
"Group I Insured Payment" means, with respect to any Payment Date,
without duplication, (A) the excess, if any, of (i) the sum of the aggregate
Current Interest of the Group I Class A Certificates and the then existing
Group I Class A Overcollateralization Deficit, if any, over (ii) the Group I
Total Available Funds after taking into account the portion of any Aggregate
Group I Class A Principal Distribution Amount to be actually distributed on
such Payment Date without regard to any Insured Payment to be made with
respect to such Payment Date, plus (B) an amount equal to the aggregate
Preference Amount with respect to the Group I Class A Certificates plus (C) on
the September 1999 Payment Date only, the excess, if any, of (i) the
Certificate Principal Balance of the Class A-1 Certificates over (ii) the
Class A Principal Distribution Amount for Loan Group I for such Payment Date.
"Group II Insured Payment" means, with respect to any Payment Date,
without duplication, (A) the excess, if any, of (i) the sum of the aggregate
Current Interest of the Group II Class A Certificates (calculated, for this
purpose, using the corresponding Internal Pass-Through Rates) and the then
existing Group II Class A Overcollateralization Deficit, if any, over (ii) the
Group II Total Available Funds after taking into account the portion of any
Group II Class A Principal Distribution Amount to be actually distributed on
such Payment Date without regard to any Insured Payment to be made with
respect to such Payment Date, plus (B) an amount equal to the aggregate
Preference Amount with respect to the Group II Class A Certificates plus (C)
with respect to the Swapped Certificates only, any shortfall in the sum of (i)
amounts received as interest on account of the Internal Certificates, less
amounts paid to the Swap Counterparty, if any, and (ii) amounts received from
the Swap Counterparty, if any (if the aggregate of such amounts are
insufficient to fund the aggregate Current Interest then due on the Swapped
Certificates) plus (D) on the September 2028 Payment Date only, the excess, if
any, of (i) the Certificate Principal Balance of the Class A-9 Certificates
over (ii) the Group IIa Principal Distribution Amount for such Payment Date
plus (E) on the September 1999 Payment Date only, the excess, if any, of (i)
the Certificate Principal Balance of the Class A-11 Certificates over (ii) the
Group IIb Principal Distribution Amount for such Payment Date.
"Group I Class A Overcollateralization Deficit" for any Payment Date
means the excess of the Aggregate Group I Class A Certificate Principal
Balance over the outstanding Group I Loan Balance.
"Group II Class A Overcollateralization Deficit" for any Payment Date
means the excess of the Aggregate Group II Class A Certificate Principal
Balance over the outstanding Group II Loan Balance.
"Preference Amount" means any amount previously distributed to an
Owner of a Class A Certificate that is recoverable and sought to be recovered
as a voidable preference by a trustee in bankruptcy under the United States
Bankruptcy Code (11 U.S.C.) as amended from time to time, in accordance with a
final nonappealable order of a court having competent jurisdiction.
"Group I Total Available Funds", as of any Payment Date, means in the
aggregate, the Monthly Remittance Amounts for Loan Group I, plus any Monthly
Excess Cashflow available from Loan Group II less the sum of (i) the aggregate
amount applied to the payment of the Trustee Fee and the Premium Amount with
respect to Loan Group I
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and (ii) any such amount that cannot be distributed to the Owners of the Class
A Certificates as a result of proceedings under the United States Bankruptcy
Code.
"Group II Total Available Funds", as of any Payment Date, means in
the aggregate, the Monthly Remittance Amounts for Loan Group II, plus any
Monthly Excess Cashflow available from Loan Group I less the sum of (i) the
aggregate amount applied to the payment of the Trustee Fee and the Premium
Amount with respect to Loan Group IIb, the Auction Agent's Fee and the
Broker-Dealer's Fee and (ii) any such amount that cannot be distributed to the
Owners of the Class A Certificates as a result of proceedings under the United
States Bankruptcy Code.
Insured Payments under the Certificate Insurance Policies do not
cover Realized Losses except to the extent that a Class A
Overcollateralization Deficit exists with respect to the related Loan Group.
Insured Payments do not cover the Servicer's failure to make Delinquency
Advances, except to the extent that a Class A Overcollateralization Deficit
with respect to the related Loan Group would otherwise result therefrom.
Nevertheless, the effect of the Certificate Insurance Policies is to guarantee
the timely payment of interest on all Classes of the Class A Certificates and
the ultimate payment of the principal amount of the Class A Certificates
(other than the Interest-Only Certificates).
The Certificate Insurance Policies do not guarantee any specified
rate of prepayments, nor do the Certificate Insurance Policies provide funds
to redeem the Class A Certificates (except for the Class A-1 and the Class
A-11 Certificates, as described above) on any specified date. The Certificate
Insurer's obligation under the Certificate Insurance Policies will be
discharged to the extent that funds are received by the Trustee for
distribution to the applicable Owners of the Class A Certificates. See "Credit
Enhancement--The Certificate Insurance Policies" herein.
The "Certificate Principal Balance" of any Class of Class A
Certificates is the Original Certificate Principal Balance of such Class as
reduced by all amounts actually distributed to the Owners of such Class of
Class A Certificates as distributions of principal on all prior Payment Dates.
The "Class B Applied Realized Loss Amount" means, with respect to a
Loan Group and as of any Payment Date, the lesser of (x) the Class B
Certificate Principal Balance of the Class B Certificates related to such Loan
Group (after taking into account the distribution of the related Class B
Principal Distribution Amount on such Payment Date, but prior to the
application of the related Class B Applied Realized Loss Amount, if any, on
such Payment Date) and (y) the excess of (i) the Aggregate Class A Balance and
the Class B Certificate Principal Balance with respect to such Loan Group over
(ii) the Group Loan Balance with respect to such Loan Group.
The "Class B Certificate Principal Balance" of either Class of Class
B Certificates means, as of any date of determination, the Original Class B
Certificate Principal Balance of such Class as reduced by the sum of (x) all
amounts actually distributed to the Owners of such Class B Certificates on all
prior Payment Dates on account of principal and (y) the aggregate, cumulative
amount of Class B Applied Realized Loss Amounts with respect to such Class on
all prior Payment Dates.
The "Class B Realized Loss Amortization Amount" with respect to
either Class of Class B Certificates means, as of any Payment Date, the lesser
of (x) the Class B Unpaid Realized Loss Amount with respect to such Class as
of such Payment Date and (y) the amount of Available Funds with respect to the
related Loan Group remaining after funding priorities "First" through
"Seventh" under "Cashflow Priority -- Flow or Funds" above plus the amount of
any Monthly Excess Cashflow Amount available from the other Loan Group and
available for such purpose).
The "Class B Unpaid Realized Loss Amount" with respect to either
Class of Class B Certificates means, as of any Payment Date, the excess of (x)
the aggregate cumulative amount of Class B Applied Realized Loss Amounts with
respect to such Class for all prior Payment Dates over (y) the aggregate,
cumulative amount of Class B Realized Loss Amortization Amounts with respect
to such Class with respect to for all prior Payment Dates.
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The Certificate Insurance Policies
The Certificate Insurer will issue two Certificate Insurance Policies
to the Trustee, one with respect to the Group I Class A Certificates and one
with respect to the Group II Class A Certificates.
The Certificate Insurer, in consideration of the payment of the
premium and subject to the terms of the Certificate Insurance Policies,
thereby unconditionally and irrevocably guarantees to any Owner of a Class A
Certificate that an amount equal to each full and complete Insured Payment
will be received by the Trustee, or its successor, as trustee for the Owners
of the Class A Certificates, on behalf of the Owners from the Certificate
Insurer, for distribution by the Trustee to each Owner of a Class A
Certificate of each such Owner's proportionate share of the Insured Payment.
The Certificate Insurer's obligations under the Certificate Insurance Policy
with respect to a particular Insured Payment shall be discharged to the extent
funds equal to the applicable Insured Payment are received by the Trustee,
whether or not such funds are properly applied by the Trustee. Insured
Payments shall be made only at the time set forth in the Certificate Insurance
Policies and no accelerated Insured Payments shall be made regardless of any
acceleration of the Class A Certificates, unless such acceleration is at the
sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policies do not cover shortfalls, if any, attributable to the liability of the
Trust, the REMIC or the Trustee for withholding taxes, if any (including
interest and penalties in respect of any such liability).
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day following receipt on a Business Day by
the Fiscal Agent (as described below) of (i) a certified copy of the order
requiring the return of a preference payment, (ii) an opinion of counsel
satisfactory to the Certificate Insurer that such order is final and not
subject to appeal, (iii) an assignment in such form as is reasonably required
by the Certificate Insurer, irrevocably assigning to the Certificate Insurer
all rights and claims of the Owner relating to or arising under the Class A
Certificates against the debtor which made such preference payment or
otherwise with respect to such preference payment and (iv) appropriate
instruments to effect the appointment of the Certificate Insurer as agent for
such Owner in any legal proceeding related to such preference payment, such
instruments being in a form satisfactory to the Certificate Insurer; provided
that if such documents are received after 12:00 noon New York City time on
such Business Day, they will be deemed to be received on the following
Business Day. Such payments shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Owner and not to any Owner directly unless such Owner has
returned principal or interest paid on the Class A Certificates to such
receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under a
Certificate Insurance Policy no later than 12:00 noon New York City time on
the later of the Payment Date on which the related Insured Payment is due or
the second Business Day following receipt in New York, New York, on a Business
Day by State Street Bank and Trust Company, N.A., as Fiscal Agent for the
Certificate Insurer or any successor fiscal agent appointed by the Certificate
Insurer (the "Fiscal Agent") of a Notice (as described below); provided that
if such Notice is received after 12:00 noon New York City time on such
Business Day, it will be deemed to be received on the following Business Day.
If any such Notice received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making a claim under the Certificate
Insurance Policy, it shall be deemed not to have been received by the Fiscal
Agent for purposes of this paragraph, and the Certificate Insurer or the
Fiscal Agent, as the case may be, shall promptly so advise the Trustee, and
the Trustee may submit an amended Notice.
Insured Payments due under a Certificate Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the Trustee
on behalf of Owners of the related Class A Certificates by wire transfer of
immediately available funds in the amount of the Insured Payment less, in
respect of Insured Payments related to Preference Amounts, any amount held by
the Trustee for the payment of such Insured Payment and legally available
therefor.
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The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Certificate Insurer to deposit or cause to be
deposited, sufficient funds to make payments due under the Certificate
Insurance Policies.
As used in the Certificate Insurance Policies, the following terms
shall have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated
as of September 1, 1998 among ContiSecurities Asset Funding Corp., as
Depositor, ContiMortgage Corporation, as Servicer and a Seller,
ContiWest Corporation, as a Seller and Manufacturers and Traders
Trust Company, as Trustee, without regard to any amendment or
supplement thereto unless such amendment or supplement has been
approved in writing by the Certificate Insurer.
"Business Day" means any day other than a Saturday, a 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.
"Group I Insured Payment" means, with respect to any Payment
Date, without duplication, (A) the excess, if any, of (i) the sum of
the aggregate Current Interest of the Group I Class A Certificates
and the then existing Group I Class A Overcollateralization Deficit,
if any, over (ii) the Group I Total Available Funds after taking into
account the portion of any Group I Class A Principal Distribution
Amount to be actually distributed on such Payment Date without regard
to any Insured Payment to be made with respect to such Payment Date,
plus (B) an amount equal to the aggregate Preference Amount with
respect to the Group I Class A Certificates plus (C) on the September
1999 Payment Date only, the excess, if any, of (i) the Certificate
Principal Balance of the Class A-1 Certificates over (ii) the Class A
Principal Distribution Amount for Loan Group I for such Payment Date.
Group II Insured Payment" means, with respect to any Payment
Date, without duplication, (A) the excess, if any, of (i) the sum of
the aggregate Current Interest of the Group II Class A Certificates
(calculated, for this purpose, using the corresponding Internal
Pass-Through Rates) and the then existing Group II Class A
Overcollateralization Deficit, if any, over (ii) the Group II Total
Available Funds after taking into account the portion of any Group II
Class A Principal Distribution Amount to be actually distributed on
such Payment Date without regard to any Insured Payment to be made
with respect to such Payment Date, plus (B) an amount equal to the
aggregate Preference Amount with respect to the Group II Class A
Certificates plus (C) with respect to the Swapped Certificates only,
any shortfall in the sum of (i) amounts received as interest on
account of the Internal Certificates, less amounts paid to the Swap
Counterparty, if any, and (ii) amounts received from the Swap
Counterparty, if any (if the aggregate of such amounts are
insufficient to fund the aggregate Current Interest then due on the
Swapped Certificates) plus (D) on the September 2028 Payment Date
only, the excess, if any, of (i) the Certificate Principal Balance of
the Class A-9 Certificates over (ii) the Group IIa Principal
Distribution Amount for such Payment Date plus (E) on the September
1999 Payment Date only, the excess, if any, of (i) the Certificate
Principal Balance of the Class A-11 Certificates over (ii) the Group
IIb Principal Distribution Amount for such Payment Date.
"Notice" means the telephonic or telegraphic notice,
promptly confirmed in writing by telecopy substantially in the form
of Exhibit A attached to the related Certificate Insurance Policy,
the original of which is subsequently delivered by registered or
certified mail, from the Trustee specifying the Insured Payment which
shall be due and owing on the applicable Payment Date.
"Owner" means each Owner (as defined in the Agreement) who,
on the applicable Payment Date, is entitled under the terms of the
applicable Class A Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed
to an Owner on the Class A Certificates that is recoverable and
sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the United States Bankruptcy Code (11 U.S.C.)
as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
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Capitalized terms used in the Certificate Insurance Policies 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 Policies,
without giving effect to any subsequent amendment or modification to the
Agreement unless the amendment or modification has been approved in writing by
the Certificate Insurer.
Any notice under the Certificate Insurance Policies or service of
process on the Fiscal Agent may be made at the address listed below for the
Fiscal Agent or such other address as the Certificate Insurer shall specify in
writing to the Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway,
New York, New York, 10006 Attention: Municipal Registrar and Paying Agency or
such other address as the Fiscal Agent shall specify to the Trustee in
writing.
The Certificate Insurance Policies are being issued under and
pursuant to, and shall be construed under, the laws of the State of New York,
without giving effect to the conflict of laws principles thereof.
The insurance provided by the Certificate Insurance Policies is not
covered by the Property/Casualty Insurance Security Fund specified in Article
76 of the New York Insurance Law.
The Certificate Insurance Policies are not cancelable for any reason.
The premiums on the Certificate Insurance Policies are not refundable for any
reason including payment, or provision being made for payment, prior to the
maturity of the Class A Certificates.
THE CERTIFICATE INSURER
The following information has been supplied by the Certificate
Insurer for inclusion in this Prospectus Supplement. No representation is made
by the Underwriters, the Sellers, the Servicer, the Depositor or any of their
affiliates as to the accuracy or completeness of such information.
The Certificate Insurer is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company ("MBIA Inc"). MBIA Inc is not
obligated to pay the debts of or claims against the Certificate Insurer. The
Certificate Insurer is domiciled in the State of New York and licensed to do
business in and is subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. The Certificate Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has
laws prescribing minimum capital requirements, limiting classes and
concentrations of investments and requiring the approval of policy rates and
forms. State laws also regulate the amount of both the aggregate and
individual risks that may be insured, the payment of dividends by the
Certificate Insurer, changes in control and transactions among affiliates.
Additionally, the Certificate Insurer is required to maintain contingency
reserves on its liabilities in certain amounts and for certain periods of
time.
Effective February 17, 1998, MBIA Inc acquired all of the outstanding
stock of Capital Markets Assurance Corporation ("CMAC") through a merger with
its parent CapMAC Holdings Inc. Pursuant to a reinsurance agreement, CMAC has
ceded all of its net insured risks (including any amounts due but unpaid from
third party reinsurers), as well as its unearned premiums and contingency
reserves, to the Certificate Insurer. MBIA Inc is not obligated to pay the
debts of or claims against CMAC.
The consolidated financial statements of the Certificate Insurer, a
wholly owned subsidiary of MBIA Inc, and its subsidiaries as of December 31,
1997 and December 31, 1996 and for each of the three years in the period ended
December 31, 1997, prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of MBIA Inc for the
year ended December 31, 1997 and the consolidated financial statements of the
Certificate Insurer and its subsidiaries as of June 30, 1998 and for the
six-month periods ending June 30, 1998 and June 30, 1997 included in the
Quarterly Report on Form 10-Q of MBIA Inc for the period ending June 30, 1998
are hereby incorporated by reference into this Prospectus Supplement and shall
be deemed to be a part
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hereof. Any statement contained in a document incorporated by reference herein
shall be modified or superseded for purposes of this Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Certificate Insurer and its
subsidiaries included in documents filed by MBIA Inc 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 tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities ("SAP")
and generally accepted accounting principles ("GAAP"):
SAP
---
December 31, June 30,
1997 1998
------------ --------
(Audited) (Unaudited)
(in millions)
Admitted Assets $5,256 $6,048
Liabilities 3,496 3,962
Capital and Surplus 1,760 2,086
GAAP
----
December 31, June 30,
1997 1998
------------ --------
(Audited) (Unaudited)
(in millions)
Assets $5,988 $6,794
Liabilities 2,624 2,977
Shareholder's Equity 3,364 3,817
Copies of the financial statements of the Certificate Insurer
incorporated by reference herein and copies of the Certificate Insurer's 1997
year-end audited financial statements prepared in accordance with statutory
accounting practices are available, without charge, from the Certificate
Insurer. The address of the Certificate Insurer is 113 King Street, Armonk,
New York 10504. The telephone number of the Certificate Insurer is (914)
273-4545.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to
the accuracy of the information regarding the Certificate Insurance Policies
under the heading "CREDIT ENHANCEMENT--The Certificate Insurance Policies" and
the information regarding the Certificate Insurer under the heading "THE
CERTIFICATE INSURER." Additionally, the Certificate Insurer makes no
representations regarding the Class A Certificates or the advisability of
investing in the Class A Certificates.
Moody's Investors Service, Inc. rates the claims paying ability of the
Certificate Insurer "Aaa".
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the claims paying ability of the Certificate Insurer
"AAA".
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Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.)
rates the claims paying ability of the Certificate Insurer "AAA".
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its ability
to pay claims on its policies of insurance. Any further explanation as to the
significance of the above ratings may be obtained only from the applicable
rating agency.
The above ratings are not recommendations to buy, sell or hold the
Class A Certificates, and such ratings may be subject to revision or
withdrawal at any time by the rating agencies. Any downward revision or
withdrawal of any of the above ratings may have an adverse effect on the
market price of the Class A Certificates. The Certificate Insurer does not
guaranty the market price of the Class A Certificates nor does it guaranty
that the ratings on the Class A Certificates will not be reversed or
withdrawn.
THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in the Prospectus and this Prospectus Supplement, there
is set forth below a summary of certain other provisions of the Pooling and
Servicing Agreement.
Covenant of the Sellers to Take Certain Actions with Respect to the Home Equity
Loans in Certain Situations
Pursuant to the Pooling and Servicing Agreement, upon the discovery
by the Depositor, either Seller, the Servicer, any Sub-Servicer, any Owner,
the Certificate Insurer or the Trustee that any representations and warranties
with respect to the Home Equity Loans were untrue in any material respect as
of the Closing Date with the result that the interests of the Owners or the
Certificate Insurer 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 either Seller's discovery, its receipt
of notice of breach from any of the other parties or the Certificate Insurer
or such time as a situation resulting from an existing statement which is
untrue materially and adversely affects the interests of the Owners or the
Certificate Insurer, such Seller will be required promptly to cure such breach
in all material respects or, on the second Monthly Remittance Date next
succeeding such discovery, receipt of notice or such time, such Seller shall
(i) substitute in lieu of each Home Equity Loan which has given rise to the
requirement for action by the Seller a Qualified Replacement Mortgage (as such
term is defined in the Pooling and Servicing Agreement) and deliver the
Substitution Amount to the Trustee on behalf of the Trust as part of the
Monthly Remittance remitted by the Servicer on such Monthly Remittance Date or
(ii) purchase such Home Equity Loan from the Trust at a purchase price equal
to the Loan Purchase Price (as defined below) thereof. Notwithstanding any
provision of the Pooling and Servicing Agreement to the contrary, with respect
to any Home Equity Loan which is not in default or as to which no default is
imminent, no such repurchase or substitution will be made unless such Seller
obtains for the Trustee and the Certificate Insurer an opinion of counsel
experienced in federal income tax matters and acceptable to the Trustee and
the Certificate Insurer to the effect that such a repurchase or substitution
would not constitute a Prohibited Transaction for the Trust or otherwise
subject the Trust to tax and would not jeopardize the status of the REMIC as a
REMIC (a "REMIC Opinion") addressed to the Trustee and the Certificate Insurer
and acceptable to the Trustee and the Certificate Insurer. Any Home Equity
Loan as to which repurchase or substitution was delayed pursuant to the
Pooling and Servicing Agreement shall be repurchased or substituted for
(subject to compliance with the provisions of the Pooling and Servicing
Agreement) upon the earlier of (a) the occurrence of a default or imminent
default with respect to such Home Equity Loan and (b) receipt by the Trustee
and the Certificate Insurer of a REMIC Opinion. In connection with any breach
of a representation, warranty or covenant or defect in documentation giving
rise to such repurchase or substitution obligation, each of the Sellers has
agreed that it shall, at its expense, furnish the Trustee and the Certificate
Insurer with a REMIC Opinion as a result of any such repurchase or
substitution. The obligation of the Sellers so to substitute or purchase any
Home Equity Loan as to which such a statement set forth below is untrue in any
material respect and has not been
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remedied constitutes the sole remedy respecting a discovery of any such
statement which is untrue in any material respect available to the Owners and
the Trustee.
"Loan Purchase Price" means the outstanding Loan Balance of the
related Home Equity Loan as of the date of purchase (assuming that the Monthly
Remittance remitted by the Servicer on such Monthly Remittance Date has
already been remitted), plus one month's interest at the Coupon Rate together
with the aggregate amount of all unreimbursed Delinquency Advances and
Servicing Advances theretofore made with respect to such Home Equity Loan, all
Delinquency Advances and Servicing Advances which the Servicer has theretofore
failed to remit with respect to such Home Equity Loan and all reimbursed
Delinquency Advances to the extent that reimbursement is not made from the
Mortgagor or from Liquidation Proceeds from the respective Home Equity Loan.
Assignment of Home Equity Loans
Pursuant to the Pooling and Servicing Agreement, each Seller on the
Closing Date will transfer, assign, set over and otherwise convey without
recourse to the Depositor and the Depositor will transfer, assign, set over
and otherwise convey without recourse to the Trustee in trust all of its
respective right, title and interest in and to each Home Equity Loan and all
its respective right, title and interest in and to principal and interest due
on each such Home Equity Loan after the Cut-Off Date; provided, however, that
each Seller will reserve and retain all of its right, title and interest in
and to principal (including Prepayments) and interest due on each Home Equity
Loan on or prior to the Cut-Off Date. Purely as a protective measure and not
to be construed as contrary to the parties' intent that the transfer on the
Closing Date is a sale, each Seller has also been deemed to have granted to
the Depositor and the Depositor has also been deemed to have granted to the
Trustee a security interest in the Trust Estate in the event that the transfer
of the Trust Estate is deemed to be a loan and not a sale.
In connection with the transfer and assignment of the Home Equity
Loans on the Closing Date, each Seller will be required to:
(i) deliver without recourse to the Trustee (A) the original
Notes or certified copies thereof, endorsed in blank or to the order
of the Trustee, (B) the original title insurance policy or a copy
certified by the issuer of the title insurance policy, or the
attorney's opinion of title, (C) originals or certified copies of all
intervening assignments, showing a complete chain of title from
origination to the Trustee, if any, including warehousing
assignments, with evidence of recording thereon, (D) originals of all
assumption and modification agreements, if any and (E) either: (1)
the original Mortgage, with evidence of recording thereon (if such
original Mortgage has been
(ii) returned to such Seller from the applicable recording
office) or (2) a copy of the Mortgage certified by the public
recording office in those instances where the original recorded
Mortgage has been lost;
(iii) cause, within 60 days following the Closing Date,
assignments of the Mortgages to "Manufacturers and Traders Trust
Company, as Trustee of ContiMortgage Home Equity Loan Trust 1998-3
under the Pooling and Servicing Agreement dated as of September 1,
1998" to be submitted for recording in the appropriate jurisdictions;
provided, however, that a Seller shall not be required to prepare any
assignment of Mortgage for a Mortgage with respect to which the
original recording information is lacking or to record an assignment
of a Mortgage if such Seller furnishes to the Trustee and the
Certificate Insurer, on or before the Closing Date, at its expense an
opinion of counsel with respect to the relevant jurisdiction that
such recording is not required to perfect the Trustee's interests in
the related Mortgages Loans (in form satisfactory to the Rating
Agencies and the Certificate Insurer); and
(iv) deliver the title insurance policy, the original
Mortgages and such recorded assignments, together with originals or
duly certified copies of any and all prior assignments, to the
Trustee within 15 days of receipt thereof by the related Seller (but
in any event, with respect to any Mortgage as to which original
recording information has been made available to such Seller within
one year after the Closing Date).
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The Trustee will agree, for the benefit of the Owners, to review each
File within 45 days after the Closing Date (or the date of receipt of any
documents delivered to the Trustee after such date) to ascertain that all
required documents (or certified copies of documents) have been executed and
received.
If the Trustee during such 45-day period finds any document
constituting a part of a File which is not properly executed, has not been
received, is unrelated to the Home Equity Loans or that any Home Equity Loan
does not conform in a material respect to the description thereof as set forth
in the Schedule of Home Equity Loans, the Trustee will be required to promptly
notify the Depositor, the appropriate Seller and the Certificate Insurer. Each
Seller will agree in the Pooling and Servicing Agreement to use reasonable
efforts to remedy a material defect in a document constituting part of a File
of which it is so notified by the Trustee. If, however, within 60 days after
the Trustee's notice to it respecting such defect the Seller shall not have
remedied the defect and the defect materially and adversely affects the
interest in the related Home Equity Loan of the Owners or the Certificate
Insurer, such Seller will be required on the next succeeding Monthly
Remittance Date to (or will cause an affiliate of the Seller to) (i)
substitute in lieu of such Home Equity Loan another Home Equity Loan of like
kind (a "Qualified Replacement Mortgage," as such term is defined in the
Pooling and Servicing Agreement) and deliver any "Substitution Amount" (the
excess, if any, of the Loan Balance of a Home Equity Loan being replaced over
the outstanding principal balance of a replacement Home Equity Loan plus
accrued and unpaid interest) to the Trustee on behalf of the Trust as part of
the Monthly Remittance remitted by the Servicer on such Monthly Remittance
Date or (ii) purchase such Home Equity Loan at a purchase price equal to the
Loan Purchase Price thereof, which purchase price shall be delivered to the
Trust along with the Monthly Remittance remitted by the Servicer on such
Monthly Remittance Date. However, such substitution or purchase must occur
within 90 days of the Trustee's notice of the defect if the defect would
prevent the Home Equity Loan from being a Qualified Mortgage, as such term is
defined in the Pooling and Servicing Agreement, and no substitution or
purchase of a Home Equity Loan that is not in default or for which no default
is imminent shall be made unless such Seller obtains for the Trustee and
Certificate Insurer a REMIC Opinion, addressed to and acceptable to the
Trustee and Certificate Insurer.
In addition to the foregoing, the Trustee has agreed to make a review
during the 18th month after the Closing Date indicating the current status of
the exceptions previously noted by the Trustee (the "Final Certification").
After delivery of the Final Certification, the Trustee and the Servicer shall
provide to the Certificate Insurer no less frequently than monthly, updated
certifications indicating the then current status of exceptions, until all
such exceptions have been eliminated.
Servicing and Sub-Servicing
The Servicer is required to service the Home Equity Loans in
accordance with the Pooling and Servicing Agreement and the servicing
standards set forth in FannieMae's Servicing Guide (the "FannieMae Guide");
provided, however, that to the extent such standards, such obligations or the
FannieMae Guide is amended by FannieMae after the date of the Pooling and
Servicing Agreement and the effect of such amendment would be to impose upon
the Servicer any material additional costs or other burdens relating to such
servicing obligations, the Servicer may, at its option, determine not to
comply with such amendment.
The Servicer is entitled to the Servicing Fee to the extent received.
In addition, the Servicer will be entitled to retain additional servicing
compensation in the form of prepayment charges, release fees, bad check
charges, assumption fees, late payment charges, or any other servicing-related
fees, Net Liquidation Proceeds not required to be deposited in the Principal
and Interest Account pursuant to the Pooling and Servicing Agreement, and
similar items.
The Servicer is required to create, or cause to be created, in the
name of the Trustee at one or more depository institutions a principal and
interest account maintained as a trust account in the trust department of such
institution (the "Principal and Interest Account"). All funds in the Principal
and Interest Account are required to be held (i) uninvested or (ii) invested
in Eligible Investments (as defined in the Pooling and Servicing Agreement).
Any investment of funds in the Principal and Interest Account must mature or
be withdrawable at par on or prior to the immediately succeeding Monthly
Remittance Date. Any investment earnings on funds held in the Principal and
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Interest Account are for the account of, and any losses therein are also for
the account of and must be promptly replenished by, the Servicer.
The Servicer is required to deposit to the Principal and Interest
Account, within one business day following receipt, all principal collections on
the Home Equity Loans received, and interest collections on the Home Equity
Loans accrued after the Cut-Off Date, including any Prepayments, the proceeds of
any liquidation of a Home Equity Loan net of expenses and unreimbursed
Delinquency Advances ("Net Liquidation Proceeds"), any income from REO
Properties and Delinquency Advances, but net of (i) the Servicing Fee with
respect to each Home Equity Loan and other servicing compensation, (ii)
principal collected and interest accrued on any Home Equity Loan prior to the
Cut-Off Date, (iii) Net Liquidation Proceeds to the extent that such Net
Liquidation Proceeds exceed the sum of (I) the Loan Balance of the related Home
Equity Loan, plus (II) accrued and unpaid interest on such Home Equity Loan (net
of the Servicing Fee) to the date of such liquidation, (iv) reimbursements for
Delinquency Advances, and (v) reimbursement for amounts deposited in the
Principal and Interest Account representing payments of principal and/or
interest on a Note by a Mortgagor which are subsequently returned by a
depository institution as unpaid (all such net amounts being referred to herein
as the "Daily Collections").
The Servicer may make withdrawals for its own account from the
amounts on deposit in the Principal and Interest Account with respect to each
Loan Group, in the following order and only for the following purposes:
(i) to withdraw interest paid with respect to any Home
Equity Loans that had accrued for periods on or prior to the Cut-Off
Date;
(ii) to withdraw investment earnings on amounts on deposit
in the Principal and Interest Account;
(iii) to reimburse itself for unrecovered Delinquency
Advances and Servicing Advances;
(iv) to withdraw amounts that have been deposited to the
Principal and Interest Account in error; and
(v) to clear and terminate the Principal and Interest
Account following the termination of the Trust.
The Servicer will remit to the Trustee for deposit in the Certificate
Account the Daily Collections allocable to a Remittance Period not later than
the related Monthly Remittance Date, and Loan Purchase Prices and Substitution
Amounts two Business Days following the related purchase or substitution, as
the case may be.
If the amount on deposit in the Certificate Account as of any Monthly
Remittance Date is less than the sum of (I) the Interest Remittance Amount and
(II) the Principal Remittance Amount on such Monthly Remittance Date, the
Servicer is required to remit to the Trustee for deposit to the Certificate
Account a sufficient amount of its own funds to make the total amount remitted
to the Trustee equal to such sum. Such amounts of the Servicer's own funds so
deposited are "Delinquency Advances," including, but not limited to, any
amount advanced due to the invocation by a Mortgagor of the relief provisions
provided by the Soldiers' and Sailors' Civil Relief Act of 1940, as amended.
The Servicer may reimburse itself for any Delinquency Advances paid from the
Servicer's own funds, from collections on the Home Equity Loans or from
Monthly Excess Cashflow Amount with respect to each Loan Group as specified in
the Pooling and Servicing Agreement.
Notwithstanding the foregoing, if the Servicer determines that the
aggregate unreimbursed Delinquency Advances exceed the aggregate remaining
scheduled payments due from the Mortgagors on the Home Equity Loans, the
Servicer shall not be required to make any future Delinquency Advances and
shall be entitled to reimbursement for such aggregate unreimbursed Delinquency
Advances as provided in the immediately prior sentence. The Servicer shall
give written notice of such determination to the Trustee and the Certificate
Insurer; the Trustee shall promptly furnish a copy of such notice to the
Owners of the Class R Certificates; provided, further, that the Servicer
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shall be entitled to recover any unreimbursed Delinquency Advances from the
Liquidation Proceeds for the related Home Equity Loans.
"Interest Remittance Amount" means, with respect to a Loan Group as
of any Monthly Remittance Date, the sum, without duplication, of (i) all
interest due during the related Remittance Period on the Home Equity Loans in
such Loan Group (less the related Servicing Fee), (ii) all Compensating
Interest paid by the Servicer with respect to such Loan Group on such Monthly
Remittance Date and (iii) the portion of any Substitution Amount, Loan
Purchase Price or Net Liquidation Proceeds relating to interest with respect
to such Loan Group.
"Principal Remittance Amount" means, for a Loan Group and as of any
Monthly Remittance Date, the sum, without duplication, of (i) the principal
actually collected by the Servicer on the Home Equity Loans in such Loan Group
during the related Remittance Period, (ii) the Loan Balance of each Home
Equity Loan in such Loan Group that was repurchased from the Trust during the
related Remittance Period, (iii) any Substitution Amount relating to principal
delivered by the Seller in connection with a substitution of a Home Equity
Loan in such Loan Group during the related Remittance Period, (iv) any
Insurance Proceeds actually collected by the Servicer during the related
Remittance Period with respect to a Home Equity Loan in such Loan Group (to
the extent such Insurance Proceeds relate to principal) and (v) all Net
Liquidation Proceeds actually collected by the Servicer during the related
Remittance Period with respect to such Loan Group (to the extent such Net
Liquidation Proceeds relate to principal).
The "Remittance Period" with respect to a Loan Group and any Monthly
Remittance Date is the calendar month immediately preceding the calendar month
(or, with respect to the first Remittance Period, the period from the Cut-Off
Date to the end of the calendar month) in which the Monthly Remittance Date
occurs. A "Monthly Remittance Date" is any date on which funds on deposit in
the Principal and Interest Account are remitted to the Certificate Account,
which is the 10th day of each month or, if such day is not a Business Day, the
next succeeding Business Day, commencing in the month following the month in
which the Closing Date occurs.
The Servicer will be required to pay all "out of pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, (i) expenditures in connection with a foreclosed Home
Equity Loan prior to the liquidation thereof, including, without limitation,
expenditures for real estate property taxes, hazard insurance premiums,
property restoration or preservation ("Preservation Expenses"), (ii) the cost
of any enforcement or judicial proceedings, including foreclosures and (iii)
the cost of the management and liquidation of Property acquired in
satisfaction of the related Mortgage. Such costs will constitute "Servicing
Advances." The Servicer may reimburse itself for a Servicing Advance (x) to
the extent permitted by the Home Equity Loans or, if not theretofore recovered
from the Mortgagor on whose behalf such Servicing Advance was made, from
Liquidation Proceeds realized upon the liquidation of the related Home Equity
Loan or (y) from Monthly Excess Cashflow Amount as specified in the Pooling
and Servicing Agreement. Except as provided above, in no case may the Servicer
recover Servicing Advances from the principal and interest payments on any
other Home Equity Loan.
A full month's interest at the related Coupon Rate less the Servicing
Fee will be due to the Trust on the outstanding Loan Balance of each Home
Equity Loan as of the beginning of each Remittance Period. If a Prepayment of
a Home Equity Loan occurs during any calendar month, any difference between
the interest collected from the Mortgagor in connection with such prepayment
and the full month's interest at the Coupon Rate less the Servicing Fee
("Compensating Interest") plus any Date-of-Payment interest shortfalls (but
not in excess of the aggregate Servicing Fee for the related Accrual Period),
will be required to be deposited to the Principal and Interest Account on the
Monthly Remittance Date by the Servicer and shall be included in the Monthly
Remittance to be made available to the Trustee on the next succeeding Monthly
Remittance Date.
The Servicer will have the right and the option, but not the
obligation, to purchase for its own account any Home Equity Loan which becomes
delinquent, in whole or in part, as to four consecutive monthly installments
or any Home Equity Loan as to which enforcement proceedings have been brought
by the Servicer; provided, however, that the Servicer may not purchase any
such Home Equity Loan unless the Servicer has delivered to the Trustee and the
Certificate Insurer a REMIC Opinion, addressed to and acceptable to the
Trustee and the Certificate Insurer. The purchase price for any such Home
Equity Loan is equal to the Loan Purchase Price thereof, which purchase price
shall be delivered to the Trustee.
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The Servicer is required to cause to be liquidated any Home Equity
Loan relating to a Property as to which ownership has been effected in the
name of the Servicer on behalf of the Trust and which has not been liquidated
before the start of the twelfth month of the third taxable year in which such
ownership was effected, or within such period of time as may, in the opinion
of counsel nationally recognized in federal income tax matters, be permitted
under the Code.
If so required by the terms of any Home Equity Loan, the Servicer
will be required to cause hazard insurance to be maintained with respect to
the related Property and to advance sums on account of the premiums therefor
if not paid by the Mortgagor if permitted by the terms of such Home Equity
Loan.
The Servicer will have the right under the Pooling and Servicing
Agreement to accept applications of Mortgagors for consent to (i) partial
releases of Mortgages, (ii) alterations of Properties and (iii) removal,
demolition or division of Properties. No application for approval may be
considered by the Servicer unless: (i) the provisions of the related Note and
Mortgage have been complied with; (ii) the loan-to-value ratio and
debt-to-income ratio after any release does not exceed the maximum
loan-to-value ratio and debt-to-income ratio established in accordance with
the underwriting standards set forth under the caption "The Sellers and the
Servicer--Credit and Underwriting Guidelines" herein to be applicable to such
Home Equity Loan; and (iii) the lien priority of the related Mortgage is not
affected.
The Servicer will be permitted under the Pooling and Servicing
Agreement to enter into Sub-Servicing Agreements for any servicing and
administration of Home Equity Loans with any institution which (i) is a FHLMC
or FannieMae approved Seller-Servicer for second mortgage loans and has equity
of at least $5,000,000 or (ii) is an affiliate of the Servicer.
Notwithstanding any Sub-Servicing Agreement, the Servicer will not be
relieved of its obligations under the Pooling and Servicing Agreement and the
Servicer will be obligated to the same extent and under the same terms and
conditions as if it alone were servicing and administering the Home Equity
Loans. The Servicer shall be entitled to enter into any agreement with a
Sub-Servicer for indemnification of the Servicer by such Sub-Servicer and
nothing contained in such Sub-Servicing Agreement shall be deemed to limit or
modify the Pooling and Servicing Agreement.
The Servicer (except Manufacturers and Traders Trust Company if it is
required to succeed the Servicer under the Pooling and Servicing Agreement)
agrees to indemnify and hold the Trustee, the Certificate Insurer and each
Owner harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs,
fees and expenses that the Trustee, the Certificate Insurer and any Owner may
sustain in any way related to the failure of the Servicer to perform its
duties and service the Home Equity Loans in compliance with the terms of the
Pooling and Servicing Agreement. The Servicer shall immediately notify the
Trustee, the Certificate Insurer and each Owner if a claim is made by a third
party with respect to the Pooling and Servicing Agreement, and the Servicer
shall assume (with the consent of the Trustee) the defense of any such claim
and pay all expenses in connection therewith, including reasonable counsel
fees, and promptly pay, discharge and satisfy any judgment or decree which may
be entered against the Servicer, the Trustee, the Certificate Insurer and/or
Owner in respect of such claim. The Trustee may, if necessary, reimburse the
Servicer from amounts otherwise distributable on the Retained Certificates for
all amounts advanced by it pursuant to the preceding sentence except when the
claim relates directly to the failure of the Servicer to service and
administer the Home Equity Loans in compliance with the Pooling and Servicing
Agreement.
The Servicer will be required to deliver to the Trustee, the
Certificate Insurer and the Rating Agencies: (1) on or before March 31 of each
year, commencing in 1999, an officers' certificate stating, as to each signer
thereof, that (i) a review of the activities of the Servicer during such
preceding calendar year and of performance under the Pooling and Servicing
Agreement has been made under such officers' supervision, and (ii) to the best
of such officers' knowledge, based on such review, the Servicer has fulfilled
all its obligations under the Pooling and Servicing Agreement for such year,
or, if there has been a default in the fulfillment of all such obligation,
specifying each such default known to such officers and the nature and status
thereof including the steps being taken by the Servicer to remedy such
default; and (2) on or before June 30 of any year commencing in 1999, a letter
or letters of a
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firm of independent, nationally recognized certified public accountants as of
the date of the Servicer's fiscal audit stating that such firm has examined the
Servicer's overall servicing operations in accordance with the requirements of
the Uniform Single Attestation Program for Mortgage Bankers, and stating such
firm's conclusions relating thereto.
Removal and Resignation of Servicer
The Certificate Insurer or the Owners, with the consent of the
Certificate Insurer, will have the right pursuant to the Pooling and Servicing
Agreement, to remove the Servicer upon the occurrence of: (a) certain acts of
bankruptcy or insolvency on the part of the Servicer; (b) certain failures on
the part of the Servicer to perform its obligations under the Pooling and
Servicing Agreement; or (c) the failure to cure material breaches of the
Servicer's representations in the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement also provides that the
Certificate Insurer may remove the Servicer if delinquencies and/or losses
exceed certain levels set forth in the Pooling and Servicing Agreement (the
"Servicer Termination Event").
The Servicer is not permitted to resign from the obligations and
duties imposed on it under the Pooling and Servicing Agreement except upon
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with
any other activities carried on by it, the other activities of the Servicer so
causing such conflict being of a type and nature carried on by the Servicer on
the date of the Pooling and Servicing Agreement. Any such determination
permitting the resignation of the Servicer is required to be evidenced by an
opinion of counsel to such effect which shall be delivered to the Trustee and
the Certificate Insurer by the Servicer at its expense (provided that if the
Certificate Insurer and such Owners cannot agree as to the acceptability of
such successor Servicer, the decision of the Certificate Insurer shall
control).
Upon removal or resignation of the Servicer, the Trustee (x) may
solicit bids for a successor servicer and (y) pending the appointment of a
successor Servicer as a result of soliciting such bids, shall serve as
Servicer. The Trustee, if it is unable to obtain a qualifying bid and is
prevented by law from acting as servicer, will be required to appoint, or
petition a court of competent jurisdiction to appoint, any housing and home
finance institution, bank or mortgage servicing institution designated as an
approved seller-servicer by the Federal Home Loan Mortgage Corporation
("FHLMC") or FannieMae ("FannieMae") having equity of not less than
$5,000,000, and acceptable to the Owners of the Class R Certificates and the
Certificate Insurer, as the successor to the Servicer in the assumption of all
or any part of the responsibilities, duties or liabilities of the Servicer.
No removal or resignation of the Servicer will become effective until
the Trustee or a successor servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with the Pooling and Servicing
Agreement.
The Trustee
Manufacturers and Traders Trust Company, a New York banking
corporation, having its principal corporate trust office at One M&T Plaza,
Buffalo, New York, 14203 will be named as Trustee under the Pooling and
Servicing Agreement.
Reporting Requirements
On each Payment Date the Trustee is required to report in writing to
each Owner, each Rating Agency and the Certificate Insurer:
(i) the amount of the distribution with respect to the each
Class of Certificates (based on a Certificate in the original
principal amount of $1,000);
(ii) the amount of such distribution allocable to principal
on the Home Equity Loans in both Loan Groups and in each Loan Group
(and, with respect to Loan Group II, Loan Group IIa and Loan
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Group IIb), separately identifying the aggregate amount of any
Prepayments or other recoveries of principal included therein;
(iii) the amount of such distribution allocable to interest
on the Home Equity Loans in both Loan Groups, and in each Loan Group
(and, with respect to Loan Group II, Loan Group IIa and Loan Group
IIb) (based on a Certificate in the original principal amount of
$1,000);
(iv) the Interest Carry Forward Amount for each Class;
(v) the principal amount and the Planned Principal Balance,
if any, of each Class of the Offered Certificates (based on a
Certificate in the original principal amount of $1,000) which will be
outstanding after giving effect to any payment of principal on such
Payment Date;
(vi) the aggregate Loan Balance of all Home Equity Loans in
both Loan Groups and in each Loan Group (and, with respect to Loan
Group II, Loan Group IIa and Loan Group IIb), as of the last day of
the related Remittance Period;
(vii) based upon information furnished by the Seller such
information as may be required by Section 6049(d)(7)(C) of the Code
and the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(viii) the total of any Substitution Amounts or Loan
Purchase Price amounts included in such distribution with respect to
both Loan Groups and in each Loan Group (and, with respect to Loan
Group II, Loan Group IIa and Loan Group IIb);
(ix) the weighted average Coupon Rate of the Home Equity
Loans;
(x) the weighted average Coupon Rate of both Loan Groups and
in each Loan Group (and, with respect to Loan Group II, Loan Group
IIa and Loan Group IIb);
(xi) the weighted average remaining term of both Loan Groups
and in each Loan Group; (and, with respect to Loan Group II, Loan
Group IIa and Loan Group IIb);
(xii) whether a Delinquency Trigger Event, Cumulative
Realized Loss Trigger Event and/or the Servicer Termination Event has
occurred with respect to either Loan Group;
(xiii) the Overcollateralization Amount for each Loan Group;
(xiv) the amount of any Applied Realized Loss Amount,
Realized Loss Amortization Amount and Unpaid Realized Loss Amount for
each Class of Class B Certificates as of the close of such Payment
Date;
(xv) the Pass-Through Rate for the Floating Rate
Certificates and the Auction Rate Certificates applicable to the
related Accrual Period and if the Pass-Through Rate was based on the
applicable Available Funds Cap, that such Pass-Through Rate would
have been in the absence thereof;
(xvi) the Available Funds Cap for each Certificate for such
Payment Date, if any applies;
(xvii) the amount of any Insured Payment included in the
distribution to Owners of Class A Certificates for each Loan Group;
and
(xviii) any Reimbursement Amount paid on such Payment Date
and any Reimbursement Amount remaining unpaid.
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Certain obligations of the Trustee to provide information to the
Owners are conditioned upon such information being received from the Servicer.
In addition, on each Payment Date the Trustee will be required to
distribute to each Owner and the Certificate Insurer, together with the
information described above, the following information prepared by the
Servicer and furnished to the Trustee for such purpose;
(a) the number and aggregate principal balances of all Home
Equity Loans, and in each Loan Group (and, with respect to Loan Group
II, Loan Group IIa and Loan Group IIb) that are: (i) 30-59 days
delinquent, (ii) 60-89 days delinquent and (iii) 90 or more days
delinquent, as of the close of business on the last business day of
the calendar month next preceding the Payment Date and the aggregate
number and aggregate Loan Balance of such Loans;
(b) the status and the number and dollar amounts of all Home
Equity Loans, and in each Loan Group (and, with respect to Loan Group
II, Loan Group IIa and Loan Group IIb) that are in foreclosure
proceedings as of the close of business on the last business day of
the calendar month next preceding such Payment Date;
(c) the number of Mortgagors and the Loan Balances of the
related Mortgages for all Home Equity Loans, and in each Loan Group
(and, with respect to Loan Group II, Loan Group IIa and Loan Group
IIb) involved in bankruptcy proceedings as of the close of business
on the last business day of the calendar month next preceding such
Payment Date;
(d) the existence and status of any Properties for all Home
Equity Loans, and in each Loan Group (and, with respect to Loan Group
II, Loan Group IIa and Loan Group IIb) as to which title has been
taken in the name of, or on behalf of the Trustee, as of the close of
business of the last business day of the month next preceding the
Payment Date;
(e) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure for all Home
Equity Loans, and in each Loan Group (and, with respect to Loan Group
II, Loan Group IIa and Loan Group IIb) as of the close of business on
the last business day of the calendar month next preceding the
Payment Date;
(f) the amount of cumulative Realized Losses for all Home
Equity Loans, and in each Loan Group (and, with respect to Loan Group
II, Loan Group IIa and Loan Group IIb); and
(g) the Three-Month Rolling Average 60+ Delinquency Rate for
all Home Equity Loans, and in each Loan Group (and, with respect to
Loan Group II, Loan Group IIa and Loan Group IIb).
Removal of Trustee for Cause
The Trustee may be removed upon the occurrence of any one of the
following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) on the part of the Trustee: (1) failure
to make distributions of available amounts; (2) certain breaches of covenants
and representations by the Trustee; (3) certain acts of bankruptcy or
insolvency on the part of the Trustee; and (4) failure to meet the standards
of Trustee eligibility as set forth in the Pooling and Servicing Agreement.
If any such event occurs and is continuing, then and in every such
case the Certificate Insurer or with the prior written consent of the
Certificate Insurer (such consent not to be withheld unreasonably) (x) the
Sellers or (y) the Owners of a majority of the Percentage Interests
represented by the Offered Certificates or, if there are no Offered
Certificates then Outstanding, by a majority of the Percentage Interests
represented by the Class R Certificates, may appoint a successor trustee.
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The Auction Agent
Bankers Trust Company, a New York banking corporation, will act as
Auction Agent with respect to the Auction Rate Certificates pursuant to an
Auction Agent Agreement to be entered into between the Depositor, the Trustee
and the Auction Agent.
Governing Law
The Pooling and Servicing Agreement and each Certificate will be
construed in accordance with and governed by the laws of the State of New York
applicable to agreements made and to be performed therein.
Amendments
The Trustee, the Depositor, the Sellers and the Servicer with the
consent of the Certificate Insurer may, at any time and from time to time and
without notice to or the consent of the Owners, amend the Pooling and
Servicing Agreement, and the Trustee and the Certificate Insurer will be
required to consent to such amendment, for the purposes of (i) if accompanied
by an approving opinion of counsel experienced in federal income tax matters
in form and substance acceptable to the Certificate Insurer, removing the
restriction against the transfer of a Class R Certificate to a Disqualified
Organization (as such term is defined in the Code), (ii) complying with the
requirements of the Code including any amendments necessary to maintain REMIC
status, (iii) curing any ambiguity, (iv) correcting or supplementing any
provisions therein which are inconsistent with any other provisions therein or
(v) for any other purpose; provided that in the case of clause (v), such
amendment shall not adversely affect in any material respect any Owner. Any
such amendment shall be deemed not to adversely affect in any material respect
any Owner if there is delivered to the Trustee written notification from each
Rating Agency that such amendment will not cause such Rating Agency to reduce
its then current rating assigned to any Class of the Offered Certificates
without regard to the Certificate Insurance Policies. Notwithstanding anything
to the contrary, no such amendment shall (a) change in any manner the amount
of, or delay the timing of, payments which are required to be distributed to
any Owner without the consent of the Owner of such Certificate or (b) change
the percentages of Percentage Interest which are required to consent to any
such amendments, without the consent of the Owners of all Certificates of the
Class or Classes affected then outstanding.
Termination of the Trust
The Pooling and Servicing Agreement provides that the Trust will
terminate upon the payment to the Owners of all Certificates from amounts
other than those available under the Certificate Insurance Policies of all
amounts required to be paid to such Owners upon the last to occur of (a) the
final payment or other liquidation (or any advance made with respect thereto)
of the last Home Equity Loan, (b) the disposition of all property acquired in
respect of any Home Equity Loan remaining in the Trust Estate and (c) at any
time when a Qualified Liquidation of the Trust Estate is effected as described
below. To effect a termination pursuant to clause (c) above, the Owners of all
Certificates then outstanding will be required (i) unanimously to direct the
Trustee on behalf of the REMIC to adopt a plan of complete liquidation, as
contemplated by Section 860F(a)(4) of the Code and (ii) to furnish to the
Trustee an opinion of counsel experienced in federal income tax matters
acceptable to the Trustee and the Certificate Insurer to the effect that such
liquidation constitutes a Qualified Liquidation.
Optional Termination
By Owners of Class R Certificates. At their option, the Owners of a
majority of the Percentage Interest represented by the Class R Certificates of
the first-tier REMIC then outstanding may, on any Monthly Remittance Date in
or after the month in which the aggregate outstanding Loan Balances of the
Home Equity Loans has declined to less than 10% of the Original Total Loan
Balance (the "Clean-Up Call Date"), purchase from the Trust all (but not fewer
than all) remaining Home Equity Loans, in whole only, and other property
acquired by foreclosure, deed in lieu of foreclosure, or otherwise then
constituting the Trust Estate (i) on terms agreed upon between the Certificate
Insurer and such Owners of the Class R Certificates of the first-tier REMIC,
or (ii) in the absence of such agreement at a price equal to 100% of the
aggregate Loan Balance of the related Home Equity Loans as of the day of
purchase
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minus amounts remitted from the Principal and Interest Account to the
Certificate Account representing collections of principal on the Home Equity
Loans during the current Remittance Period, plus one month's interest on such
amount computed at the Adjusted Pass-Through Rate (as defined in the Pooling and
Servicing Agreement), plus all accrued and unpaid Servicing Fees plus the
aggregate amount of any unreimbursed Delinquency Advances and Servicing Advances
and Delinquency Advances which the Servicer has theretofore failed to remit plus
any amounts due and owing to the Certificate Insurer under the Insurance
Agreement; provided that any such purchase price pursuant to clauses (i) or (ii)
shall be sufficient to pay the outstanding Certificate Principal Balances of and
accrued and unpaid interest on, all Classes of outstanding Class A and Class B
Certificates plus any amounts due and owing to MBIA under the Insurance
Agreement. Accordingly, the Class B Certificateholders would not recover Class B
Unpaid Applied Realized Losses, if any.
Termination Upon Loss of REMIC Status. Following a final
determination by the Internal Revenue Service or by a court of competent
jurisdiction, in either case from which no appeal is taken within the
permitted time for such appeal, or if any appeal is taken, following a final
determination of such appeal from which no further appeal can be taken, to the
effect that the REMIC does not and will no longer qualify as a "REMIC"
pursuant to Section 860D of the Code (the "Final Determination"), at any time
on or after the date which is 30 calendar days following such Final
Determination, the Owners of a majority in Percentage Interests represented by
the Offered Certificates then Outstanding with the consent of the Certificate
Insurer may direct the Trustee on behalf of the Trust to adopt a plan of
complete liquidation, as contemplated by Section 860F(a)(4) of the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material anticipated
federal income tax consequences of the purchase, ownership and disposition of
the Offered Certificates is to be considered only in connection with "Certain
Federal Income Tax Consequences" in the Prospectus. The discussion herein and
in the Prospectus is based upon laws, regulations, rulings and decisions now
in effect, all of which are subject to change. The discussion below and in the
Prospectus does not purport to deal with all federal tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. Investors should consult their own tax advisors in determining
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Offered Certificates.
REMIC Election
The Trust Estate created by the Pooling and Servicing Agreement will
consist of one or more segregated asset pools with respect to which an
election will be made to treat each pool as a REMIC for federal income tax
purposes. The Offered Certificates (other than the Swapped Certificates) will
be designated as regular interests in a REMIC. See "Formation of the Trust and
Trust Property" herein.
Qualification as a REMIC requires ongoing compliance with certain
conditions. Dewey Ballantine LLP, special tax counsel, is of the opinion that,
for federal income tax purposes, assuming (i) the appropriate REMIC elections
are timely made and (ii) compliance with the Pooling and Servicing Agreement,
each REMIC formed pursuant to the Pooling and Servicing Agreement will be
treated as a REMIC the Offered Certificates (other than the Swapped
Certificates) will be treated as "regular interests" in a REMIC. Except as
indicated below and in the Prospectus, for federal income tax purposes,
regular interests in a REMIC are treated as debt instruments issued by the
REMIC on the date on which those interests are created, and not as ownership
interests in the REMIC or its assets. Owners of the Offered Certificates
(other than the Swapped Certificates) that otherwise report income under a
cash method of accounting will be required to report income with respect to
such Offered Certificates under an accrual method. See "Certain Federal Income
Tax Consequences" in the Prospectus for a discussion of the taxation of
holders of REMIC regular interests.
The Interest-Only Certificates will be issued with original issue
discount. Accordingly, holders of such Certificates will be required to
include in gross income such original issue discount as it accrues under a
method that takes into account the compounding of interest and the prepayment
assumption. See "Certain Federal Income Tax Consequences - Taxation of Regular
Certificates - Original Issue Discount" in the Prospectus. The prepayment
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assumption for calculating original issue discount is 130% of the Fixed
Prepayment Assumption for the Fixed Rate Loans and 100% of the Adjustable
Prepayment Assumption for the Adjustable Rate Loans. See "Prepayment and Yield
Considerations -- Projected Prepayment and Yield for Offered Certificates"
herein.
In general, as a result of the qualification of the Offered
Certificates (other than the Swapped Certificates) as regular interests in a
REMIC, the Offered Certificates (other than the Swapped Certificates) will be
treated as "regular . . . interest(s) in a REMIC" under Section 7701(a)(19)(C)
of the Internal Revenue Code of 1986, as amended (the "Code") and "real estate
assets" under Section 856(c) of the Code in the same proportion that the
assets in the REMIC consist of qualifying assets under such sections. In
addition, interest on the Offered Certificates (other than the Swapped
Certificates) will be treated as "interest on obligations secured by mortgages
on real property" under Section 856(c) of the Code to the extent that such
Certificates are treated as "real estate assets" under Section 856(c) of the
Code.
Swapped Certificates
Dewey Ballantine LLP, special tax counsel, is of the opinion that for
federal income tax purposes, assuming compliance with the terms of the Pooling
and Servicing Agreement, the arrangement pursuant to which the interest rates
on the Swapped Certificates is "swapped" from fixed to floating will
constitute a "grantor trust" under Subpart E, Part I of Subchapter J of the
Code, and not an association taxable as a corporation. Accordingly, each
holder of a Swapped Certificate will be treated as the owner of an undivided
interest in a "regular interest" in a REMIC, the Swap Agreement, and other
assets held by the grantor trust. See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for Certificates as to Which No
REMIC Election Is Made" in the Prospectus.
Although the Swapped Certificates resemble in certain respects
variable rate debt instruments, their tax treatment can differ substantially
from such an investment. The Certificates may not be a suitable investment for
individuals, trusts or estates and certain "pass-thru entities," the
beneficial owners of which are individuals, trusts or estates. The Swapped
Certificates may not be a suitable investment for real estate investment
trusts or REMICs. Moreover, other special rules may apply to certain
investors, including dealers in securities, dealers in notional principal
contracts, and persons holding the Swapped Certificates or any of the assets
in the Grantor Trust as part of a straddle.
The interest in the Swap Agreement will not constitute a "real estate
asset" within the meaning of Section 856(c)(4)(A) of the Code if held by a
real estate investment trust, a "qualified mortgage" or "permitted investment"
within the meaning of Sections 860G(a)(3) and 860G(a)(5) of the Code,
respectively, if held by a REMIC, nor an asset described in Section
7701(a)(19)(c)(xi) if held by a domestic building and loan association.
Further, the income received under the Swap Agreement will not constitute
income described in Section 856(c)(3)(B) for a real estate investment trust.
A purchaser of Swapped Certificates will be required to allocate its
purchase price between its ownership interest in the various assets of the
grantor trust. In general, such allocation would be based on the relative fair
market values of such assets on the date of purchase of the Swapped
Certificate. No representation is or will be made as to such relative fair
market values and holders of Swapped Certificates should consult their tax
advisors concerning the determination of such fair market values and the
taxation of the holder's interest in the Swap Agreement, the tax treatment of
which is generally governed by the provisions of the Code and Treasury
regulations relating to notional principal contracts and possibly those
relating to straddles.
Each holder of a Swapped Certificate must report on its federal
income tax return ordinary income equal to its share of the interest payable
with respect to the related, underlying REMIC regular interest and a
proportionate share of the net amounts payable to the grantor trust under the
Swap Agreement, and may deduct the portion of the expenses incurred by the
grantor trust that is allocable to such Certificate (including net payments
under the Swap Agreement), 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
the assets held by the Grantor Trust and incurred directly its share of
expenses incurred by the Grantor Trust. A holder of Swapped Certificates that
is an individual, estate or trust should consult its tax advisers concerning
possible limitations on the deductibility of expenses of the grantor trust.
See "Certain Federal
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Income Tax Consequences--Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made--Standard Certificates--General" in the
Prospectus regard such limitations.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Code impose certain restrictions on employee benefit plans
subject to ERISA and other plans or arrangements subject to Section 4975 of
the Code ("Plans") and on persons who are parties in interest or disqualified
persons ("parties in interest") with respect to such Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election has
been made under section 410(d) of the Code), are not subject to the
restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below,
subject to other applicable federal and state law. However, any such
governmental or church plan which is qualified under section 401(a) of the
Code and exempt from taxation under section 501(a) of the Code is subject to
the prohibited transaction rules set forth in section 503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in certain transactions ("prohibited transactions")
involving a Plan and its assets unless a statutory or administrative exemption
applies to the transaction. Section 4975 of the Code imposes certain excise
taxes (or, in some cases, a civil penalty may be assessed pursuant to section
502(i) of ERISA) on parties in interest which engage in non-exempt prohibited
transactions.
The United States Department of Labor ("DOL") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining
what constitutes the assets of a Plan. This regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity investment" will be deemed for purposes of ERISA to be assets of the
Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold
plan assets by reason of a Plan's investment in a Certificate; such plan
assets would include an undivided interest in the Home Equity Loans and any
other assets held by the Trust. In such an event, persons providing services
with respect to the assets of the Trust, may be parties in interest, subject
to the fiduciary responsibility provisions of Title I of ERISA, including the
prohibited transaction provisions of Section 406 of ERISA (and of Section 4975
of the Code), with respect to transactions involving such assets unless such
transactions are subject to a statutory or administrative exemption.
The Class A Certificates
The DOL has granted an administrative exemption to each Underwriter
separate "Prohibited Transaction Exemptions" (collectively, the "Exemption"),
which exempt from the application of certain of the prohibited transaction
rules of ERISA transactions relating to (i) the initial purchase, the holding
and the subsequent resale by Plans of certificates representing interests in
certain asset-backed pass-through trusts with respect to such any Underwriter
or any of its affiliates is the sole underwriter or the manager or co-manager
of the underwriting syndicate; and (ii) the servicing, operation and
management of such asset-backed pass-through trusts, provided that the general
conditions and certain other conditions set forth in the Exemption is
satisfied.
The general conditions which must be satisfied for the Exemption to
apply to the Class A Certificates are the following:
(i) the acquisition of the Class A Certificates by a Plan is
on terms (including the price for the Class A Certificates) that are
at least as favorable to the Plan as they would be in an arm's length
transaction with an unrelated party;
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(ii) the rights and interests evidenced by the Class A
Certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust;
(iii) the Class A Certificates acquired by the Plan have
received a rating at the time of such acquisition that is in one of
the three highest generic rating categories from any of Standard &
Poor's, Moody's, Fitch or Duff & Phelps Credit Rating Co. (the
"Rating Agencies");
(iv) assets of the type included in the Trust have been
included in other investment pools, certificates evidencing interests
in such other investment pools have been both rated in one of the
highest three generic rating categories by one of the Rating Agencies
and have been purchased by investors, other than Plans, for at least
one year prior to a Plan's acquisition of the Class A Certificates in
reliance upon the Exemption.
(v) the Trustee is not an affiliate of the Underwriters, the
Depositor, the Sellers, the Servicer, any Sub-Servicer, the
Certificate Insurer, any borrower whose obligations under one or more
Home Equity Loans constitute more than 5% of the aggregate
unamortized principal balance of the assets in the Trust, or any of
their respective affiliates (the "Restricted Group");
(vi) the sum of all payments made to, and retained by, the
Underwriters in connection with the distribution of the Class A
Certificates represents not more than reasonable compensation for
underwriting the Class A Certificates; the sum of all payments made
to and retained by the Depositor pursuant to the sale of the Home
Equity Loans to the Trust represents not more than the fair market
value of such Home Equity Loans; and the sum of all payments made to
and retained by the Servicer represents not more than reasonable
compensation for the Servicer's services under the Pooling and
Servicing Agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith; and
(vii) the Plan investing in the Class A 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.
Section I.A of the Exemption would provide an exemption from the
restrictions of sections 406(a) and 407(a) of ERISA as well as the excise
taxes imposed by sections 4975(a) and (b) of the Code by reason of sections
4975(c)(1)(A) through (D) of the Code with respect to a Plan's investment in
the Class A Certificates upon their initial offering or in the secondary
market therefor and the Plan's continued holding of such Certificates if the
above-described general conditions of the Exemption are satisfied.
Section I.B of the Exemption would provide an exemption from the
restrictions of sections 406(b)(1) and 406(b)(2) of ERISA as well as the
excise taxes imposed by sections 4975(a) and (b) of the Code by reason of
section 4975(c)(1)(E) of the Code with respect to a Plan's investment in the
Class A Certificates upon their initial offering or in the secondary market
therefor and the Plan's continued holding of such Certificates if, in addition
to the above-described general conditions of the Exemption, the following
conditions are satisfied: (i) such Plan is not sponsored by a member of the
Restricted Group; (ii) at least 50% of each Class of Class A Certificates is
acquired by persons independent of the Restricted Group and at least 50% of
the aggregate interest in the Trust is acquired by persons independent of the
Restricted Group; (iii) the total investment of such Plan in each Class of
Class A Certificates does not exceed 25% of all such Class of Class A
Certificates outstanding at the time of the acquisition; and (iv) immediately
after such investment, no more than 25% of the assets of such Plan are
invested in certificates representing an interest in a trust containing assets
sold or serviced by the same entity.
Section I.C of the Exemption would provide an exemption from the
restrictions of sections 406(a), 406(b) and 407(a) of ERISA as well as the
excise taxes imposed by sections 4975(a) and (b) of the Code by reason of
section 4975(c) of the Code with respect to the servicing, management and
operation of the Trust if, in addition to the above-described general
conditions of the Exemption, the following conditions are satisfied: (i) such
transactions are carried out in accordance with the terms of the Pooling and
Servicing Agreement, and (ii) the Pooling and Servicing Agreement is made
available to investors prior to their investment in the Trust.
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Section I.D of the Exemption would provide an exemption from the
restrictions of sections 406(a) and 407(a) of ERISA as well as the excise
taxes imposed by sections 4975(a) and (b) of the Code by reason of sections
4975(c)(1)(A) through (D) of the Code with respect to transactions to which
those restrictions or taxes would otherwise apply merely because a person is
deemed to be a party in interest or a disqualified person (including a
fiduciary) with respect to a Plan by virtue of providing services to the Plan
(or by virtue of having a relationship to such service provider described in
section 3(14)(F), (G), (H) or (I) of ERISA or section 4975(e)(2)(F), (G), (H),
or (I) of the Code), solely because of the Plan's ownership of the Class A
Certificates.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
make its own determination as to the availability of the exemptive relief
provided in the Exemption, and whether the conditions of the Exemption will be
applicable to such Class A Certificate.
The Swapped Certificates
The Exemption does not apply to the purchase, holding or subsequent
resale of the Swapped Certificates. However, Prohibited Transaction Class
Exemption ("PTCE") 75-1, Part II, regarding principal transactions by
broker-dealers may be applicable to the acquisition of the Swapped
Certificates; provided that the Underwriter is not a fiduciary with respect to
the Plan (and is not a party in interest with respect to the Plan by reason of
being a participating employer or affiliate thereof). In addition, one or more
of the following prohibited transaction class exemptions may be applicable to
the purchase, holding or subsequent resale of the Swapped Certificates by a
Plan; (i) PTCE 96-23, regarding investments determined by in-house asset
managers, (ii) PTCE 95-60, regarding investments by insurance company pooled
accounts; (iii) PTCE 91-38, regarding investments by bank collective
investment funds; (iv) PTCE 90-1; regarding investments by insurance company
pooled separate accounts; or (v) PTCE 84-14, regarding transactions negotiated
by qualified professional asset managers. To the extent that the acquisition
of a Swapped Certificate by a Plan is deemed for purposes of ERISA to be a
purchase of an interest in the related Internal Certificates, the Exemption
should be applicable to the purchase, holding or subsequent resale of such
interest. Before purchasing a Swapped Certificate, a fiduciary of a Plan
should make its own determination as to the availability of the exemptive
relief provided in PTCE 75-1 or in such other PTCEs with respect to such
Certificate.
Class B Certificates
The Exemptions do not apply to the initial purchase, the holding or
the subsequent resale of the Class B Certificates because such Certificates
are subordinate to certain other Classes of Certificates. Accordingly, Plans
may not purchase the Class B Certificates, except that any insurance company
may purchase such Certificates with assets of its general account if the
exemptive relief granted by the DOL for transactions involving insurance
company general accounts in Prohibited Transaction Exemption 95-60, 60 Fed.
Reg. 35925 (October 12, 1995) is available with respect to such investment.
Any insurance company proposing to purchase such Certificates for its general
account should consider whether such relief would be available. By its
acquisition of an interest in a Subordinate Certificate, the Beneficial Owner
thereof will be deemed to have represented that such Beneficial Owner either
(i) is not a Plan and is not acquiring its interest in such Certificate with
the assets of a Plan or (ii) is an insurance company acquiring its interest as
permitted by and in accordance with the provisions of Prohibited Transaction
Exemption 95-60.
In addition to the matters described above, purchasers of Offered
Certificates that are insurance companies should consult with their counsel
with respect to the United States Supreme Court case interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance
Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993). In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be "plan assets" for ERISA purposes under certain
circumstances. Prospective purchasers using insurance company general account
assets should determine whether the decision or federal legislation enacted
affecting insurance company general accounts (see Section 1460 of the Small
Business Job Protection Act of 1996) affects their ability to make purchases
of the Offered Certificates.
S-73
<PAGE>
Any fiduciary of a Plan considering whether to purchase an Offered
Certificate should consult with its own legal advisors concerning the impact
of ERISA and the Code and the potential consequences to its specific
circumstances, prior to making an investment in the such Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment
in any Offered Certificate is appropriate for the Plan, taking into account
the overall investment of the Plan and the composition of the Plan's
investment portfolio.
S-74
<PAGE>
RATINGS
It is a condition of the issuance of the Offered Certificates that
the Offered Certificates receive at least the ratings from the Rating Agencies
as follows:
<TABLE>
<CAPTION>
Class Moody's Standard & Poor's Fitch
- -------------------------- ------- ----------------- -----
<S> <C> <C> <C>
Class A-1 and Class A-11 P-1 A-1+ F-1+
Certificates
Class A Certificates Aaa AAA AAA
(other than the Class
A-1, Class A-11 and
Interest-Only
Certificates)
Interest-Only Certificates Aaa AAAr AAA
Class B Certificates Baa3 BBB- BBB
</TABLE>
Explanations of the significance of such ratings may be obtained from
Moody's, 99 Church Street, New York, New York 10007, Standard & Poor's, 26
Broadway, New York, New York 10004 and Fitch, One State Street Plaza, 33rd
Floor, New York, New York 10004. Such ratings will be the views only of such
rating agencies. There is no assurance that such ratings will continue for any
period of time or that such ratings will not be revised or withdrawn. Any such
revision or withdrawal of such ratings may have an adverse effect on the
market price of the Offered Certificates. A security rating is not a
recommendation to buy, sell or hold securities.
The ratings assigned by Fitch to pass-through certificates address
the likelihood of the receipt by the Owners of all distributions to which such
Owners are entitled. Fitch's ratings address the structural and legal aspects
associated with the Certificates, including the nature of the underlying loans
and the credit quality of the credit support provider. Fitch's ratings on home
equity pass-through Certificates do not represent any assessment of the
likelihood or rate of principal prepayments. The ratings do not address the
possibility that Owners might suffer a lower than anticipated yield or that
investors in the Interest-Only Certificates may not fully recover their
investment.
The ratings of Moody's on home equity pass-through certificates
address the likelihood of the receipt by the Owners of all distributions to
which such Owners are entitled. Moody's rating opinions address the structural
and legal issues and tax-related aspects associated with the Certificates,
including the nature of the underlying home equity loans and the credit
quality of the credit support provider, if any. Moody's ratings on
pass-through certificates do not represent any assessment of the likelihood
that principal prepayments may differ from those originally anticipated.
The ratings of Moody's, Standard & Poor's and Fitch do not address
the possibility that, as a result of principal prepayments, certificateholders
may receive a lower than anticipated yield.
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 and may be
subject to revision or withdrawal at any time by the assigning rating agency.
The Depositor has not requested a rating of the Offered Certificates
by any rating agency other than Moody's, Standard & Poor's and Fitch and the
Depositor has not provided information relating to the Offered
S-75
<PAGE>
Certificates or the Home Equity Loans to any rating agency other than Moody's,
Standard & Poor's and Fitch. However, there can be no assurance as to whether
any other rating agency will rate the Offered Certificates or, if another rating
agency rates such Certificates, what rating would be assigned to such
Certificates by such rating agency. Any such unsolicited rating assigned by
another rating agency to the Offered Certificates may be lower than the rating
assigned to such Certificates by any of Moody's, Standard & Poor's and Fitch.
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will not constitute "mortgage related
securities" for purpose of SMMEA. The appropriate characterization of the
Offered Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase the Offered
Certificates, may be subject to significant interpretive uncertainties. All
investors whose investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to what extent the
Offered Certificates offered hereby will constitute legal investments for
them.
The Depositor makes no representation as to the proper
characterization of the Certificates offered hereby for legal investment of
financial institution regulatory purposes, or as to the ability of particular
investors to purchase the Offered Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Certificates offered
hereby) may adversely affect the liquidity of the Offered Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Offered Certificates (the "Underwriting Agreement"),
the Depositor has agreed to sell (i) to each of Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc., ContiFinancial Services Corporation,
Credit Suisse First Boston Corporation, Greenwich Capital Markets, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and NationsBanc Montgomery
Securities LLC (the "Underwriters"), and each of the Underwriters (other than
ContiFinancial Services Corporation) has severally agreed to purchase
one-sixth (except for remaining amounts less than one dollar, which will be
purchased by Morgan Stanley & Co. Incorporated) of the total principal amount
of each Class of the Offered Certificates, other than the Class A-1, Class
A-11, Class N-IO, Class P-IO and Class A-18 Certificates, (ii) to Morgan
Stanley & Co. Incorporated, and Morgan Stanley has agreed to purchase 100% in
Percentage Interest of each of the Class N-IO and Class P-IO Certificates,
(iii) to Bear, Stearns & Co. Inc., and Bear, Stearns & Co. Inc. has agreed to
purchase the entire principal amount of the Class A-18 Certificates and (iv)
to ContiFinancial Services Corporation, and ContiFinancial Services
Corporation has agreed to purchase, $12,000,000 of the total principal amount
of each of the Class A-1 and Class A-11 Certificates, with the remaining
Underwriters severally agreeing to purchase one-sixth of the remaining total
principal balance of each such Class (except for remaining amounts of less
than one dollar, which will be purchased by Morgan Stanley & Co.
Incorporated).
In the Underwriting Agreement, the Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the
Certificates offered hereby, if any are purchased. The Depositor has been
advised by the Underwriters that they propose initially to offer the Offered
Certificates to the public at the respective offering prices set forth on the
cover page hereof and to certain dealers at such price less a concession not
in excess of the respective amounts set forth in the table below (expressed as
a percentage of the related Certificate Principal Balance). The Underwriters
may allow and such dealers may reallow a discount not in excess of the
respective amounts set forth in the table below to certain other dealers.
After the initial public offering of the Offered Securities, the public
offering price and such concessions and reallowances may be changed.
Class Selling Reallowance
----- Concession Discount
---------- -----------
Class A-1 0.0600% 0.0300%
Class A-2 0.0900 0.0450
Class A-3 0.1050 0.0525
Class A-4 0.1200 0.0600
S-76
<PAGE>
Class Selling Reallowance
----- Concession Discount
---------- -----------
Class A-5 0.1350 0.0675
Class A-6 0.1500 0.0750
Class A-7 0.1650 0.0825
Class A-8 0.1500 0.0750
Class A-9 0.1700 0.0600
Class A-10 0.1700 0.0600
Class A-11 0.0600 0.0300
Class A-12 0.0600 0.0300
Class A-13 0.0750 0.0375
Class A-14 0.0900 0.0450
Class A-15 0.1050 0.0525
Class A-16 0.1200 0.0600
Class A-17 0.1650 0.0825
Class A-18 0.1250 0.0625
Class A-19 0.0720 0.0360
Class A-20 0.1140 0.0570
Class N-IO 0.0365 0.0183
Class P-IO 0.0319 0.0160
Class B-I 0.4500 0.2250
Class B-II 0.4800 0.2400
In connection with this offering and in compliance with applicable
law and industry practice, the Underwriters may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Offered Certificates at a level above that which might otherwise prevail
in the open market, including stabilizing bids, effecting syndicate covering
transactions or imposting penalty bids. A stabilizing bid means the placing of
any bid, or the effecting of any purchase, for the purpose of pegging, fixing
or maintaining the price of a security. A syndicate covering transaction means
the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection
with the offering. A penalty bid means an arrangement that permits Morgan
Stanley & Co. Incorporated, as managing underwriter, to reclaim a selling
concession from a syndicate member in connection with the offering when
Offered Certificates originally sold by the syndicate member are purchased in
syndicate covering transactions. The Underwriters are not required to engage
in any of these activities. Any such activities, if commenced, may be
discontinued at any time.
The Depositor has agreed to indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act of
1934, or contribute to payments which the Underwriters may be required to make
in respect thereof.
The Depositor or its affiliates may apply all or any portion of such
net proceeds to the repayment of debt, including "warehouse" debt secured by
the Home Equity Loans (prior to their sale to the Trust). One or more of the
Underwriters (or their respective affiliates) may have acted as a "warehouse
lender" to the Depositor or its affiliates, and may receive a portion of such
proceeds as repayment of such "warehouse" debt.
The Depositor is an affiliate of ContiFinancial Services Corporation.
REPORT OF EXPERTS
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1997 and 1996 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, 1997, 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.
S-77
<PAGE>
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Sellers by Dewey Ballantine LLP, New
York, New York and by Michael R. Mayberry, Esquire, Counsel for the Depositor.
Certain legal matters relating to insolvency issues and certain federal income
tax matters concerning the Certificates will be passed upon for the Depositor
by Dewey Ballantine LLP. Certain legal matters relating to the issuance of the
Certificates will be passed upon for the Underwriters by Stroock & Stroock &
Lavan LLP, New York, New York.
S-78
<PAGE>
ANNEX I
PLANNED PRINCIPAL BALANCES AND MAXIMUM MATURITY SCHEDULES
Planned Amortization Certificates
<TABLE>
<CAPTION>
Period Class A-12 Class A-13 Class A-14 Class A-15 Class A-16 Class A-17 Maximum
------ ---------- ---------- ---------- ---------- ---------- ---------- Maturity
Specified
Percentage
----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $130,000,000.00 $192,000,000.00 $42,000,000.00 $70,000,000.00 $25,000,000.00 $66,602,000.00 21.95%
2 130,000,000.00 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.87%
3 130,000,000.00 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.78%
4 130,000,000.00 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.69%
5 130,000,000.00 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.60%
6 130,000,000.00 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.51%
7 130,000,000.00 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.42%
8 124,214,006.70 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.33%
9 108,795,238.50 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.24%
10 93,299,654.50 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.15%
11 77,935,558.10 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 21.05%
12 61,927,412.30 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.96%
13 46,966,066.12 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.86%
14 32,183,172.13 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.76%
15 17,579,333.35 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.66%
16 3,156,622.81 192,000,000.00 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.56%
17 0.00 181,066,327.28 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.46%
18 0.00 167,326,877.23 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.36%
19 0.00 153,929,228.43 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.25%
20 0.00 140,864,580.52 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.15%
21 0.00 128,124,363.54 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 20.04%
22 0.00 115,700,231.76 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 19.94%
23 0.00 103,584,838.38 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 19.83%
24 0.00 91,769,534.94 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 19.72%
25 0.00 80,246,579.28 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 19.61%
26 0.00 69,008,464.42 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 19.50%
27 0.00 58,047,878.96 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 19.38%
28 0.00 47,357,701.85 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 19.27%
29 0.00 36,930,997.26 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 19.15%
30 0.00 26,761,009.64 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 19.04%
31 0.00 16,841,158.90 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 18.92%
32 0.00 7,165,035.70 42,000,000.00 70,000,000.00 25,000,000.00 66,602,000.00 18.80%
33 0.00 0.00 39,726,396.80 70,000,000.00 25,000,000.00 66,602,000.00 18.68%
34 0.00 0.00 30,519,160.80 70,000,000.00 25,000,000.00 66,602,000.00 18.56%
35 0.00 0.00 21,537,063.74 70,000,000.00 25,000,000.00 66,602,000.00 18.43%
36 0.00 0.00 12,774,652.73 70,000,000.00 25,000,000.00 66,602,000.00 18.31%
37 0.00 0.00 12,774,652.73 70,000,000.00 25,000,000.00 66,602,000.00 18.18%
38 0.00 0.00 12,774,652.73 70,000,000.00 25,000,000.00 66,602,000.00 18.06%
39 0.00 0.00 12,774,652.73 70,000,000.00 25,000,000.00 66,602,000.00 17.93%
40 0.00 0.00 7,534,219.63 70,000,000.00 25,000,000.00 66,602,000.00 17.80%
41 0.00 0.00 1,321,534.23 70,000,000.00 25,000,000.00 66,602,000.00 17.67%
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
Planned Amortization Certificates
Period Class A-12 Class A-13 Class A-14 Class A-15 Class A-16 Class A-17 Maximum
------ ---------- ---------- ---------- ---------- ---------- ---------- Maturity
Specified
Percentage
----------
<S> <C> <C> <C> <C> <C> <C> <C>
42 0.00 0.00 0.00 65,338,911.73 25,000,000.00 66,602,000.00 17.53%
43 0.00 0.00 0.00 59,577,708.93 25,000,000.00 66,602,000.00 17.40%
44 0.00 0.00 0.00 54,029,612.93 25,000,000.00 66,602,000.00 17.26%
45 0.00 0.00 0.00 48,686,628.73 25,000,000.00 66,602,000.00 17.12%
46 0.00 0.00 0.00 43,541,066.83 25,000,000.00 66,602,000.00 16.98%
47 0.00 0.00 0.00 38,585,530.64 25,000,000.00 66,602,000.00 16.84%
48 0.00 0.00 0.00 33,812,906.04 25,000,000.00 66,602,000.00 16.70%
49 0.00 0.00 0.00 29,216,349.64 25,000,000.00 66,602,000.00 16.55%
50 0.00 0.00 0.00 24,789,278.44 25,000,000.00 66,602,000.00 16.41%
51 0.00 0.00 0.00 20,525,359.94 25,000,000.00 66,602,000.00 16.26%
52 0.00 0.00 0.00 16,418,502.04 25,000,000.00 66,602,000.00 16.11%
53 0.00 0.00 0.00 12,462,844.24 25,000,000.00 66,602,000.00 15.96%
54 0.00 0.00 0.00 8,652,747.96 25,000,000.00 66,602,000.00 15.80%
55 0.00 0.00 0.00 4,982,789.47 25,000,000.00 66,602,000.00 15.64%
56 0.00 0.00 0.00 1,447,747.96 25,000,000.00 66,602,000.00 15.49%
57 0.00 0.00 0.00 0.00 23,042,799.07 66,602,000.00 15.33%
58 0.00 0.00 0.00 0.00 19,762,913.85 66,602,000.00 15.17%
59 0.00 0.00 0.00 0.00 16,603,442.49 66,602,000.00 15.01%
60 0.00 0.00 0.00 0.00 13,559,910.72 66,602,000.00 14.85%
61 0.00 0.00 0.00 0.00 10,628,013.16 66,602,000.00 14.69%
62 0.00 0.00 0.00 0.00 7,803,606.80 66,602,000.00 14.52%
63 0.00 0.00 0.00 0.00 5,082,704.65 66,602,000.00 14.36%
64 0.00 0.00 0.00 0.00 2,461,469.96 66,602,000.00 14.19%
65 0.00 0.00 0.00 0.00 0.00 66,538,210.15 14.01%
66 0.00 0.00 0.00 0.00 0.00 64,105,371.64 13.84%
67 0.00 0.00 0.00 0.00 0.00 61,761,534.28 13.66%
68 0.00 0.00 0.00 0.00 0.00 59,503,406.38 13.48%
69 0.00 0.00 0.00 0.00 0.00 57,327,819.62 13.30%
70 0.00 0.00 0.00 0.00 0.00 55,231,724.57 13.12%
71 0.00 0.00 0.00 0.00 0.00 53,212,186.03 12.93%
72 0.00 0.00 0.00 0.00 0.00 51,266,378.63 12.74%
73 0.00 0.00 0.00 0.00 0.00 49,391,582.75 12.55%
74 0.00 0.00 0.00 0.00 0.00 47,585,180.45 12.36%
75 0.00 0.00 0.00 0.00 0.00 45,844,651.61 12.16%
76 0.00 0.00 0.00 0.00 0.00 44,167,570.14 11.97%
77 0.00 0.00 0.00 0.00 0.00 42,551,600.55 11.76%
78 0.00 0.00 0.00 0.00 0.00 40,994,494.43 11.56%
79 0.00 0.00 0.00 0.00 0.00 39,494,087.11 11.35%
80 0.00 0.00 0.00 0.00 0.00 38,048,294.58 11.14%
81 0.00 0.00 0.00 0.00 0.00 36,655,110.40 10.93%
82 0.00 0.00 0.00 0.00 0.00 35,312,602.70 10.72%
83 0.00 0.00 0.00 0.00 0.00 34,018,911.49 10.50%
84 0.00 0.00 0.00 0.00 0.00 32,772,245.84 10.28%
85 0.00 0.00 0.00 0.00 0.00 31,542,063.70 10.05%
86 0.00 0.00 0.00 0.00 0.00 30,180,580.79 9.83%
87 0.00 0.00 0.00 0.00 0.00 28,867,646.98 9.60%
88 0.00 0.00 0.00 0.00 0.00 27,601,475.45 9.36%
89 0.00 0.00 0.00 0.00 0.00 26,380,345.36 9.13%
90 0.00 0.00 0.00 0.00 0.00 25,202,599.32 8.89%
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
Planned Amortization Certificates
Period Class A-12 Class A-13 Class A-14 Class A-15 Class A-16 Class A-17 Maximum
------ ---------- ---------- ---------- ---------- ---------- ---------- Maturity
Specified
Percentage
----------
<S> <C> <C> <C> <C> <C> <C> <C>
91 0.00 0.00 0.00 0.00 0.00 24,066,641.04 8.64%
92 0.00 0.00 0.00 0.00 0.00 22,970,932.99 8.40%
93 0.00 0.00 0.00 0.00 0.00 21,913,994.23 8.14%
94 0.00 0.00 0.00 0.00 0.00 20,894,398.24 7.89%
95 0.00 0.00 0.00 0.00 0.00 19,910,770.92 7.63%
96 0.00 0.00 0.00 0.00 0.00 18,961,788.56 7.37%
97 0.00 0.00 0.00 0.00 0.00 18,046,176.03 7.11%
98 0.00 0.00 0.00 0.00 0.00 17,162,704.89 6.84%
99 0.00 0.00 0.00 0.00 0.00 16,310,191.67 6.56%
100 0.00 0.00 0.00 0.00 0.00 15,487,496.16 6.29%
101 0.00 0.00 0.00 0.00 0.00 14,693,519.82 6.01%
102 0.00 0.00 0.00 0.00 0.00 13,927,204.19 5.72%
103 0.00 0.00 0.00 0.00 0.00 13,187,529.41 5.43%
104 0.00 0.00 0.00 0.00 0.00 12,473,512.75 5.14%
105 0.00 0.00 0.00 0.00 0.00 11,784,207.24 4.84%
106 0.00 0.00 0.00 0.00 0.00 11,118,700.31 4.54%
107 0.00 0.00 0.00 0.00 0.00 10,476,112.53 4.23%
108 0.00 0.00 0.00 0.00 0.00 9,855,596.35 3.92%
109 0.00 0.00 0.00 0.00 0.00 9,256,334.90 3.60%
110 0.00 0.00 0.00 0.00 0.00 8,677,540.86 3.28%
111 0.00 0.00 0.00 0.00 0.00 8,118,455.34 2.95%
112 0.00 0.00 0.00 0.00 0.00 7,578,346.82 2.62%
113 0.00 0.00 0.00 0.00 0.00 7,056,510.12 2.28%
114 0.00 0.00 0.00 0.00 0.00 6,552,265.41 1.94%
115 0.00 0.00 0.00 0.00 0.00 6,064,957.27 1.59%
116 0.00 0.00 0.00 0.00 0.00 5,596,722.17 1.28%
117 0.00 0.00 0.00 0.00 0.00 5,144,230.54 0.97%
118 0.00 0.00 0.00 0.00 0.00 4,706,896.80 0.65%
119 0.00 0.00 0.00 0.00 0.00 4,284,156.38 0.33%
120 0.00 0.00 0.00 0.00 0.00 3,875,463.50 0.00%
121 0.00 0.00 0.00 0.00 0.00 3,467,135.45 0.00%
122 0.00 0.00 0.00 0.00 0.00 3,074,260.13 0.00%
123 0.00 0.00 0.00 0.00 0.00 2,696,255.92 0.00%
124 0.00 0.00 0.00 0.00 0.00 2,332,563.06 0.00%
125 0.00 0.00 0.00 0.00 0.00 1,982,642.83 0.00%
126 0.00 0.00 0.00 0.00 0.00 1,645,976.76 0.00%
127 0.00 0.00 0.00 0.00 0.00 1,322,065.85 0.00%
128 0.00 0.00 0.00 0.00 0.00 1,010,429.86 0.00%
129 0.00 0.00 0.00 0.00 0.00 710,606.59 0.00%
130 0.00 0.00 0.00 0.00 0.00 422,151.20 0.00%
131 0.00 0.00 0.00 0.00 0.00 144,635.57 0.00%
</TABLE>
I-3
<PAGE>
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<PAGE>
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
ContiMortgage Home Equity Loan Trust 1998-2 Home Equity Loan Pass-Through
Certificates, Class A and Class B (the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such
Global Securities through any of DTC, Cedel or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European
and U.S. domestic markets. Initial settlement and all secondary trades will
settle in same-day funds.
Secondary market trading between investors through Cedel and
Euroclear will be conducted in the ordinary way in accordance with the normal
rules and operating procedures of Cedel and Euroclear and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel
and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
Relevant Depositary which in turn will hold such positions in their accounts
as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "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 seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a Cedel Participant or a Euroclear Participant, the
purchaser will send instructions to Cedel or Euroclear through a Cedel
Participant or Euroclear Participant at least one business day prior to
settlement. Cedel or Euroclear will instruct the Relevant Depositary, as the
case may be, to receive the Global Securities
II-1
<PAGE>
against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment date to and excluding the
settlement date, on the basis of the actual number of days in such accrual
period and a year assumed to consist of 360 days. For transactions settling on
the 31st of the month, payment will include interest accrued to and excluding
the first day of the following month. Payment will then be made by the Relevant
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if Cedel or Euroclear has extended a line of
credit to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although the result will
depend on each Cedel Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two
DTC Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
Cedel or Euroclear will instruct the respective Depositary, as appropriate, to
credit the Global Securities to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment to and excluding the settlement date on the
basis of the actual number of days in such accrual period and a year assumed
to consist to 360 days. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of Cedel
Participant or Euroclear Participant the following day, and receipt of the
cash proceeds in the Cedel Participant's or Euroclear Participant's account
would be back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Cedel Participant or Euroclear
Participant have a line of credit with its respective clearing system and
elect to be in debt in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft incurred over that
one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the trade is reflected in their Cedel or Euroclear accounts)
in accordance with the clearing system's customary procedures;
II-2
<PAGE>
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of
Global Securities that are Non-U.S. Persons (as defined below) can obtain a
complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8 changes,
a new Form W-8 must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income
(Form 4224). A Non-U.S. Person (as defined below), including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity, taxable as such for
federal income tax purposes, organized in or under the laws of the United
States or any state thereof (including the District of Columbia) (iii) an
estate that is subject to U.S. federal income tax regardless of the source of
its income or (iv) a trust other than a "foreign trust" as defined in Section
7701(a)(31) of the Internal Revenue Code of 1986, as amended. The term
"Non-U.S. Person" means any person who is not a U.S. Person. This summary does
not deal with all aspects of U.S. Federal income tax withholding that may be
relevant to foreign holders of the Global Securities as well as the
application of recently issued Treasury regulations relating to tax
documentation requirements that are generally effective with respect to
payments made after December 31, 1999. Investors are advised to consult their
own tax advisors for specific tax advice concerning their holding and
disposing of the Global Securities.
II-3
<PAGE>
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<PAGE>
ANNEX III
AUCTION PROCEDURES
General
The following description of the Auction Procedures applies to the
Auction Rate Certificates. The term "Certificate," as used in this Annex,
refers to the Auction Rate Certificates, and the term "Certificateholder"
refers to Owners holding Auction Rate Certificates.
Description of Auction Procedures
The following summarizes certain procedures that will be used in
determining the interest rates on the Auction Rate Certificates. Immediately
following this summary is a more detailed description of these procedures.
Prospective investors in the Auction Rate Certificates should read carefully
the following summary, along with the more detailed description.
The interest rate on the Auction Rate Certificates will be determined
periodically by means of a "Dutch Auction." In this Dutch Auction, investors
and potential investors submit orders through an eligible broker/dealer as to
the principal amount of Auction Rate Certificates such investors wish to buy,
hold or sell at various interest rates. The broker/dealers submit their
clients' orders to the auction agent, who processes all orders submitted by
all eligible broker/dealers and determines the interest rate for the upcoming
interest period. The broker/dealers are notified by the auction agent of the
interest rate for the upcoming interest period and are provided with
settlement instructions relating to purchases and sales of Auction Rate
Certificates.
In the auction procedures, the following types of orders may be
submitted:
(i) Bid/Hold Orders - the minimum interest rate that a
current investor is willing to accept in order to continue to hold
some or all of its Auction Rate Certificates for the upcoming
interest period;
(ii) Sell Orders - an order by a current investor to sell a
specified principal amount of Auction Rate Certificates, regardless
of the upcoming interest rate; and
(iii) Potential Bid Orders - the minimum interest rate that
a potential investor (or a current investor wishing to purchase
additional Auction Rate Certificates) is willing to accept in order
to buy a specified principal amount of Auction Rate Certificates.
If an existing investor does not submit orders with respect to all
its Auction Rate Certificates, the investor will be deemed to have submitted a
Hold Order at the new interest rate for that portion of the Auction Rate
Certificates for which no order was received.
In connection with each auction, Auction Rate Certificates will be
purchased and sold between investors and potential investors at a price equal
to their then outstanding principal balance (i.e., par) plus any accrued
interest. The following example helps illustrate how the above-described
procedures are used in determining the interest rate on the Auction Rate
Certificates.
(a) Assumptions:
(i) Denominations (Units)=$25,000
(ii) Interest Period=28 Days
(iii) Principal Amount Outstanding=$124,200,000 (4,968 Units)
III-1
<PAGE>
(b) Summary of All Orders Received For The Auction
Bid/Hold Orders Sell Orders Potential Bid Orders
---------------------------------------------------------------------
100 Units at 4.90% 500 Units Sell 200 Units at 4.95%
300 Units at 5.02% 500 Units Sell 300 Units at 5.00%
600 Units at 5.05% 968 Units Sell 500 Units at 5.05%
---
1,000 Units at 5.10% 1,968 Units 500 Units at 5.10%
1,000 Units at 5.12% 500 Units at 5.11%
-----
3,000 Units 500 Units at 5.14%
1,000 Units at 5.15%
-----
3,500 Units
Total units under existing Bid/Hold Orders and Sell Orders always equal issue
size (in this case 4,968 units).
C. Auction Agent Organizes Orders In Ascending Order
<TABLE>
<CAPTION>
Order Number of Cumulative % Order Number of Cumulative %
Number Units Total Number Units Total
(Units) (Units)
<S> <C> <C> <C> <C> <C> <C> <C>
1 100 (W) 100 4.90% 7 1,000 (W) 3,000 5.10%
2 200 (W) 300 4.95% 8 500 (W) 3,500 5.10%
3 300 (W) 600 5.00% 9 500 (W) 4,000 5.11%
4 300 (W) 900 5.02% 10 968 (W) 4,968 5.12%
5 500 (W) 1,400 5.05% 11 500 (L) 5.14%
6 600 (W) 2,000 5.05% 12 1,000 (L) 5.15%
- -------------------------------------------------------------------------------
</TABLE>
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units.
All winning orders are awarded the winning rate (in this case, 5.12%) as the
interest rate for the next Accrual Period, when another auction will be held.
Multiple orders at the winning rate are allocated units on a pro rata basis.
Notwithstanding the foregoing, in no event will the interest rate exceed the
Maximum Auction Rate (as described below).
The above example assumes that a successful auction has occurred
(i.e., all Sell Orders and all Bid/Hold Orders below the new interest rate
were fulfilled). In certain circumstances, there may be insufficient Potential
Bid Orders to purchase all the Auction Rate Certificates offered for sale. In
such circumstances, the interest rate for the upcoming Accrual Period will
equal the Maximum Auction Rate. Also, if all the Auction Rate Certificates are
subject to Hold Orders (i.e., each holder of Auction Rate Certificates wishes
to continue holding its Auction Rate Certificates, regardless of the interest
rate, or
III-2
<PAGE>
if no existing investors submit any orders) the interest rate for the
upcoming Accrual Period will equal the All Hold Rate (as defined below).
As stated above, the foregoing is only a summary of the auction
procedures. The following is a more detailed description of these procedures.
Definitions
Capitalized terms used herein and not otherwise defined have the
meanings ascribed in the accompanying Prospectus and Prospectus Supplement.
Additionally, the following terms have the meanings ascribed to them:
"Accrual Period" means, with respect to a Certificate, the Initial
Period for such Certificate and each period commencing on the Rate Adjustment
Date for such Certificate and ending on the day before (i) the next Rate
Adjustment Date for such Certificate or (ii) the Final Scheduled Payment Date
of such Certificate, as applicable.
"Agreement" means the Pooling and Servicing Agreement.
"All Hold Rate" means the lesser of (i) ninety percent (90%) of LIBOR
or (ii) the Group IIb Available Funds Cap.
"Auction" means the implementation of the Auction Procedures on an Auction
Date.
"Auction Agent" means the initial auction agent under the initial
Auction Agent Agreement unless and until a substitute Auction Agent Agreement
acceptable to the Certificate Insurer becomes effective, after which "Auction
Agent" shall mean the substitute auction agent.
"Auction Agent Agreement" means the initial Auction Agent Agreement
unless and until a substitute Auction Agent Agreement is entered into, after
which "Auction Agent Agreement" shall mean such substitute Auction Agent
Agreement.
"Auction Agent Fee" has the meaning set forth in the Auction Agent
Agreement.
"Auction Agent Fee Rate" has the meaning set forth in the Auction Agent
Agreement.
"Auction Date" means, with respect to each Auction Period following
the Initial Period, the Business Day immediately preceding the first day of
each such Auction Period for each Certificate, other than:
(A) each Auction Period commencing after the ownership of
the Certificates is no longer maintained in Book-Entry Form
by the Depository;
(B) each Auction Period commencing after and during the
continuance of a Certificate Insurer Default; or
(C) each Auction Period commencing less than two Business
Days after the cure or waiver of a Certificate Insurer
Default.
If the 15th day of a month (i.e., the scheduled first day of an Auction
period) is not a Business Day, with the result that the first day of such
Auction Period is delayed to the next succeeding Business Day, the Auction
Date will be the Business Day immediately preceding such delayed first day of
such Auction Period.
Notwithstanding the foregoing, the Auction Date for one or more
Auction Periods may be changed pursuant to the Agreement, as described herein.
"Auction Period" means, with respect to each Certificate, the Accrual
Period applicable to such Certificate during which time the applicable
Certificate Interest Rate is determined, which Auction Period (after the
Initial Period for such Certificate) shall commence on each Payment Date and
shall continue through the day immediately preceding the next Payment Date for
such Certificate, as the same may be adjusted pursuant to the Agreement.
III-3
<PAGE>
"Auction Procedures" means the procedures set forth in the Agreement,
and described herein by which the Auction Rate applicable to a Certificate is
determined.
"Auction Rate" means, with respect to any Certificate, the rate of
interest per annum that results from the implementation of the Auction
Procedures and is determined as described in the Agreement and this Annex III.
"Authorized Denominations" means, with respect to any Certificate,
$25,000 and any integral multiple in excess thereof.
"Broker-Dealer" means Bear, Stearns & Co. Inc. or any other broker or
dealer (each as defined in the Securities Exchange Act of 1934, as amended),
commercial bank or other entity permitted by law to perform the functions
required of a Broker-Dealer set forth in the Auction Procedures that (a) is a
Participant (or an affiliate of a Participant), (b) has been appointed as such
by the Depositor, (c) is acceptable to the Certificate Insurer and (d) has
entered into a Broker-Dealer Agreement that is in effect on the date of
reference.
"Broker-Dealer Agreement" means each agreement between the Auction
Agent and a Broker-Dealer pursuant to which the Broker-Dealer agrees to
participate in Auctions as set forth in the Auction Procedures, as from time
to time amended or supplemented.
"Broker-Dealer Fee" has the meaning set forth in the Auction Agent
Agreement.
"Broker-Dealer Fee Rate" has the meaning set forth in the Auction Agent
Agreement.
"Business Day" means any day other than (i) a Saturday or Sunday or
(ii) a day on which banking institutions in New York City or the city in which
the corporate trust office of the Trustee or the principal office of the
Certificate Insurer is located are authorized or obligated by law or executive
order to be closed.
"Certificate Initial Rate" means 5.635% per annum.
"Certificate Initial Rate Adjustment Date" means October 15, 1998.
"Certificate Insurer Default" means a default by the Certificate
Insurer under the Certificate Insurance Policy.
"Certificate Interest Rate" means initially the Certificate Initial
Rate until the first Auction Date for such Certificates, at which time the
related Certificate Interest Rate will be reset pursuant to the Auction
Procedures.
"Existing Certificateholder" means (i) with respect to and for the
purpose of dealing with the Auction Agent in connection with an Auction, a
Person who is a Broker-Dealer listed in the Existing Certificateholder
Registry at the close of business on the Business Day immediately preceding
such Auction and (ii) with respect to and for the purpose of dealing with the
Broker-Dealer in connection with an Auction, a Person who is a beneficial
owner of any Certificate.
"Existing Certificateholder Registry" means the registry of Persons
who are beneficial owners of the Certificates, maintained by the Auction Agent
as provided in the Auction Agent Agreement.
"Initial Period" means, as to any Certificate, the period commencing
on the Closing Date and continuing through the day immediately preceding the
Certificate Initial Rate Adjustment Date for such Certificate.
"LIBOR" means, as of any LIBOR Determination Date, the rate for
deposits in United States dollars for a period equal to the relevant Accrual
Period (commencing on the first day of such Accrual Period) which appears in
the Telerate Page 3750 as of 11:00 a.m., London time, on such date. If such
rate does not appear on Telerate Page 3750, the rate for that day will be
determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m., London
time, on that day to prime banks in the London interbank market for a period
equal to the relevant Accrual Period (commencing on the first day of such
Accrual Period). The Auction Agent will request the principal London office of
each of the Reference Banks to provide a quotation of its rate. If at least
two such quotations are provided, the rate for that day will be the arithmetic
mean of the quotations. If fewer than two quotations are provided as
requested, the rate for that day will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the Auction
III-4
<PAGE>
Agent, at approximately 11:00 a.m., New York City time, on that day for loans in
United States dollars to leading European banks for a period equal to the
relevant Accrual Period (commencing on the first day of such Accrual Period).
"LIBOR Determination Date" means the date which is both a Business
Day and a London Banking Day immediately prior to the commencement of each
related Accrual Period.
"London Banking Day" means any Business Day on which dealings in
deposits in United States dollars are transacted in the London interbank
market.
"Market Agent" means Bear, Stearns & Co. Inc., in such capacity under
the Agreement, or any successor to it in such capacity thereunder.
"Maximum Auction Rate" means, the lesser of (i) either (A) LIBOR plus
0.60% (if all ratings assigned by the Rating Agencies to the Auction Rate
Certificates are "A-" or better) or (B) LIBOR plus 1.00% (if any one of the
ratings assigned by the Rating Agencies to the Auction Rate Certificates is
less than "A-") and (ii) the Group I Available Funds Cap. For purposes of the
Auction Agent and the Auction Procedures, the ratings referred to in this
definition shall be the last ratings of which the Auction Agent has been given
notice pursuant to the Auction Agent Agreement.
"Non-Payment Rate" means the Maximum Auction Rate.
"Payment Date" means the 15th day of each calendar month, commencing
October 15, 1998, or if such day is not a Business Day, the next succeeding
Business Day.
"Person" means any individual, corporation, estate, partnership,
limited liability company, joint venture, association, joint stock company,
trust (including any beneficiary thereof), unincorporated organization or
government or any agency or political subdivision thereof.
"Potential Certificateholder" means any Person (including an Existing
Certificateholder that is (i) a Broker-Dealer when dealing with the Auction
Agent and (ii) a potential beneficial owner when dealing with a Broker-Dealer)
who may be interested in acquiring Certificates (or, in the case of an
Existing Certificateholder thereof, an additional principal amount of
Certificates).
"Rate Adjustment Date" means, with respect to each Certificate, the
date on which the applicable Certificate Interest Rate is effective and means,
with respect to each such Certificate, the date of commencement of each
Auction Period.
"Rate Determination Date" means, with respect to any Certificate, the
Auction Date, or if no Auction Date is applicable to such Certificate, the
Business Day immediately preceding the date of commencement of an Auction
Period.
"Reference Banks" means leading banks selected by the Auction Agent
and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market.
Existing Certificateholders and Potential Certificateholders
Participants in each Auction will include: (i) "Existing
Certificateholders," which shall mean any Certificateholder according to the
records of the Auction Agent at the close of business on the Business Day
preceding each Auction Date; and (ii) "Potential Certificateholders," which
shall mean any person, including any Existing Certificateholder or a
Broker/Dealer, who may be interested in acquiring Certificates (or, in the
case of an Existing Certificateholder, an additional principal amount of the
Certificate such Certificateholder then holds).
See "Broker-Dealer."
By purchasing a Certificate, whether in an Auction or otherwise, each
prospective purchaser of Certificates or its Broker-Dealer must agree and will
be deemed to have agreed: (i) to participate in Auctions on the terms
described herein; (ii) so long as the beneficial ownership of the Certificates
is maintained in Book-Entry Form to sell, transfer or otherwise dispose of the
Certificates only pursuant to a Bid (as defined below) or a Sell Order (as
defined below) in an Auction, or to or through a Broker-Dealer, provided that
in the case of all transfers other than those pursuant to an Auction, the
Existing
III-5
<PAGE>
Certificateholder of the Certificates so transferred, its Participant
or Broker-Dealer advises the Auction Agent of such transfer; (iii) to have its
beneficial ownership of Certificates maintained at all times in Book-Entry
Form for the account of its Participant, which in turn will maintain records
of such beneficial ownership, and to authorize such Participant to disclose to
the Auction Agent such information with respect to such beneficial ownership
as the Auction Agent may request; (iv) that a Sell Order placed by an Existing
Certificateholder will constitute an irrevocable offer to sell the principal
amount of the Certificate specified in such Sell Order; (v) that a Bid placed
by an Existing Certificateholder will constitute an irrevocable offer to sell
the principal amount of the Certificate specified in such Bid if the rate
specified in such Bid is greater than, or in some cases equal to, the Auction
Rate of such Certificate, determined as described herein; and (vi) that a Bid
placed by a Potential Certificateholder will constitute an irrevocable offer
to purchase the amount, or a lesser principal amount, of the Certificate
specified in such Bid if the rate specified in such Bid is, respectively, less
than or equal to the Certificate Interest Rate of the specified Certificate,
determined as described herein.
The principal amount of the Certificates purchased or sold may be
subject to proration procedures on the Auction Date. Each purchase or sale of
Certificates on the Auction Date will be made for settlement on the first day
of the Accrual Period immediately following such Auction Date at a price equal
to 100% of the principal amount thereof, plus accrued but unpaid interest
thereon. The Auction Agent is entitled to rely upon the terms of any Order
submitted to it by a Broker-Dealer.
Auction Agent
Bankers Trust Company will be appointed as Auction Agent to serve as
agent for the Trust in connection with Auctions. The Trustee will enter into
the Auction Agreement with Bankers Trust Company, as the Auction Agent. Any
Substitute Auction Agent will be (i) a bank, national banking association or
trust company duly organized under the laws of the United States of America or
any state or territory thereof having its principal place of business in the
Borough of Manhattan, New York, or such other location as approved by the
Trustee and the Market Agent in writing and having a combined capital stock or
surplus of at least $50,000,000, or (ii) a member of the National Association
of Securities Dealers, Inc. having a capitalization of at least $50,000,000,
and, in either case, authorized by law to perform all the duties imposed upon
it under the Agreement and under the Auction Agent Agreement and approved by
the Certificate Insurer in writing. The Auction Agent may at any time resign
and be discharged of the duties and obligations created by the Agreement by
giving at least 90 days notice to the Trustee and the Market Agent. The
Auction Agent may be removed at any time by the Trustee upon the written
direction of the Certificate Insurer, or, with the consent of the Certificate
Insurer, the Certificateholders of 66-2/3% of the aggregate principal amount
of the Certificates then outstanding, by an instrument signed by the
Certificate Insurer or such Certificateholders or their attorneys and filed
with the Auction Agent, the Trustee and the Market Agent upon at least 90
days' notice. Neither resignation nor removal of the Auction Agent pursuant to
the preceding two sentences will be effective until and unless a Substitute
Auction Agent has been appointed, has been approved in writing by the
Certificate Insurer and has accepted such appointment. If required by the
Certificate Insurer, the Certificateholders of 66-2/3% of the aggregate
principal amount of the Certificates then outstanding or by the Market Agent,
a Substitute Auction Agent Agreement shall be entered into with a Substitute
Auction Agent. Notwithstanding the foregoing, the Auction Agent may terminate
the Auction Agent Agreement if, within 45 days after notifying the Trustee,
the Certificate Insurer and the Market Agent in writing that it has not
received payment of any Auction Agent Fee due it in accordance with the terms
of the Auction Agent Agreement, the Auction Agent does not receive such
payment.
If the Auction Agent should resign or be removed or be dissolved, or
if the property or affairs of the Auction Agent shall be taken under the
control of any state or federal court or administrative body because of
bankruptcy or insolvency, or for any other reason, the Trustee, at the
direction of the Depositor and the Certificate Insurer (after receipt of a
certificate from the Market Agent confirming that any proposed Substitute
Auction Agent meets the requirements described in the immediately preceding
paragraph above), shall use its best efforts to appoint a Substitute Auction
Agent.
The Auction Agent is acting as agent for the Trust in connection with
Auctions. In the absence of bad, faith, negligent failure to act or negligence
on its part, the Auction Agent will not be liable for any action taken,
suffered or omitted or any error of judgment made by it in the performance of
its duties under the Auction Agent Agreement and will not be liable for any
error of judgment made in good faith unless the Auction Agent will have been
negligent in ascertaining (or failing to ascertain) the pertinent facts.
The Trustee will pay the Auction Agent the Auction Agent Fee on each
Payment Date and will reimburse the Auction Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Auction Agent in accordance with any provision of the Auction Agent Agreement
or the Broker-Dealer Agreements (including the
III-6
<PAGE>
reasonable compensation and the expenses and disbursements of its agents
and counsel). The Trust will indemnify and hold harmless the Auction Agent for
and against any loss, liability or expense incurred without negligence or bad
faith on the Auction Agent's part, arising out of or in connection with the
acceptance or administration of its agency under the Auction Agent Agreement
and the Broker-Dealer Agreements including the reasonable costs and expenses
(including the reasonable fees and expenses of its counsel) of defending itself
against any such claim or liability in connection with its exercise or
performance of any of its respective duties thereunder and of enforcing this
indemnification provision; provided that the Trust will not indemnify the
Auction Agent as described in this paragraph for any fees and expenses incurred
by the Auction Agent in the normal course of performing its duties under the
Auction Agent Agreement and under the Broker-Dealer Agreements, such fees and
expenses being payable as described above.
Broker-Dealer
Existing Certificateholders and Potential Certificateholders may
participate in Auctions only by submitting orders (in the manner described
below) through a "Broker-Dealer," including Bear, Stearns & Co. Inc., each as
a Broker-Dealer, or any other broker or dealer (each as defined in the
Securities Exchange Act of 1934, as amended), commercial bank or other entity
permitted by law to perform the functions required of a Broker-Dealer set
forth below which (i) is a Participant or an affiliate of a Participant, (ii)
has been selected by the Trustee and is acceptable to the Certificate Insurer
and (iii) has entered into a Broker-Dealer Agreement with the Auction Agent
that remains effective, in which the Broker-Dealer agrees to participate in
Auctions as described in the Auction Procedures, as from time to time amended
or supplemented.
The Broker-Dealers are entitled to a Broker-Dealer Fee on each
Payment Date, which is payable by the Auction Agent from monies received from
the Trustee.
Market Agent
The "Market Agent," will act solely as agent of the Trust and will
not assume any obligation or relationship of agency or trust for or with any
of the Certificateholders.
Auction Procedures
General
Pursuant to the Agreement, Auctions to establish the Auction Rate for
each Certificate issued by the Trust will be held on each applicable Auction
Date, except as described below, by application of the Auction Procedures
described herein.
The Auction Agent will calculate the Maximum Auction Rate, the All
Hold Rate and LIBOR on each Auction Date. The Servicer will calculate and, no
later than the Business Day preceding each Auction Date, will report to the
Auction Agent in writing, the Group I Available Funds Cap applicable to the
Certificates. If a Certificate Insurer Default has occurred, the Trustee will
calculate the Non-Payment Rate on the Rate Determination Date for (i) each
Accrual Period commencing after the occurrence and during the continuance of
such Certificate Insurer Default and (ii) any Accrual Period commencing less
than two Business Days after the cure of any Certificate Insurer Default. If
no Certificate Insurer Default has occurred, any change in the Maximum Auction
Rate or Non-Payment Rate or the method of calculating such rates shall be
approved by the Certificate Insurer. The Auction Agent will determine LIBOR
for each Accrual Period other than the Initial Period for a Certificate;
provided, that if the ownership of the Certificates is no longer maintained in
Book-Entry Form, or if a Certificate Insurer Default has occurred, then the
Trustee will determine LIBOR for each such Accrual Period. The determination
by the Trustee or the Auction Agent, as the case may be, of LIBOR will (in the
absence of manifest error) be final and binding upon the Certificateholders
and all other parties. If calculated or determined by the Auction Agent, the
Auction Agent will promptly advise the Trustee of LIBOR.
Submission of Orders
So long as the ownership of the Certificates is maintained in
Book-Entry Form, an Existing Certificateholder may sell, transfer or otherwise
dispose of Certificates only pursuant to a Bid or Sell Order (as hereinafter
defined) placed in an Auction or through a Broker-Dealer, provided that, in
the case of all transfers other than pursuant to Auctions, such Existing
Certificateholder, its Broker-Dealer or its Participant advises the Auction
Agent of such transfer. Auctions for the Certificates
III-7
<PAGE>
will be conducted on each applicable Auction Date, if there is an Auction Agent
on such Auction Date, in the following manner.
Prior to the Submission Deadline (defined as 1:00 p.m., eastern time,
on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as specified
by the Auction Agent from time to time) on each Auction Date relating to a
Certificate:
(a) each Existing Certificateholder of the applicable
Certificate may submit to a Broker-Dealer by telephone or otherwise
information as to: (i) the principal amount of outstanding Certificates, if
any, held by such Existing Certificateholder which such Existing
Certificateholder desires to continue to hold without regard to the
Certificate Interest Rate for such Certificates for the next succeeding
Auction Period (a "Hold Order"); (ii) the principal amount of outstanding
Certificates, if any, which such Existing Certificateholder offers to sell if
the Certificate Interest Rate for such Certificates for the next succeeding
Auction Period will be less than the rate per annum specified by such Existing
Certificateholder (a "Bid"); and/or (iii) the principal amount of outstanding
Certificates, if any, held by such Existing Certificateholder which such
Existing Certificateholder offers to sell without regard to the Certificate
Interest Rate for such Certificates for the next succeeding Auction Period (a
"Sell Order"); and
(b) one or more Broker-Dealers may contact Potential
Certificateholders to determine the principal amount of Certificates which
each such Potential Certificateholder offers to purchase, if the Certificate
Interest Rate for such Certificates for the next succeeding Auction Period
will not be less than the rate per annum specified by such Potential
Certificateholder (also a "Bid").
Each Hold Order, Bid and Sell Order will be an "Order." Each Existing
Certificateholder and each Potential Certificateholder placing an Order is
referred to as a "Bidder."
Subject to the provisions described below under "Validity of Orders,"
a Bid by an Existing Certificateholder will constitute an irrevocable offer to
sell: (i) the principal amount of the outstanding Certificates specified in
such Bid if the Certificate Interest Rate for such Certificates will be less
than the rate specified in such Bid, (ii) such principal amount or a lesser
principal amount of the outstanding Certificates to be determined as described
below in "Execution of Orders," if the Certificate Interest Rate for such
Certificates will be equal to the rate specified in such Bid or (iii) such
principal amount or a lesser principal amount of the then outstanding
Certificates to be determined as described below under "Execution of Orders,"
if the rate specified therein will be higher than the Certificate Interest
Rate for such Certificates and Sufficient Bids (as defined below) have not
been made.
Subject to the provisions described below under "Validity of Orders,"
a Sell Order by an Existing Certificateholder will constitute an irrevocable
offer to sell: (i) the principal amount of the Certificate specified in such
Sell Order or (ii) such principal amount or a lesser principal amount of
outstanding Certificates of the specified Certificate as described below under
"Execution of Orders," if Sufficient Bids have not been made.
Subject to the provisions described below under "Validity of Orders,"
a Bid by a Potential Certificateholder will constitute an irrevocable offer to
purchase: (i) the principal amount of the Certificate specified in such Bid if
the Auction Rate for such Certificates will be higher than the rate specified
in such Bid or (ii) such principal amount or a lesser principal amount of such
Certificates as described below in "Execution of Orders," if the Certificate
Interest Rate is equal to the rate specified in such Bid.
Each Broker-Dealer will submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer and will specify with respect to each such Order: (i) the name
of the Bidder placing such Order; (ii) the aggregate principal amount of
Certificate that are the subject of such Order; (iii) to the extent that such
Bidder is an Existing Certificateholder: (a) the principal amount of
Certificates, if any, subject to any Hold Order placed by such Existing
Certificateholder; (b) the principal amount of Certificates, if any, subject
to any Bid placed by such Existing Certificateholder and the rate specified in
such Bid; and (c) the principal amount of Certificates, if any, subject to any
Sell Order placed by such Existing Certificateholder, and (iv) to the extent
such Bidder is a Potential Certificateholder, the rate specified in such
Potential Certificateholder's Bid.
If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate up to
the next highest one-thousandth (.001) of one percent.
III-8
<PAGE>
If an Order or Orders covering all Certificates held by any Existing
Certificateholder are not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent will deem a Hold Order to have been
submitted on behalf of such Existing Certificateholder covering the principal
amount of Certificates held by such Existing Certificateholder and not subject
to an Order submitted to the Auction Agent.
Neither the Depositor, the Trustee nor the Auction Agent will be
responsible for any failure of a Broker-Dealer to submit an Order to the
Auction Agent on behalf of any Existing Certificateholder or Potential
Certificateholder.
An Existing Certificateholder may submit multiple Orders, of
different types and specifying different rates, in an Auction with respect to
Certificates then held by such Existing Certificateholder. An Existing
Certificateholder that offers to purchase additional Certificates is, for
purposes of such offer, treated as a Potential Certificateholder.
Any Bid specifying a rate higher than the Maximum Auction Rate will
(i) be treated as a Sell Order if submitted by a Existing Certificateholder
and (ii) not be accepted if submitted by a Potential Certificateholder.
Validity of Orders
If any Existing Certificateholder submits through a Broker-Dealer to
the Auction Agent one or more Orders covering in the aggregate more than the
principal amount of Certificates held by such Existing Certificateholder, such
Orders will be considered valid as follows and in the order of priority
described below.
Hold Orders. All Hold Orders will be considered valid, but only up to
the aggregate principal amount of Certificates held by such Existing
Certificateholder, and if the aggregate principal amount of the class of
Certificates subject to such Hold Orders exceeds the aggregate principal
amount of Certificates held by such Existing Certificateholder, the aggregate
principal amount of Certificates subject to each such Hold Order will be
reduced pro rata so that the aggregate principal amount of Certificates
subject to all such Hold Orders equals the aggregate principal amount of the
class of Certificates held by such Existing Certificateholder.
Bids. Any Bid will be considered valid up to an amount equal to the
excess of the principal amount of Certificates held by such Existing
Certificateholder over the aggregate principal amount of such Certificate,
subject to any Hold Orders referred to above. Subject to the preceding
sentence, if multiple Bids with the same rate are submitted on behalf of such
Existing Certificateholder and the aggregate principal amount of Certificates
subject to such Bids is greater than such excess, such Bids will be considered
valid up to an amount equal to such excess. Subject to the two preceding
sentences, if more than one Bid with different rates are submitted on behalf
of such Existing Certificateholder, such Bids will be considered valid first
in the ascending order of their respective rates until the highest rate is
reached at which such excess exists and then at such rate up to the amount of
such excess. In any event, the aggregate principal amount of Certificates, if
any, subject to Bids not valid under the provisions described above will be
treated as the subject of a Bid by a Potential Certificateholder at the rate
therein specified.
Sell Orders. All Sell Orders will be considered valid up to an amount
equal to the excess of the principal amount of Certificates held by such
Existing Certificateholder over the aggregate principal amount of Certificates
subject to valid Hold Orders and valid Bids as referred to above.
If more than one Bid for a Certificate is submitted on behalf of any
Potential Certificateholder, each Bid submitted will be a separate Bid with
the rate and principal amount therein specified. Any Bid or Sell Order
submitted by an Existing Certificateholder covering an aggregate principal
amount of Certificates not equal to an Authorized Denomination or an integral
multiple thereof will not be executed and will be deemed a Hold Order. Any Bid
submitted by a Potential Certificateholder covering an aggregate principal
amount of Certificates not equal to an Authorized Denomination or an integral
multiple thereof will not be executed. Any Order submitted in an Auction by a
Broker-Dealer to the Auction Agent prior to the Submission Deadline on any
Auction Date will be irrevocable.
A Hold Order, a Bid or a Sell Order that has been determined valid
pursuant to the procedures described above is referred to as a "Submitted Hold
Order," a "Submitted Bid" and a "Submitted Sell Order," respectively
(collectively, "Submitted Orders").
III-9
<PAGE>
Determination of Sufficient Bid and Bid Auction Rate
Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent will assemble all valid Submitted Orders and will determine:
(a) for the applicable Certificate, the excess of the total
principal amount of such Certificates over the sum of the aggregate principal
amount of such Certificates subject to Submitted Hold Orders (such excess
being hereinafter referred to as the "Available Certificates"); and
(b) from such Submitted Orders whether the aggregate
principal amount of Certificates of such class subject to Submitted Bids by
Potential Certificateholders specifying one or more rates equal to or lower
than the Maximum Auction Rate exceeds or is equal to the sum of (i) the
aggregate principal amount of Certificates subject to Submitted Bids by
Existing Certificateholders specifying one or more rates higher than the
Maximum Auction Rate and (ii) the aggregate principal amount of Certificates
subject to Submitted Sell Orders (in the event such excess or such equality
exists other than because all of the Certificates are subject to Submitted
Hold Orders, such Submitted Bids by Potential Certificateholders above will be
hereinafter referred to collectively as "Sufficient Bids"); and
(c) if Sufficient Bids exist, the "Bid Auction Rate," which
will be the lowest rate specified in such Submitted Bids such that if:
(i) each such Submitted Bid from Existing
Certificateholders specifying such lowest rate and all other
Submitted Bids from Existing Certificateholders specifying
lower rates were rejected (thus entitling such Existing
Certificateholders to continue to hold the principal amount
of Certificates subject to such Submitted Bids); and
(ii) each such Submitted Bid from Potential
Certificateholders specifying such lowest rate and all other
Submitted Bids from Potential Certificateholders specifying
lower rates, were accepted,
(iii) the result would be that such Existing
Certificateholders described in subparagraph (c)(i) above
would continue to hold an aggregate principal amount of
Certificates which, when added to the aggregate principal
amount of Certificates to be purchased by such Potential
Certificateholders described in subparagraph (ii) above
would equal not less than the Available Certificates.
Determination of Auction Rate and Certificate Interest Rate, Notice
Promptly after the Auction Agent has made the determinations
described above, the Auction Agent is to advise the Trustee of the applicable
Available Funds Cap, the Maximum Auction Rate, the All Hold Rate and the
components thereof on the Auction Date, and based on such determinations, the
Auction Rate for the next succeeding Accrual Period for the applicable
Certificate as follows:
(a) if Sufficient Bids exist, that the Auction Rate for the
next succeeding Accrual Period will be equal to the Bid Auction Rate so
determined;
(b) if Sufficient Bids do not exist (other than because all
of the Certificates of the applicable Certificate are subject to Submitted
Hold Orders), that the Auction Rate for the next succeeding Accrual Period
will be equal to the Maximum Auction Rate; or
(c) if all Certificates of the applicable Certificate are
subject to Submitted Hold Orders, that the Auction Rate for the next
succeeding Accrual Period will be equal to the All Hold Rate.
Promptly after the Auction Agent has determined the Auction Rate, the
Auction Agent will determine and advise the Trustee of the Certificate
Interest Rate for each applicable Certificate, which rate will be the lesser
of (a) the Auction Rate for each such Certificate and (b) the Group I
Available Funds Cap.
III-10
<PAGE>
Execution of Orders
Existing Certificateholders will continue to hold the principal
amount of Certificates of such class that are subject to Submitted Hold
Orders. If, with respect to a Certificate, the Group I Available Funds Cap is
equal to or greater than the Bid Auction Rate and if Sufficient Bids, as
described above under "Determination of Sufficient Bids and Bid Auction Rate,"
have been received by the Auction Agent, the Bid Auction Rate will be the
Certificate Interest Rate, and Submitted Bids and Submitted Sell Orders will
be executed, or will not be executed, and the Auction Agent will take such
other action as provided in the Agreement and described below under
"Sufficient Bids."
If the Auction Agent has not received Sufficient Bids as described
above under "Determination of Sufficient Bids and Bid Auction Rate" (other
than because all of the Certificates are subject to Submitted Holds Orders),
the Certificate Interest Rate will be the Maximum Auction Rate. In any of the
cases described above in this paragraph, Submitted Orders will be executed, or
will not be executed, and the Auction Agent will take such other action as
described below under "Insufficient Bids."
Sufficient Bids. If Sufficient Bids have been made with a respect to
a Certificate and the applicable Maximum Auction Rate is equal to or greater
than the Bid Auction Rate (in which case the Certificate Interest Rate shall
be the Bid Auction Rate), all Submitted Sell Orders will be accepted and,
subject to the denomination requirements described below, Submitted Bids will
be executed, or will not be executed, as follows in the following order of
priority and all other Submitted Bids will be rejected:
(a) Existing Certificateholders' Submitted Bids specifying
any rate that is higher than the Certificate Interest Rate will be executed,
thus requiring each such Existing Certificateholder to sell the aggregate
principal amount of Certificates subject to such Submitted Bids;
(b) Existing Certificateholders' Submitted Bids specifying
any rate that is lower than the Certificate Interest Rate will be executed,
thus entitling each such Existing Certificateholder to continue to hold the
aggregate principal amount of Certificates subject to such Submitted Bids;
(c) Potential Certificateholders' Submitted Bids specifying
any rate that is lower than the Certificate Interest Rate will be executed,
thus entitling such Potential Certificateholder to purchase such Certificates;
(d) Each Existing Certificateholder's Submitted Bid
specifying a rate that is equal to the Certificate Interest Rate will be
executed, in whole or in part, up to the aggregate principal amount, if any,
of Certificates remaining unallocated, thus entitling such Existing
Certificateholder (i) if such Existing Certificateholder's Submitted Bid Order
is executed in whole, to continue to hold the aggregate principal amount of
Certificates subject to such Submitted Bid, or (ii) if the aggregate principal
amount of Certificates subject to such Submitted Bids would be greater than
the principal amount of Certificates (the "remaining principal amount") equal
to the excess of the Available Certificates over the aggregate principal
amount of Certificates subject to Submitted Bids described in subparagraphs
(b) and (c) above, in which event such Submitted Bid of such Existing
Certificateholder will be executed in part and such Existing Certificateholder
will be entitled to continue to hold the principal amount of Certificates
subject to such Submitted Bid, but only in an amount equal to the aggregate
principal amount of Certificates obtained by multiplying the remaining
principal amount by a fraction, the numerator of which will be the principal
amount of Certificates held by such Existing Certificateholder subject to such
Submitted Bid and the denominator of which will be the sum of the principal
amount of Certificates subject to such Submitted Bids made by all such
Existing Certificateholders that specified a rate equal to the Certificate
Interest Rate, with the result that a Sell Order will be deemed up to apply to
the balance of such Existing Certificateholder's Certificates; and
(e) Each Potential Certificateholder's Submitted Bid
specifying a rate that is equal to the Certificate Interest Rate will be
executed, but only in an amount equal to the principal amount of Certificates
obtained by multiplying the excess of the aggregate principal amount of
Available Certificates over the aggregate principal amount of Certificates
subject to Submitted Bids described in subparagraphs (b), (c) and (d) above by
a fraction, the numerator of which will be the aggregate principal amount of
Certificates subject to such Submitted Bid and the denominator of which will
be the sum of the principal amount of Certificates subject to Submitted Bids
made by all such Potential Certificateholders that specified a rate equal to
the Certificate Interest Rate.
III-11
<PAGE>
Insufficient Bids. If Sufficient Bids have not been made with respect
to the Certificates (other than because all of the Certificates of such class
are subject to Submitted Hold Orders) the Certificate Interest Rate shall be
the Maximum Auction Rate, and, subject to the denomination requirements
described below, Submitted Orders will be executed, or will not be executed,
as follows in the following order of priority and all other Submitted Bids
will not be executed:
(a) Existing Certificateholders' Submitted Bids specifying
any rate that is equal to or lower than the Certificate Interest Rate will not
be executed, with the result that such Existing Certificateholders will
continue to hold the aggregate principal amount of Certificates subject to
such Submitted Bids;
(b) Potential Certificateholders' Submitted Bids specifying
any rate that is equal to or lower than the Certificate Interest Rate will be
executed, and specifying any rate that is higher than the Certificate Interest
Rate will not be executed; and
(c) each Existing Certificateholder's Submitted Bid
specifying any rate that is higher than the Certificate Interest Rate and the
Submitted Sell Order of each Existing Certificateholder will be (i) executed
in whole, thus entitling each Existing Certificateholder that submitted any
such Submitted Bid or Submitted Sell Order to sell the Certificates subject to
such Submitted Bid or Submitted Sell Order, or (ii) executed in part in an
amount equal to the aggregate principal amount of Certificates obtained by
multiplying the aggregate principal amount of Certificates subject to
Submitted Bids described in subparagraph (b) above by a fraction, the
numerator of which will be the aggregate principal amount of Certificates held
by such Existing Certificateholder subject to such Submitted Bid or Submitted
Sell Order and the denominator of which will be the aggregate principal amount
of Certificates subject to all such Submitted Bids and Submitted Sell Orders.
All Hold Orders. If all Certificates of a class are subject to Submitted
Hold Orders, no Potential Certificateholders' Submitted Bids will be executed.
Authorized Denominations Requirement. If, as a result of the
procedures described above regarding Sufficient Bids and Insufficient Bids,
any Existing Certificateholder would be entitled or required to sell, or any
Potential Certificateholder would be entitled or required to purchase, a
principal amount of Certificates that is not equal to an Authorized
Denomination or an integral multiple thereof, the Auction Agent will, in such
manner as in its sole discretion it will determine, round up or down the
principal amount of Certificates to be purchased or sold by any Existing
Certificateholder or Potential Certificateholder so that the principal amount
of Certificates purchased or sold by each Existing Certificateholder or
Potential Certificateholder will be equal to an Authorized Denomination or an
integral multiple in excess thereof. If, as a result of the procedures
described above regarding Insufficient Bids, any Potential Certificateholder
would be entitled or required to purchase less than a principal amount of
Certificates equal to an Authorized Denomination or any integral multiple
thereof, the Auction Agent will, in such manner as in its sole discretion it
will determine, allocate Certificates for purchase among Potential
Certificateholders so that only Certificates in an Authorized Denomination or
any integral multiples in excess thereof are purchased by any Potential
Certificateholder, even if such allocation results in one or more of such
Potential Certificateholders not purchasing any Certificates.
Based on the results of each Auction, the Auction Agent is to
determine the aggregate principal amount of Certificates of each class to be
purchased and the aggregate principal amount of Certificates of each class to
be sold by Potential Certificateholders and Existing Certificateholders on
whose behalf each Broker-Dealer submitted Bids or Sell Orders and, with
respect to each Broker-Dealer, to the extent that such aggregate principal
amount of Certificates to be sold differs from such aggregate principal amount
of Certificates to be purchased, determine to which other Broker-Dealer or
Broker-Dealers acting for one or more purchasers such Broker-Dealer will
deliver, or from which Broker-Dealers acting for one or more sellers such
Broker-Dealer will receive, as the case may be, Certificates.
Any calculation by the Auction Agent (or the Trustee, if applicable)
of the Certificate Interest Rate, LIBOR, the Maximum Auction Rate, the All
Hold Rate, the Group I Available Funds Cap and the Non-Payment Rate will, in
the absence of manifest error, be binding on all other parties.
Notwithstanding anything in the Agreement to the contrary, no Auction
is to be held on any Auction Date on which there are insufficient moneys held
by the Trustee under the Agreement and available to pay the principal of and
interest due on the applicable Certificate on the Payment Date immediately
following such Auction Date.
III-12
<PAGE>
Settlement Procedures
The Auction Agent is required to advise each Broker-Dealer that
submitted an Order in an Auction of the Certificate Interest Rate for a
Certificate for the next Accrual Period and, if such Order was a Bid or Sell
Order, whether such Bid or Sell Order was accepted or rejected, in whole or in
part, by telephone not later than 3:00 p.m., eastern time, on the Auction Date
if the Accrual Rate is the Auction Rate and not later than 4:00 p.m. Eastern
time on the Auction Date if the Certificate Interest Rate is the Maximum
Auction Rate. Each Broker-Dealer that submitted an Order on behalf of a Bidder
is required to then advise such Bidder of the applicable Certificate Interest
Rate for the next Interest Period and, if such Order was a Bid or a Sell
Order, whether such Bid or Sell Order was accepted or rejected, in whole or in
part, confirm purchases and sales with each Bidder purchasing or selling
Certificates as a result of the Auction and advise each Bidder purchasing or
selling Certificates as a result of the Auction to give instructions to its
Participant to pay the purchase price against delivery of such Certificates or
to deliver such Certificates against payment therefor, as appropriate.
Pursuant to the Auction Agent Agreement, the Auction Agent is to record each
transfer of Certificates on the Existing Certificateholders Registry to be
maintained by the Auction Agent.
In accordance with DTC's normal procedures, on the Business Day after
the Auction Date, the transactions described above will be executed through
DTC, so long as DTC is the Depository, and the accounts of the respective
Participants at DTC will be debited and credited and Certificates delivered as
necessary to effect the purchases and sales of Certificates as determined in
the Auction. Purchasers are required to make payment through their
Participants in same-day funds to DTC against delivery through their
Participants. DTC will make payment in accordance with its normal procedures,
which now provide for payment against delivery by its Participants in
immediately available funds.
If any Existing Certificateholder selling Certificates in an Auction
fails to deliver such Certificates, the Broker-Dealer of any person that was
to have purchased Certificates in such Auction may deliver to such person a
principal amount of Certificates that is less than the principal amount of
Certificates that otherwise was to be purchased by such person but in any
event equal to an Authorized Denomination or any integral multiple thereof. In
such event, the principal amount of Certificates to be delivered will be
determined by such Broker-Dealer. Delivery of such lesser principal amount of
Certificates will constitute good delivery. Neither the Trustee nor the
Auction Agent will have any responsibility or liability with respect to the
failure of a Potential Certificateholder, Existing Certificateholder or their
respective Broker-Dealer or Participant to deliver the principal amount of
Certificates or to pay for the Certificates purchased or sold pursuant to an
Auction or otherwise. For a further description of the settlement procedures,
see "SETTLEMENT PROCEDURES" below.
Trustee Not Responsible for Auction Agent, Market Agent and
Broker-Dealers
The Trustee shall not be liable or responsible for the actions of or
failure to act by the Auction Agent, Market Agent or any Broker-Dealer under
the Agreement or under the Auction Agent Agreement, the Market Agent Agreement
or any Broker-Dealer Agreement. The Trustee may conclusively rely upon any
information required to be furnished by the Auction Agent, the Market Agent or
any Broker-Dealer without undertaking any independent review or investigation
of the truth or accuracy of such information.
Changes in the Auction Date
The Market Agent, at the consent of the Depositor and the Certificate
Insurer, may specify an earlier Auction Date (but in no event more than five
Business Days earlier) than the Auction Date that would otherwise be
determined in accordance with the definition of "Auction Date" with respect to
one or more specified Auction Periods in order to conform with then current
market practice with respect to similar securities or to accommodate economic
and financial factors that may affect or be relevant to the day of the week
constituting an Auction Date and the interest rate borne on the Certificates.
The Depositor will not consent to such change in the Auction Date unless the
Depositor will have received from the Market Agent not less than three days
nor more than 20 days prior to the effective date of such change a written
request for consent together with a certificate demonstrating the need for
change in reliance on such factors. The Market Agent will provide notice of
its determination to specify an earlier Auction Date for one or more Auction
Periods by means of a written notice delivered at least 10 days prior to the
proposed changed Auction Date to the Trustee, the Auction Agent, the
Depositor, the Certificate Insurer, the Rating Agencies and the Depository.
In connection with any change in Auction terms described above, the
Auction Agent is to provide such further notice to such parties as is
specified in the Auction Agent Agreement.
III-13
<PAGE>
SETTLEMENT PROCEDURES
(a) Not later than (i) 3:00 p.m. if the Certificate Interest Rate is
the Auction Rate or (2) 4:00 p.m. if the Certificate Interest Rate is the
Maximum Auction Rate, the Auction Agent is to notify by telephone each
Broker-Dealer that participated in the Auction held on such Auction Date and
submitted an Order on behalf of an Existing Certificateholder or Potential
Certificateholder of:
(i) the Certificate Interest Rate fixed for the next Accrual
Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted Bids or Sell Orders on behalf of an Existing
Certificateholder, whether such Bid or Sell Order was executed, or
was not executed, in whole or in part, and the principal amount of
Certificates, if any, to be sold by such Existing Certificateholder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer")
submitted a Bid on behalf of a Potential Certificateholder, whether
such Bid was executed, or was not executed, in whole or in part, and
the principal amount of Certificates, if any, to be purchased by such
Potential Certificateholder;
(v) if the aggregate amount of Certificates to be sold by
all Existing Certificateholders on whose behalf such Seller's
Broker-Dealer submitted Bids or Sell Orders exceeds the aggregate
principal amount of Certificates to be purchased by all Potential
Certificateholders on whose behalf such Buyer's Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's
Broker-Dealers and the name of the Participant, if any, of each such
Buyer's Broker-Dealer (a "Participant") acting for one or more
purchasers of such excess principal amount of Certificates and the
principal amount of Certificates to be purchased from one or more
Existing Certificateholders on whose behalf such Seller's
Broker-Dealer acted by one or more Potential Certificateholders on
whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the principal amount of Certificates to be
purchased by all Potential Certificateholders on whose behalf such
Buyer's Broker-Dealer submitted a Bid exceeds the amount of
Certificates to be sold by all Existing Certificateholders on whose
behalf such Seller's Broker-Dealer submitted a Bid or a Sell Order,
the name or names of one or more Seller's Broker-Dealers (and the
name of the Participant, if any, of each such Seller's Broker-Dealer)
acting for one or more sellers of such excess principal amount of
Certificates and the principal amount of Certificates to be sold to
one or more Potential Certificateholders on whose behalf such Buyer's
Broker-Dealer acted by one or more Existing Certificateholder on
whose behalf each of such Seller's Broker-Dealers acted; and
(vii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Certificateholder or Potential Certificateholder is
to:
(i) advise each Existing Certificateholder and Potential
Certificateholder on whose behalf such Broker-Dealer submitted a Bid
or Sell Order in the Auction on such Auction Date whether such Bid or
Sell Order was executed, or was not executed, in whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, advise each Potential Certificateholder on whose
behalf such Buyer's Broker-Dealer submitted a Bid that was executed,
in whole or in part, to instruct such Potential Certificateholder's
Participant to pay to such Buyer's Broker-Dealer (or its Participant)
through the Depository the amount necessary to purchase the principal
amount of the Certificates to be purchased pursuant to such Bid
against receipt of such Certificates together with accrued interest;
(iii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Existing Certificateholder on whose
behalf such Seller's Broker-Dealer submitted a Sell Order that was
executed, in whole or in part, or a Bid that was accepted, in whole
or in part, to instruct such Existing Certificateholder's Participant
to deliver to such Seller's Broker-Dealer (or its Participant)
through the Depository the principal amount of the Certificates to be
sold pursuant to such Order against payment therefor;
III-14
<PAGE>
(iv) advise each Existing Certificateholder on whose behalf
such Broker-Dealer submitted an Order and each Potential
Certificateholder on whose behalf such Broker-Dealer submitted a Bid
of the Certificate Interest Rate for the next Interest Period;
(v) advise each Existing Certificateholder on whose behalf
such Broker-Dealer submitted an Order of the next Auction Date; and
(vi) advise each Potential Certificateholder on whose behalf
such Broker-Dealer submitted a Bid that was executed, in whole or in
part, of the next Auction Date.
(c) On the basis of the information provided to it pursuant to
paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order in
an Auction is required to allocate any funds received by it in connection with
such Auction pursuant to paragraph (b)(ii) above, and any Certificates
received by it in connection with such Auction pursuant to paragraph (b)(iii)
above, among the Potential Certificateholders, if any, on whose behalf such
Broker-Dealer submitted Bids, the Existing Certificateholder, if any, on whose
behalf such Broker-Dealer submitted Bids or Sell Orders in such Auction, and
any Broker-Dealers identified to it by the Auction Agent following such
Auction pursuant to paragraph (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Certificateholder and Existing
Certificateholder with an Order in the Auction on such Auction Date
will instruct its Participant as provided in (b)(ii) or (b)(iii)
above, as the case may be:
(ii) each Seller's Broker-Dealer that is not a Participant
of the Depository will instruct its Participant to deliver such
Certificates through the Depository to a Buyer's Broker-Dealer (or
its Participant) identified to such Seller's Broker-Dealer pursuant
to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant
in the Depository will instruct its Participant to pay through the
Depository to Seller's Broker-Dealer (or its Participant) identified
following such Auction pursuant to (a)(vi) above the amount necessary
to purchase the Certificates to be purchased pursuant to (b)(ii)
above against receipt of such Certificates.
(e) On the Business Day following each Auction Date;
(i) each Participant for a Bidder in the Auction on such
Auction Date referred to in (d)(i) above will instruct the Depository
to execute the transactions described under (b)(ii) or (b)(iii) above
for such Auction, and the Depository will execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in
(d)(ii) above for such Auction, and the Depository will execute such
transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in
(d)(iii) above for such Auction, and the Depository will execute such
transactions.
(f) If an Existing Certificateholder selling Certificates in an
Auction fails to deliver such Certificates (by authorized book-entry), a
Broker-Dealer may deliver to the Potential Certificateholder on behalf of
which it submitted a Bid that was accepted a principal amount of Certificates
that is less than the principal amount of Certificates that otherwise was to
be purchased by such Potential Certificateholder. In such event, the principal
amount of Certificates to be so delivered will be determined solely by such
Broker-Dealer (but only in Authorized Denominations). Delivery of such lesser
principal amount of Certificates will constitute good delivery.
Notwithstanding the foregoing terms of this paragraph (f), any delivery or
nondelivery of Certificates which will represent any departure from the
results of an Auction, as determined by the Auction Agent, will be of no
effect unless and until the Auction Agent will have been notified of such
delivery or nondelivery in accordance with the provisions of the Auction Agent
Agreement and the Broker-Dealer Agreements. Neither the Trustee nor the
Auction Agent will have any responsibility or liability with respect to the
failure of a Potential Certificateholder, Existing Certificateholder or their
Respective Broker-Dealer or Participant to take delivery of or deliver, as the
case may be, the principal amount of the Certificates purchased or sold
pursuant to an Auction or otherwise.
III-15
<PAGE>
ANNEX IV
THE HOME EQUITY LOAN POOL-STATISTICAL INFORMATION
Home Equity Loans-Loan Group I
As of the Statistical Calculation Date, the average Loan Balance of
Loan Group I was $79,312.24; the Coupon Rates of such Home Equity Loans ranged
from 6.99% to 17.99%; the weighted average Loan-to-Value Ratio of Loan Group I
was 79.37%; the weighted average Combined Loan-to-Value Ratio of Loan Group I
was 79.63%; the weighted average Coupon Rate of Loan Group I was 10.01%; the
weighted average remaining term to maturity of Loan Group I was 357.34 months;
and the weighted average original term to maturity of Loan Group I was 358.70
months. The remaining terms to maturity as of the Statistical Calculation Date
of Loan Group I ranged from 240 months to 360 months. The minimum and maximum
Loan Balances of Loan Group I as of the Statistical Calculation Date were
$7,320.68 and $283,685.26 respectively. No Home Equity Loans in Loan Group I
will mature later than September 5, 2028. 7,531 of the Home Equity Loans in
Loan Group I are secured by first mortgages representing 99.49% of the Loan
Balance of the Home Equity Loans in Loan Group I and 83 of the Home Equity
Loans in Loan Group I are secured by second lien mortgages representing in the
aggregate 0.51% of the Loan Balance of Loan Group I Loans.
IV-1
<PAGE>
Geographic Distribution of Mortgaged Properties - Loan Group I
The geographic distribution of Home Equity Loans in Loan Group I by
state, as of the Statistical Calculation Date, was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
State Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona 124 $ 9,130,778.00 1.51%
Arkansas 53 2,849,107.25 0.47
California 333 38,057,350.93 6.30
Colorado 132 12,271,297.66 2.03
Connecticut 55 5,813,494.82 0.96
Delaware 10 878,118.68 0.15
District of Columbia 30 2,690,867.78 0.45
Florida 470 33,301,026.37 5.51
Georgia 288 23,122,868.59 3.83
Hawaii 6 830,591.88 0.14
Idaho 21 1,607,757.11 0.27
Illinois 317 27,467,632.50 4.55
Indiana 383 22,936,171.01 3.80
Iowa 28 1,834,957.96 0.30
Kansas 20 1,105,201.97 0.18
Kentucky 168 11,445,341.98 1.90
Louisiana 58 4,068,369.76 0.67
Maine 26 1,701,586.28 0.28
Maryland 209 19,504,628.93 3.23
Massachusetts 159 17,905,645.01 2.97
Michigan 606 39,357,073.06 6.52
Minnesota 86 7,559,897.62 1.25
Mississippi 50 3,191,796.01 0.53
Missouri 138 8,269,819.17 1.37
Montana 15 845,797.51 0.14
Nebraska 36 2,734,359.49 0.45
Nevada 45 4,672,823.04 0.77
New Hampshire 36 3,651,175.05 0.60
New Jersey 165 17,086,756.40 2.83
New Mexico 82 6,401,644.80 1.06
New York 360 38,490,801.96 6.37
North Carolina 517 38,045,655.60 6.30
Ohio 732 52,849,559.28 8.75
Oklahoma 23 1,731,519.50 0.29
Oregon 54 5,461,895.97 0.90
Pennsylvania 493 35,380,579.88 5.86
Rhode Island 26 2,267,714.89 0.38
South Carolina 196 13,388,579.29 2.22
South Dakota 3 182,888.67 0.03
Tennessee 169 12,551,303.00 2.08
Texas 464 33,993,022.35 5.63
Utah 60 6,270,920.65 1.04
Vermont 3 161,041.56 0.03
Virginia 154 13,372,201.74 2.21
Washington 93 9,705,481.14 1.61
West Virginia 67 4,117,024.65 0.68
Wisconsin 47 3,312,113.50 0.55
Wyoming 4 307,180.05 0.05
- ----------------------------------------------------------------------------------------------------------------------------
Total: 7,614 $ 603,883,420.30 100.00%
============================================================================================================================
</TABLE>
IV-2
<PAGE>
Original Loan-to-Value Ratios - Loan Group I
The original loan-to-value ratios as of the date of origination of
Home Equity Loans in Loan Group I (based upon appraisals made at the time of
origination thereof) (the "Loan-to-Value Ratios") as of the Statistical
Calculation Date were distributed as follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Original LTV's Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5.01 - 10.00 3 $ 49,560.65 0.01%
10.01 - 15.00 15 305,604.09 0.05
15.01 - 20.00 32 1,057,516.62 0.18
20.01 - 25.00 28 1,093,591.99 0.18
25.01 - 30.00 28 1,137,721.99 0.19
30.01 - 35.00 34 1,752,307.02 0.29
35.01 - 40.00 44 2,129,872.49 0.35
40.01 - 45.00 70 3,774,701.97 0.63
45.01 - 50.00 120 6,802,601.87 1.13
50.01 - 55.00 125 8,237,256.00 1.36
55.01 - 60.00 194 12,422,874.15 2.06
60.01 - 65.00 241 15,982,463.09 2.65
65.01 - 70.00 477 33,247,095.27 5.51
70.01 - 75.00 859 64,120,888.12 10.62
75.01 - 80.00 2,286 183,262,929.92 30.35
80.01 - 85.00 1,549 129,338,916.77 21.42
85.01 - 90.00 1,475 135,705,804.50 22.47
90.01 - 100.00 34 3,461,713.79 0.57
- ----------------------------------------------------------------------------------------------------------------------------
Total: 7,614 $ 603,883,420.30 100.00%
============================================================================================================================
</TABLE>
IV-3
<PAGE>
Combined Loan-to-Value Ratios - Loan Group I
The original combined loan-to-value ratios as of the dates of
origination of Home Equity Loans in Loan Group I (based upon appraisals made
at the time of origination thereof) (the "Combined Loan-to-Value Ratios") as
of the Statistical Calculation Date were distributed as follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Original CLTV's Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10.01-15.00 4 $ 100,601.20 0.02%
15.01-20.00 9 358,555.98 0.06
20.01-25.00 14 580,782.59 0.10
25.01-30.00 22 915,194.18 0.15
30.01-35.00 29 1,531,113.66 0.25
35.01-40.00 37 1,836,915.59 0.30
40.01-45.00 67 3,626,759.34 0.60
45.01-50.00 118 6,628,123.71 1.10
50.01-55.00 124 8,139,140.85 1.35
55.01-60.00 191 12,254,726.15 2.03
60.01-65.00 247 16,168,825.10 2.68
65.01-70.00 476 33,145,014.45 5.49
70.01-75.00 864 64,452,810.89 10.67
75.01-80.00 2,297 183,636,578.74 30.41
80.01-85.00 1,572 130,073,350.27 21.54
85.01-90.00 1,498 136,635,415.53 22.63
90.01-95.00 37 3,563,667.41 0.59
95.01-100.00 8 235,844.66 0.04
- ----------------------------------------------------------------------------------------------------------------------------
Total: 7,614 $ 603,883,420.30 100.00%
============================================================================================================================
</TABLE>
IV-4
<PAGE>
Distribution of Coupon Rates - Loan Group I
The Coupon Rates borne by the Notes relating to Loan Group I were
distributed as follows as of the Statistical Calculation Date:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.51 - 7.00 1 $ 70,400.00 0.01%
7.01 - 7.50 20 2,257,780.50 0.37
7.51 - 8.00 107 10,711,501.76 1.77
8.01 - 8.50 537 46,505,034.58 7.70
8.51 - 9.00 970 84,784,896.21 14.04
9.01 - 9.50 1,005 87,518,869.47 14.49
9.51 - 10.00 1,448 121,434,709.29 20.11
10.01 - 10.50 925 72,484,772.77 12.00
10.51 - 11.00 952 74,269,733.58 12.30
11.01 - 11.50 527 37,479,429.14 6.21
11.51 - 12.00 466 30,536,738.73 5.06
12.01 - 12.50 225 13,204,843.46 2.19
12.51 - 13.00 159 9,549,463.51 1.58
13.01 - 13.50 80 4,131,980.35 0.68
13.51 - 14.00 93 4,339,537.78 0.72
14.01 - 14.50 51 2,324,534.52 0.38
14.51 - 15.00 27 1,539,417.87 0.25
15.01 - 15.50 6 208,679.36 0.03
15.51 - 16.00 5 136,043.68 0.02
16.01 - 16.50 4 170,332.55 0.03
16.51 - 17.00 3 111,342.43 0.02
17.01 - 17.50 2 85,378.76 0.01
17.51 - 18.00 1 28,000.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Total: 7,614 $ 603,883,420.30 100.00%
============================================================================================================================
</TABLE>
Distribution of Loan Balances - Loan Group I
The distribution of the outstanding principal amounts of Home Equity
Loans in Loan Group I as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Loan Balances Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.01 - 25,000.00 209 $ 4,425,428.80 0.73%
25,000.01 - 50,000.00 1,784 71,021,402.60 11.76
50,000.01 - 75,000.00 2,314 143,373,395.43 23.74
75,000.01 - 100,000.00 1,406 121,611,632.00 20.14
100,000.01 - 125,000.00 843 93,544,091.96 15.49
125,000.01 - 150,000.00 505 68,884,548.59 11.41
150,000.01 - 175,000.00 252 40,756,146.48 6.75
175,000.01 - 200,000.00 177 33,262,806.58 5.51
200,000.01 - 225,000.00 108 23,037,408.84 3.81
225,000.01 - 250,000.00 9 2,100,124.29 0.35
250,000.01 - 275,000.00 6 1,582,749.47 0.26
275,000.01 - 300,000.00 1 283,685.26 0.05
- ----------------------------------------------------------------------------------------------------------------------------
Total 7,614 $ 603,883,420.30 100.00%
============================================================================================================================
</TABLE>
IV-5
<PAGE>
Types of Mortgaged Properties - Loan Group I
The Properties securing Home Equity Loans in Loan Group I as of the
Statistical Calculation Date were of the property types as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Property Types Home Equity Loans Loan Balance Loan Balance
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family Attached 176 $ 10,852,733.02 1.80%
Single Family Detached 6,612 519,754,500.54 86.07
Condominium 90 6,246,724.14 1.03
Two to Four-Family Residence 404 41,963,067.22 6.95
Planned Unit Development 134 12,391,861.89 2.05
Manufactured Housing 194 12,323,194.76 2.04
Mixed Use 4 351,338.73 0.06
- -------------------------------------------------------------------------------------------------------------------------
Total: 7,614 $603,883,420.30 100.00%
=========================================================================================================================
</TABLE>
Distribution of Months of Seasoning - Loan Group I
The distribution of the number of months of seasoning of Home Equity
Loans in Loan Group I as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Months of Seasoning Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0 - 1 4,437 $ 350,914,038.93 58.11%
2 - 12 3,175 252,813,237.19 41.86
13 (greater than or equal to) 2 156,144.18 0.03
--------------------------------------------------------------------------------------------------------------------------
Total: 7,614 $603,883,420.30 100.00%
============================================================================================================================
</TABLE>
Distribution of Remaining Terms to Maturity - Loan Group I
The distribution of the number of months remaining to maturity of
Home Equity Loans in Loan Group I as of the Statistical Calculation Date was
as follows:
<TABLE>
<CAPTION>
Range of Months Remaining to Number of Aggregate % of Aggregate
Maturity Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
181 - 240 7 $ 399,118.00 0.07%
241 - 300 199 12,160,063.86 2.01
301 - 360 7,408 591,324,238.44 97.92
- ----------------------------------------------------------------------------------------------------------------------------
Total: 7,614 $ 603,883,420.30 100.00%
============================================================================================================================
</TABLE>
IV-6
<PAGE>
Occupancy Status - Loan Group I
The occupancy status of the Properties securing Home Equity Loans in
Loan Group I as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Occupancy Status Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied 7,167 $ 575,775,863.51 95.35%
Investor Owned 447 28,107,556.79 4.65
- ----------------------------------------------------------------------------------------------------------------------------
Total: 7,614 $ 603,883,420.30 100.00%
============================================================================================================================
</TABLE>
IV-7
<PAGE>
Home Equity Loans - Loan Group IIa
As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans in Loan Group IIa was $99,116.56; the Coupon Rates of
Home Equity Loans in Loan Group IIa ranged from 7.25% to 16.00%; the weighted
average Loan-to-Value Ratio of Loan Group IIa was 80.91%; the weighted average
Coupon Rate of the Home Equity Loans in Loan Group IIa was 10.069%; the
weighted average remaining term to maturity of the Home Equity Loans in Loan
Group IIa was 358.57 months; and the weighted average original term to
maturity of the Home Equity Loans in Loan Group IIa was 359.93 months. The
remaining terms to maturity of the Home Equity Loans in Loan Group IIa as of
the Statistical Calculation Date ranged from 179 months to 360 months. The
minimum and maximum Loan Balances of the Home Equity Loans in Loan Group IIa
as of the Statistical Calculation Date were $9,988.75 and $424,500.00,
respectively. None of the Home Equity Loans in Loan Group IIa contain
"balloon" payments. No Home Equity Loan in Loan Group IIa will mature later
than September 1, 2028. All of the Home Equity Loans in Loan Group IIa are
secured by first mortgages.
All of the Home Equity Loans in Loan Group IIa have maximum Coupon
Rates. The weighted average maximum Coupon Rate of the Home Equity Loans in
Loan Group IIa was 16.36% with maximum Coupon Rates that range from 13.25% to
22.00%. The Home Equity Loans in Loan Group IIa have a weighted average gross
margin as of the Statistical Calculation Date of 6.29%. The gross margin for
the Home Equity Loans in Loan Group IIa range from 4.00% to 11.09%.
Approximately $200,054,426.46 or 83.87% of the Home Equity Loans in
Loan Group IIa by aggregate Loan Balance as of the Statistical Calculation
Date are 2/28 Loans. After the first adjustment, the 2/28 Loans have periodic
reset caps ranging from 1.00% to 1.50%.
Approximately $42,307,110.33 or 16.13% of the Home Equity Loans in
Loan Group IIa by aggregate Loan Balance as of the Statistical Calculation
Date are Six-Month LIBOR Loans. The Six-Month LIBOR Loans have periodic reset
caps ranging from 1.00% to 1.50%.
IV-8
<PAGE>
Geographic Distribution of Mortgaged Properties --Loan Group IIa
The geographic distribution of the Home Equity Loans in Loan Group
IIa by state as of the Statistical Calculation Date, was as follows:
<TABLE>
<CAPTION>
State Number of Aggregate % of Aggregate
Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona 86 $ 8,740,851.59 3.33%
Arkansas 7 458,903.97 0.17
California 207 35,596,322.15 13.57
Colorado 90 10,545,667.62 4.02
Connecticut 5 506,448.71 0.19
Delaware 6 506,070.17 0.19
District of Columbia 6 523,263.14 0.20
Florida 137 13,007,696.91 4.96
Georgia 96 9,718,900.63 3.70
Hawaii 2 546,275.57 0.21
Idaho 26 2,269,736.19 0.87
Illinois 137 13,948,479.35 5.32
Indiana 120 8,722,437.62 3.32
Iowa 7 298,221.73 0.11
Kansas 27 1,750,784.97 0.67
Kentucky 31 2,397,571.52 0.91
Louisiana 18 1,327,482.84 0.51
Maine 2 197,288.68 0.08
Maryland 35 4,340,707.78 1.65
Massachusetts 47 5,444,049.30 2.08
Michigan 482 39,154,479.39 14.92
Minnesota 35 3,934,843.24 1.50
Mississippi 17 1,087,074.17 0.41
Missouri 71 5,192,447.59 1.98
Montana 5 509,468.85 0.19
Nebraska 7 682,504.78 0.26
Nevada 20 2,488,696.72 0.95
New Hampshire 9 730,911.90 0.28
New Jersey 44 4,471,449.59 1.70
New Mexico 31 3,661,806.58 1.40
New York 33 4,367,689.19 1.66
North Carolina 60 5,953,321.28 2.27
North Dakota 3 311,453.70 0.12
Ohio 186 13,670,587.33 5.21
Oklahoma 27 2,271,146.72 0.87
Oregon 20 2,390,259.64 0.91
Pennsylvania 81 6,722,269.08 2.56
Rhode Island 8 648,271.72 0.25
South Carolina 19 2,005,597.33 0.76
South Dakota 2 180,092.86 0.07
Tennessee 22 1,656,622.76 0.63
Texas 142 14,299,606.62 5.45
Utah 104 12,811,298.90 4.88
Vermont 2 152,880.17 0.06
Virginia 31 3,090,670.33 1.18
Washington 45 5,537,185.13 2.11
West Virginia 8 326,809.42 0.12
Wisconsin 41 3,204,931.36 1.22
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
IV-9
<PAGE>
Original Loan-to-Value Ratios--Loan Group IIa
The original Loan-to-Value Ratios of Home Equity Loans in Loan Group
IIa as of the Statistical Calculation Date were distributed as follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Original LTV's Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10.01 - 20.00 1 $ 9,988.75 0.00%
20.01 - 25.00 5 186,926.11 0.07
25.01 - 30.00 5 224,088.21 0.09
30.01 - 35.00 6 248,858.61 0.09
35.01 - 40.00 6 351,262.17 0.13
40.01 - 45.00 14 709,425.99 0.27
45.01 - 50.00 28 1,595,729.96 0.61
50.01 - 55.00 27 2,156,467.25 0.82
55.01 - 60.00 60 4,230,970.61 1.61
60.01 - 65.00 70 5,389,224.93 2.05
65.01 - 70.00 156 13,774,180.03 5.25
70.01 - 75.00 324 28,287,029.62 10.78
75.01 - 80.00 771 75,512,223.79 28.78
80.01 - 85.00 582 61,716,352.75 23.52
85.01 - 90.00 584 66,918,105.60 25.51
90.01 - 95.00 6 872,804.99 0.33
95.01 - 100.00 2 177,897.42 0.07
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
Distribution of Current Coupon Rates--Loan Group IIa
The Coupon Rates borne by the Notes relating to Home Equity Loans in
Loan Group IIa were distributed as follows as of the Statistical Calculation
Date:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Current Coupon Rates Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7.01 - 7.50 5 $ 512,729.24 0.20%
7.51 - 8.00 35 4,304,902.58 1.64
8.01 - 8.50 75 10,170,813.67 3.88
8.51 - 9.00 252 31,161,618.71 11.88
9.01 - 9.50 273 30,152,333.36 11.49
9.51 - 10.00 572 61,088,889.94 23.28
10.01 - 10.50 441 42,136,699.60 16.06
10.51 - 11.00 506 44,553,450.35 16.98
11.01 - 11.50 239 19,927,779.29 7.60
11.51 - 12.00 144 11,388,532.56 4.34
12.01 - 12.50 47 3,990,226.72 1.52
12.51 - 13.00 26 1,254,409.52 0.48
13.01 - 13.50 12 654,442.43 0.25
13.51 - 14.00 12 733,985.70 0.28
14.01 - 14.50 5 202,546.81 0.08
14.51 - 15.00 2 80,087.38 0.03
15.01 - 16.00 1 48,088.93 0.02
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
IV-10
<PAGE>
Distribution of Loan Balances--Loan Group IIa
The distribution of the outstanding principal amounts of the Home
Equity Loans in Loan Group IIa as of the Statistical Calculation Date was as
follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Loan Balances Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.01 - 25,000.00 37 $ 798,123.09 0.30%
25,000.01 - 50,000.00 418 16,816,579.57 6.41
50,000.01 - 75,000.00 644 40,206,124.09 15.32
75,000.01 - 100,000.00 556 48,244,146.82 18.39
100,000.01 - 125,000.00 362 40,694,744.25 15.51
125,000.01 - 150,000.00 245 33,678,862.61 12.84
150,000.01 - 175,000.00 129 20,862,812.35 7.95
175,000.01 - 200,000.00 72 13,447,062.47 5.13
200,000.01 - 225,000.00 60 12,792,914.09 4.88
225,000.01 - 250,000.00 45 10,698,981.15 4.08
250,000.01 - 275,000.00 23 5,992,062.97 2.28
275,000.01 - 300,000.00 17 4,926,766.21 1.88
300,000.01 - 325,000.00 16 5,017,079.93 1.91
325,000.01 - 350,000.00 11 3,724,207.01 1.42
350,000.01 - 400,000.00 11 4,036,570.18 1.54
400,000.01 - 450,000.00 1 424,500.00 0.16
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
Types of Mortgaged Properties--Loan Group IIa
The Properties securing the Home Equity Loans in Loan Group IIa as of
the Statistical Calculation Date were of the property types as follows:
<TABLE>
<CAPTION>
Property Types Number of Aggregate % of Aggregate
Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family Attached 43 $ 3,433,238.37 1.31
Single Family Detached 2,270 223,419,765.14 85.16
Condominium 46 4,671,265.88 1.78
Two to Four-Family Residence 115 12,831,449.25 4.89
Planned Unit Development 86 11,297,185.43 4.31
Manufactured Housing 82 6,094,561.83 2.32
Mixed Use 5 614,070.89 0.23
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
IV-11
<PAGE>
Distribution of Months of Seasoning--Loan Group IIa
The distribution of the number of months of seasoning of the Home
Equity Loans in Loan Group IIa as of the Statistical Calculation Date was as
follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Months of Seasoning Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0 - 1 1,656 $163,538,022.14 62.33%
2 - 12 991 98,823,514.65 37.67
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
Distribution of Remaining Terms to Maturity--Loan Group IIa
The distribution of the number of months remaining to maturity of the
Home Equity Loans in Loan Group IIa as of the Statistical Calculation Date was
as follows:
<TABLE>
<CAPTION>
Range of Months Number of Aggregate % of Aggregate
Remaining to Maturity Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
121 - 180 2 $ 98,200.00 0.04%
301 - 360 2,645 262,263,336.79 99.96
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
Occupancy Status--Loan Group IIa
The occupancy status of the Properties securing the Home Equity Loans
in Loan Group IIa as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Occupancy Status Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied 2,514 $251,271,091.26 95.77%
Investor Owned 133 11,090,445.53 4.23
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
IV-12
<PAGE>
Distribution of Margins--Loan Group IIa
The margins borne by the Notes relating to the Home Equity Loans in
Loan Group IIa as of the Statistical Calculation Date were as follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Margins Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.01 - 4.00 1 $ 86,000.00 0.03%
4.01 - 5.00 156 17,727,470.71 6.76
5.01 - 6.00 832 86,716,588.89 33.05
6.01 - 7.00 1,107 110,613,431.99 42.16
7.01 - 8.00 462 40,970,471.38 15.62
8.01 - 9.00 71 5,192,222.68 1.98
9.01 - 10.00 15 912,622.22 0.35
10.01 - 11.00 2 88,147.21 0.03
11.01 - 12.00 1 54,581.71 0.02
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
Distribution of Maximum Coupon Rates--Loan Group IIa
The maximum Coupon Rates borne by the Notes relating to the Home
Equity Loans in Loan Group IIa as of the Statistical Calculation Date were as
follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Maximum Coupon Rates Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
13.01 - 14.00 19 $ 2,290,067.50 0.87%
14.01 - 15.00 245 29,900,463.52 11.40
15.01 - 16.00 731 79,797,108.16 30.41
16.01 - 17.00 941 89,845,229.35 34.24
17.01 - 18.00 488 43,680,959.46 16.65
18.01 - 19.00 160 12,682,147.10 4.83
19.01 - 20.00 43 2,889,244.40 1.10
20.01 - 21.00 14 757,941.22 0.29
21.01 - 22.00 6 518,376.08 0.20
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
IV-13
<PAGE>
Month of Next Coupon Rate Change--Loan Group IIa
The month of the next Coupon Rate change for each of the Notes
relating to the Home Equity Loans in Loan Group IIa as of the Statistical
Calculation Date was as follows:
<TABLE>
<CAPTION>
Month of Number of Aggregate % of Aggregate
Next Coupon Rate Change Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September, 1998 4 $ 424,901.67 0.16%
October, 1998 15 1,754,594.33 0.67
November, 1998 40 3,673,405.89 1.40
December, 1998 106 10,235,987.95 3.90
January, 1999 160 15,591,934.54 5.94
February, 1999 93 10,182,285.95 3.88
March, 1999 5 444,000.00 0.17
August, 1999 1 60,927.26 0.02
September, 1999 1 26,878.89 0.01
October, 1999 1 40,262.21 0.02
November, 1999 1 28,548.47 0.01
December, 1999 3 450,120.24 0.17
January, 2000 7 902,464.01 0.34
February, 2000 6 438,878.83 0.17
March, 2000 17 1,690,561.37 0.64
April, 2000 57 6,497,057.42 2.48
May, 2000 169 15,350,743.03 5.85
June, 2000 563 57,248,183.08 21.82
July, 2000 931 91,661,306.14 34.94
August, 2000 467 45,658,495.51 17.40
- ----------------------------------------------------------------------------------------------------------------------------
Total: 2,647 $262,361,536.79 100.00%
============================================================================================================================
</TABLE>
IV-14
<PAGE>
Home Equity Loans - Loan Group IIa and Loan Group IIb
As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans was $68,136.39; the Coupon Rates of the Home Equity
Loans ranged from 7.10% to 19.24%; the weighted average Loan-to-Value Ratio of
the Home Equity Loans was 75.11%; the weighted average Combined Loan-to-Value
Ratio of the Home Equity Loans was 79.37%; the weighted average Coupon Rate of
the Home Equity Loans was 10.45%; the weighted average remaining term to
maturity of the Home Equity Loans was 248.27 months; and the weighted average
original term to maturity of the Home Equity Loans was 249.71 months. The
remaining terms to maturity as of the Statistical Calculation Date of the Home
Equity Loans ranged from 13 months to 360 months. The minimum and maximum Loan
Balances of the Home Equity Loans as of the Statistical Calculation Date were
$4,975.55 and $463,765.68 respectively.
Home Equity Loans - Loan Group IIb-Fixed Rate
As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans in Loan Group IIb-Fixed Rate was $59,757.20. The Coupon
Rates of the Home Equity Loans in Loan Group IIb-Fixed Rate ranged from 7.10%
to 19.24%; the weighted average Loan-to-Value Ratio of Loan Group IIb-Fixed
Rate was 72.44%; the weighted average Combined Loan-to-Value Ratio of the Home
Equity Loans was 78.71%; the weighted average Coupon Rate of the Home Equity
Loans in Loan Group IIb-Fixed Rate was 10.604%; the weighted average remaining
term to maturity of the Home Equity Loans in Loan Group IIb-Fixed Rate was
196.02 months; and the weighted average original term to maturity of the Home
Equity Loans in the Loan Group IIb-Fixed Rate was 197.55 months. The remaining
terms to maturity of the Home Equity Loans in Loan Group IIb-Fixed Rate as of
the Statistical Calculation Date ranged from 13 months to 360 months. The
minimum and maximum Loan Balances of the Home Equity Loans in Loan Group
IIb-Fixed Rate as of the Statistical Calculation Date were $4,975.55 and
$463,765.68, respectively. 53.13% of the Home Equity Loans in Loan Group
IIb-Fixed Rate contains "balloon" payments. No Home Equity Loan in Loan Group
IIb-Fixed Rate will mature later than August 17, 2028. 9,608 of the Home
Equity Loans in Loan Group IIb-Fixed Rate are secured by first mortgages
representing 88.99% of the Loan Balance of the Home Equity Loans in Loan Group
IIb-Fixed Rate and 2,692 of the Home Equity Loans in Loan Group IIb-Fixed Rate
are secured by second lien mortgages representing 11.01% of the Loan Balance
of Loan Group IIb-Fixed Rate Loans.
Home Equity Loans - Loan Group IIb-Adjustable Rate
As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans in Loan Group IIb-Adjustable Rate was $90,398.12. The
Coupon Rates of the Home Equity Loans in Loan Group IIb-Adjustable Rate ranged
from 7.65% to 15.55%; the weighted average Loan-to-Value Ratio of Loan Group
IIb-Adjustable Rate was 80.34%; the weighted average Coupon Rate of the Home
Equity Loans in Loan Group IIb-Adjustable Rate was 10.325%; the weighted
average remaining term to maturity of the Home Equity Loans in Loan Group
IIb-Adjustable Rate was 358.98 months; and the weighted average original term
to maturity of the Home Equity Loans in the Loan Group IIb-Adjustable Rate was
359.85 months. The remaining terms to maturity of the Home Equity Loans in
Loan Group IIb-Adjustable Rate as of the Statistical Calculation Date ranged
from 180 months to 360 months. The minimum and maximum Loan Balances of the
Home Equity Loans in Loan Group IIb-Adjustable Rate as of the Statistical
Calculation Date were $11,000.00 and $397,500.00, respectively. The Home
Equity Loans in Loan Group IIb-Adjustable Rate do not contain "balloon"
payments. No Home Equity Loan in Loan Group IIb-Adjustable Rate will mature
later than September 1, 2028. All of the Home Equity Loans in Loan Group
IIb-Adjustable Rate are secured by first mortgages.
All of the Adjustable Rate Home Equity Loans in Loan Group IIb have
maximum Coupon Rates. The weighted average maximum Coupon Rate of the Home
Equity Loans in Loan Group IIb was 16.68%, with maximum Coupon Rates that
range from 13.65% to 22.55%. The Home Equity Loans in Loan Group IIb have a
weighted average gross margin as of the Statistical Calculation Date of 6.49%.
The gross margin for the Home Equity Loans in Loan Group IIb range from 4.00%
to 10.80%.
Approximately $71,580,994.77 or 83.70% of the Home Equity Loans in
Loan Group IIb-Adjustable Rate by aggregate Loan Balance as of the Statistical
Calculation Date are 3/27 Loans. After the first adjustment, the 3/27 Loans
have periodic reset caps ranging from 1.00% to 1.50%.
IV-15
<PAGE>
Approximately $13,935,628.07 or 16.30% of the Home Equity Loans in
Loan Group IIb-Adjustable Rate by aggregate Loan Balance as of the Statistical
Calculation Date are 2/28 Loans. After the first adjustment, the 2/28 Loans
have periodic reset caps ranging from 1.00% to 1.50%.
IV-16
<PAGE>
Geographic Distribution of Mortgaged Properties --Loan Group IIb - Fixed Rate
The geographic distribution of the Home Equity Loans in Loan Group
IIb by state, as of the Statistical Calculation Date, was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
State Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona 159 $ 9,728,689.53 1.32%
Arkansas 80 3,241,270.78 0.44
California 311 33,750,918.17 4.59
Colorado 118 8,023,913.73 1.09
Connecticut 65 4,564,122.89 0.62
Delaware 25 1,846,560.73 0.25
District of Columbia 42 3,133,492.97 0.43
Florida 762 43,350,450.54 5.90
Georgia 364 19,489,745.99 2.65
Hawaii 4 885,881.72 0.12
Idaho 33 2,086,587.85 0.28
Illinois 1,056 65,509,230.34 8.91
Indiana 698 33,579,762.29 4.57
Iowa 60 2,775,313.54 0.38
Kansas 38 2,288,177.79 0.31
Kentucky 262 13,248,889.11 1.80
Louisiana 236 11,511,491.94 1.57
Maine 21 1,018,427.38 0.14
Maryland 274 20,192,018.56 2.75
Massachusetts 235 18,518,432.41 2.52
Michigan 1,536 81,592,398.48 11.10
Minnesota 150 9,594,329.86 1.31
Mississippi 118 5,162,675.55 0.70
Missouri 304 15,221,110.24 2.07
Montana 11 623,702.09 0.08
Nebraska 49 3,399,028.30 0.46
Nevada 48 4,389,940.98 0.60
New Hampshire 28 1,456,324.56 0.20
New Jersey 259 22,580,117.87 3.07
New Mexico 110 6,597,637.42 0.90
New York 492 33,972,715.15 4.62
North Carolina 626 35,555,891.46 4.84
North Dakota 3 64,043.42 0.01
Ohio 1,425 83,551,294.21 11.37
Oklahoma 34 1,856,344.69 0.25
Oregon 43 3,110,279.67 0.42
Pennsylvania 823 44,015,929.52 5.99
Rhode Island 57 3,617,682.39 0.49
South Carolina 273 13,721,644.69 1.87
South Dakota 2 97,317.00 0.01
Tennessee 245 14,408,319.93 1.96
Texas 244 15,749,089.01 2.14
Utah 78 4,992,275.43 0.68
Vermont 8 417,208.34 0.06
Virginia 187 10,133,378.36 1.38
Washington 87 7,576,261.04 1.03
West Virginia 62 3,031,180.50 0.41
Wisconsin 145 9,135,928.07 1.24
Wyoming 10 646,098.72 0.09
- ----------------------------------------------------------------------------------------------------------------------------
Total: 12,300 $735,013,525.21 100.00%
============================================================================================================================
</TABLE>
IV-17
<PAGE>
Original Loan-to-Value Ratios--Loan Group IIb - Fixed Rate
The original Loan-to-Value Ratios of Home Equity Loans in Loan Group
IIb as of the Statistical Calculation Date were distributed as follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Original LTV's Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.01- 5.00 5 $ 88,501.84 0.01%
5.01-10.00 129 2,329,181.59 0.32
10.01-15.00 514 11,102,433.52 1.51
15.01-20.00 885 21,414,534.65 2.91
20.01-25.00 465 13,848,963.81 1.88
25.01-30.00 378 13,585,221.56 1.85
30.01-35.00 280 11,093,990.90 1.51
35.01-40.00 242 9,938,959.24 1.35
40.01-45.00 224 9,251,579.35 1.26
45.01-50.00 304 12,565,892.93 1.71
50.01-55.00 244 11,076,084.37 1.51
55.01-60.00 362 16,754,632.16 2.28
60.01-65.00 455 24,442,199.73 3.33
65.01-70.00 769 44,091,369.90 6.00
70.01-75.00 1,152 71,914,202.68 9.78
75.01-80.00 2,627 185,641,000.99 25.26
80.01-85.00 1,738 140,273,284.16 19.08
85.01-90.00 1,493 132,696,314.33 18.05
90.01-95.00 33 2,844,427.50 0.39
95.01-100.00 1 60,750.00 0.01
- ----------------------------------------------------------------------------------------------------------------------------
Total: 12,300 $735,013,525.21 100.00%
============================================================================================================================
</TABLE>
IV-18
<PAGE>
Range of CLTV's--Loan Group IIb - Fixed Rate
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
CLTV's Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.01 - 5.00 2 $ 42,766.54 0.01%
5.01 - 10.00 1 25,455.58 0.00
10.01 - 15.00 13 273,651.32 0.04
15.01 - 20.00 29 779,906.20 0.11
20.01 - 25.00 59 1,330,723.56 0.18
25.01 - 30.00 78 2,351,073.33 0.32
30.01 - 35.00 81 2,948,986.38 0.40
35.01 - 40.00 138 4,793,604.85 0.65
40.01 - 45.00 174 6,328,338.52 0.86
45.01 - 50.00 282 11,171,385.96 1.52
50.01 - 55.00 249 10,901,928.87 1.48
55.01 - 60.00 388 17,411,492.34 2.37
60.01 - 65.00 478 25,293,530.27 3.44
65.01 - 70.00 846 46,344,983.36 6.31
70.01 - 75.00 1,321 77,753,771.50 10.58
75.01 - 80.00 2,960 196,686,900.98 26.76
80.01 - 85.00 2,274 157,820,519.65 21.47
85.01 - 90.00 2,380 159,609,725.69 21.72
90.01 - 95.00 142 5,647,755.08 0.77
95.01 - 100.00 404 7,480,825.23 1.02
100.01 >= 1 16,200.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Total: 12,300 $735,013,525.21 100.00%
============================================================================================================================
</TABLE>
IV-19
<PAGE>
Distribution of Coupon Rates--Loan Group IIb - Fixed Rate
The Coupon Rates borne by the Notes relating to Home Equity Loans in
Loan Group IIb were distributed as follows as of the Statistical Calculation
Date:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7.01 - 7.50 18 $ 1,508,323.05 0.21%
7.51 - 8.00 124 10,560,550.45 1.44
8.01 - 8.50 426 35,311,168.40 4.80
8.51 - 9.00 907 68,691,571.30 9.35
9.01 - 9.50 966 71,724,422.93 9.76
9.51 - 10.00 1,734 124,113,279.44 16.89
10.01 - 10.50 1,408 88,282,793.28 12.01
10.51 - 11.00 1,732 96,342,669.25 13.11
11.01 - 11.50 1,036 56,078,297.88 7.63
11.51 - 12.00 1,206 60,054,403.18 8.17
12.01 - 12.50 808 38,304,849.50 5.21
12.51 - 13.00 685 31,554,797.75 4.29
13.01 - 13.50 419 18,777,443.70 2.55
13.51 - 14.00 333 13,969,147.89 1.90
14.01 - 14.50 208 8,495,780.50 1.16
14.51 - 15.00 116 5,037,495.29 0.69
15.01 - 15.50 28 1,202,050.26 0.16
15.51 - 16.00 48 1,671,536.09 0.23
16.01 - 16.50 49 1,826,455.51 0.25
16.51 - 17.00 32 956,940.98 0.13
17.01 - 17.50 10 392,160.11 0.05
17.51 - 18.00 5 119,728.64 0.02
18.01 - 18.50 1 14,909.83 0.00
18.51 - 19.50 1 22,750.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Total: 12,300 $735,013,525.21 100.00%
============================================================================================================================
</TABLE>
IV-20
<PAGE>
Distribution of Loan Balances--Loan Group IIb - Fixed Rate
The distribution of the outstanding principal amounts of the Home
Equity Loans in Loan Group IIb as of the Statistical Calculation Date was as
follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Loan Balances Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.01 - 25,000.00 2,122 $ 38,580,844.12 5.25%
25,000.01 - 50,000.00 4,315 161,988,332.18 22.04
50,000.01 - 75,000.00 2,920 179,134,510.61 24.37
75,000.01 - 100,000.00 1,366 117,992,644.58 16.05
100,000.01 - 125,000.00 738 81,908,570.61 11.14
125,000.01 - 150,000.00 334 45,473,538.56 6.19
150,000.01 - 175,000.00 165 26,729,837.87 3.64
175,000.01 - 200,000.00 91 17,017,801.63 2.32
200,000.01 - 225,000.00 39 8,327,754.74 1.13
225,000.01 - 250,000.00 82 19,557,543.61 2.66
250,000.01 - 275,000.00 45 11,736,401.41 1.60
275,000.01 - 300,000.00 36 10,320,701.34 1.40
300,000.01 - 325,000.00 18 5,665,187.05 0.77
325,000.01 - 350,000.00 16 5,418,529.88 0.74
350,000.01 - 400,000.00 10 3,800,019.68 0.52
400,000.01 - 450,000.00 2 897,541.66 0.12
450,000.01 - 475,000.00 1 463,765.68 0.06
- ----------------------------------------------------------------------------------------------------------------------------
Total: 12,300 $735,013,525.21 100.00%
============================================================================================================================
</TABLE>
Types of Mortgaged Properties--Loan Group IIb - Fixed Rate
The Properties securing the Home Equity Loans in Loan Group IIb as of
the Statistical Calculation Date were of the property types as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Property Types Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family Attached 297 $ 15,033,521.40 2.05%
Single Family Detached 10,855 647,548,290.60 88.10
Condominium 103 5,134,818.95 0.70
Two to Four-Family Residence 583 36,731,062.10 5.00
Planned Unit Development 122 11,873,077.34 1.62
Manufactured Housing 324 16,881,560.38 2.30
Mixed Use 16 1,811,194.44 0.25
- ----------------------------------------------------------------------------------------------------------------------------
Total: 12,300 $735,013,525.21 100.00%
============================================================================================================================
</TABLE>
IV-21
<PAGE>
Distribution of Months of Seasoning--Loan Group IIb - Fixed Rate
The distribution of the number of months of seasoning of the Home
Equity Loans in Loan Group IIb as of the Statistical Calculation Date was as
follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Months of Seasoning Home Equity Loans Loan Balance Loan Balance
- -------------------------------- ------------------------------ ------------------------------ -----------------------------
<S> <C> <C> <C>
0 - 1 6,209 $383,283,489.75 52.15%
2 - 12 6,083 351,441,870.73 47.81
13 > = 8 288,164.73 0.04
- ----------------------------------------------------------------------------------------------------------------------------
Total: 12,300 $735,013,525.21 100.00%
============================================================================================================================
</TABLE>
Distribution of Remaining Terms to Maturity--Loan Group IIb - Fixed Rate
The distribution of the number of months remaining to maturity of the
Home Equity Loans in Loan Group IIb as of the Statistical Calculation Date was
as follows:
<TABLE>
<CAPTION>
Range of Months Remaining to Number of Aggregate % of Aggregate
Maturity Home Equity Loans Loan Balance Loan Balance
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 - 60 63 $ 1,674,459.81 0.23%
61 - 120 687 23,954,577.88 3.26
121 - 180 9,197 544,008,216.87 74.01
181 - 240 2,202 125,173,063.29 17.03
241 - 300 3 331,484.52 0.05
301 - 360 148 39,871,722.84 5.42
- ----------------------------------------------------------------------------------------------------------------------------
Total: 12,300 $735,013,525.21 100.00%
============================================================================================================================
</TABLE>
Occupancy Status--Loan Group IIb - Fixed Rate
The occupancy status of the Properties securing the Home Equity Loans
in Loan Group IIb as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Occupancy Status Number of Aggregate % of Aggregate
Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied 11,644 $703,215,118.21 95.67%
Investor Owned 656 31,798,407.00 4.33
- ----------------------------------------------------------------------------------------------------------------------------
Total: 12,300 $735,013,525.21 100.00%
============================================================================================================================
</TABLE>
IV-22
<PAGE>
Geographic Distribution of Mortgaged Properties --
Loan Group IIb - Adjustable Rate
The geographic distribution of the Home Equity Loans in Loan Group
IIb by state, as of the Statistical Calculation Date, was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
State Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona 36 $ 2,927,952.78 3.42%
Arkansas 1 72,843.03 0.09
California 65 10,954,260.20 12.81
Colorado 45 5,084,208.99 5.95
Delaware 3 208,369.20 0.24
District of Columbia 2 267,878.15 0.31
Florida 45 4,296,380.51 5.02
Georgia 20 1,994,099.19 2.33
Idaho 9 788,093.52 0.92
Illinois 36 3,648,542.82 4.27
Indiana 48 3,842,770.14 4.49
Iowa 3 223,918.00 0.26
Kansas 9 479,338.50 0.56
Kentucky 8 667,899.01 0.78
Louisiana 13 1,098,046.10 1.28
Maine 1 65,578.56 0.08
Maryland 14 1,404,371.10 1.64
Massachusetts 6 711,523.86 0.83
Michigan 235 16,549,773.61 19.35
Minnesota 15 1,169,457.09 1.37
Mississippi 1 44,200.00 0.05
Missouri 16 753,067.08 0.88
Montana 4 385,766.31 0.45
Nebraska 4 294,870.48 0.34
Nevada 9 1,108,971.14 1.30
New Hampshire 1 112,849.52 0.13
New Jersey 13 1,375,139.51 1.61
New Mexico 21 2,046,678.77 2.39
New York 1 31,500.00 0.04
North Carolina 23 1,773,109.76 2.07
North Dakota 1 77,320.88 0.09
Ohio 60 4,321,279.09 5.05
Oklahoma 3 202,218.97 0.24
Oregon 9 865,803.58 1.01
Pennsylvania 31 2,040,677.47 2.39
Rhode Island 2 309,400.00 0.36
South Carolina 4 344,912.00 0.40
Tennessee 11 1,156,529.45 1.35
Texas 48 4,711,046.20 5.51
Utah 29 2,915,688.83 3.41
Virginia 5 684,839.23 0.80
Washington 28 2,854,983.27 3.34
West Virginia 2 118,236.94 0.14
Wisconsin 4 389,130.00 0.46
Wyoming 2 143,100.00 0.17
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $85,516,622.84 100.00%
============================================================================================================================
</TABLE>
IV-23
<PAGE>
Original Loan-to-Value Ratios--Loan Group IIb - Adjustable Rate
The original Loan-to-Value Ratios of Home Equity Loans in Loan Group
IIb as of the Statistical Calculation Date were distributed as follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Original LTV's Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
10.01 - 15.00 1 $ 11,000.00 0.01%
15.01 - 20.00 1 24,990.78 0.03
20.01 - 30.00 2 128,378.45 0.15
30.01 - 40.00 6 348,562.12 0.41
40.01 - 45.00 4 188,750.00 0.22
45.01 - 50.00 13 630,538.79 0.74
50.01 - 55.00 14 1,205,294.64 1.41
55.01 - 60.00 22 1,116,386.05 1.31
60.01 - 65.00 45 3,118,787.47 3.65
65.01 - 70.00 61 5,073,262.29 5.93
70.01 - 75.00 118 9,012,413.07 10.54
75.01 - 80.00 258 22,989,427.24 26.88
80.01 - 85.00 202 19,153,505.64 22.40
85.01 - 90.00 197 22,279,976.30 26.05
90.01 - 95.00 2 235,350.00 0.28
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $85,516,622.84 100.00%
============================================================================================================================
</TABLE>
Distribution of Current Coupon Rates--Loan Group IIb - Adjustable Rate
The Coupon Rates borne by the Notes relating to Home Equity Loans in
Loan Group IIb were distributed as follows as of the Statistical Calculation
Date:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Current Coupon Rates Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7.51 - 8.00 7 $ 1,065,944.39 1.25%
8.01 - 8.50 16 2,217,777.59 2.59
8.51 - 9.00 59 6,442,147.18 7.53
9.01 - 9.50 69 7,485,655.71 8.75
9.51 - 10.00 209 21,892,086.90 25.60
10.01 - 10.50 147 14,519,851.05 16.98
10.51 - 11.00 156 14,134,874.84 16.53
11.01 - 11.50 97 7,376,494.69 8.63
11.51 - 12.00 85 5,453,321.23 6.38
12.01 - 12.50 23 1,171,153.08 1.37
12.51 - 13.00 35 1,839,718.68 2.15
13.01 - 13.50 13 816,311.88 0.95
13.51 - 14.00 16 658,180.08 0.77
14.01 - 14.50 7 229,524.39 0.27
14.51 - 15.00 1 49,000.00 0.06
15.01 - 15.50 5 140,081.15 0.16
15.51 - 16.00 1 24,500.00 0.03
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $85,516,622.84 100.00%
============================================================================================================================
</TABLE>
IV-24
<PAGE>
Distribution of Loan Balances--Loan Group IIb - Adjustable Rate
The distribution of the outstanding principal amounts of the Home
Equity Loans in Loan Group IIb as of the Statistical Calculation Date was as
follows:
<TABLE>
<CAPTION>
Range of Number of Aggregate % of Aggregate
Loan Balances Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.01 - 25,000.00 30 $ 587,829.49 0.69%
25,000.01 - 50,000.00 175 6,903,266.29 8.07
50,000.01 - 75,000.00 253 15,809,670.13 18.49
75,000.01 - 100,000.00 188 16,420,009.47 19.20
100,000.01 - 125,000.00 127 14,117,176.85 16.51
125,000.01 - 150,000.00 71 9,767,274.59 11.42
150,000.01 - 175,000.00 27 4,321,581.36 5.05
175,000.01 - 200,000.00 28 5,231,094.22 6.12
200,000.01 - 225,000.00 12 2,561,001.29 2.99
225,000.01 - 250,000.00 11 2,616,513.24 3.06
250,000.01 - 275,000.00 7 1,866,173.77 2.18
275,000.01 - 300,000.00 9 2,600,251.82 3.04
300,000.01 - 325,000.00 2 611,825.47 0.72
325,000.01 - 350,000.00 4 1,328,025.50 1.55
350,000.01 - 400,000.00 2 774,929.35 0.91
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $85,516,622.84 100.00%
============================================================================================================================
</TABLE>
Types of Mortgaged Properties--Loan Group IIb - Adjustable Rate
The Properties securing the Home Equity Loans in Loan Group IIb as of
the Statistical Calculation Date were of the property types as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Property Types Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family Attached 15 $ 1,124,158.63 1.31%
Single Family Detached 824 74,339,540.12 86.93
Condominium 14 989,775.90 1.16
Two to Four-Family Residence 34 3,244,168.43 3.79
Planned Unit Development 24 2,964,195.34 3.47
Manufactured Housing 34 2,764,784.42 3.23
Mixed Use 1 90,000.00 0.11
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $85,516,622.84 100.00%
============================================================================================================================
</TABLE>
IV-25
<PAGE>
Distribution of Months of Seasoning--Loan Group IIb - Adjustable Rate
The distribution of the number of months of seasoning of the Home
Equity Loans in Loan Group IIb as of the Statistical Calculation Date was as
follows:
<TABLE>
<CAPTION>
Range of Months Number of Aggregate % of Aggregate
of Seasoning Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
0 - 1 751 $66,815,162.91 78.13%
2 - 12 195 18,701,459.93 21.87
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $85,516,622.84 100.00%
============================================================================================================================
</TABLE>
Distribution of Remaining Terms to Maturity--Loan Group IIb - Adjustable Rate
The distribution of the number of months remaining to maturity of the
Home Equity Loans in Loan Group IIb as of the Statistical Calculation Date was
as follows:
<TABLE>
<CAPTION>
Range of Months Number of Aggregate % of Aggregate
Remaining to Maturity Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
121 - 180 1 $ 35,000.00 0.04%
181 - 240 1 55,950.00 0.07
301 - 360 944 85,425,672.84 99.89
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $85,516,622.84 100.00%
============================================================================================================================
</TABLE>
Occupancy Status--Loan Group IIb - Adjustable Rate
The occupancy status of the Properties securing the Home Equity Loans
in Loan Group IIb as of the Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Occupancy Status Number of Aggregate % of Aggregate
Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------- ------------------------------ ------------------------------ -----------------------------
Owner Occupied 897 $81,773,293.33 95.62%
Investor Owned 49 3,743,329.51 4.38
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $85,516,622.84 100.00%
============================================================================================================================
</TABLE>
IV-26
<PAGE>
Distribution of Margins--Loan Group IIb - Adjustable Rate
The margins borne by the Notes relating to the Home Equity Loans in
Loan Group IIb as of the Statistical Calculation Date were as follows:
<TABLE>
<CAPTION>
Range of Margins Number of Aggregate % of Aggregate
Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.01 - 4.00 1 $ 149,830.45 0.18%
4.01 - 5.00 50 5,862,275.86 6.86
5.01 - 6.00 239 23,384,976.96 27.35
6.01 - 7.00 341 33,060,581.19 38.66
7.01 - 8.00 209 17,144,561.33 20.05
8.01 - 9.00 73 4,457,875.50 5.21
9.01 - 10.00 27 1,291,940.40 1.51
10.01 - 11.00 6 164,581.15 0.19
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $85,516,622.84 100.00%
============================================================================================================================
</TABLE>
Distribution of Maximum Coupon Rates--Loan Group IIb - Adjustable Rate
The maximum Coupon Rates borne by the Notes relating to the Home
Equity Loans in Loan Group IIb as of the Statistical Calculation Date were as
follows:
<TABLE>
<CAPTION>
Range of Coupon Number of Aggregate % of Aggregate
Maximum Rates Home Equity Loans Loan Balance Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
13.01 - 14.00 4 $ 492,800.00 0.58%
14.01 - 15.00 59 6,971,074.25 8.15
15.01 - 16.00 230 23,896,136.46 27.94
16.01 - 17.00 255 25,835,846.26 30.21
17.01 - 18.00 198 16,878,259.92 19.74
18.01 - 19.00 117 7,597,986.46 8.88
19.01 - 20.00 48 2,592,739.71 3.03
20.01 - 21.00 21 808,674.24 0.95
21.01 - 22.00 10 365,510.71 0.43
22.01 - 23.00 4 77,594.83 0.09
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $ 85,516,622.84 100.00%
============================================================================================================================
</TABLE>
IV-27
<PAGE>
Month of Next Coupon Rate Change--Loan Group IIb - Adjustable Rate
The month of the next Coupon Rate change for each of the Notes
relating to the Home Equity Loans in Loan Group IIb as of the Statistical
Calculation Date was as follows:
<TABLE>
<CAPTION>
Month of Next Number of Aggregate % of Aggregate
Coupon Rate Change Home Equity Loans Loan Balance Loan Balance
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
July, 2000 9 $ 1,032,800.00 1.21%
August, 2000 97 8,578,351.07 10.03
September, 2000 48 4,324,477.00 5.06
November, 2000 1 93,134.74 0.11
April, 2001 8 908,711.67 1.06
May, 2001 42 3,939,018.21 4.61
June, 2001 144 13,760,595.31 16.09
July, 2001 313 29,573,830.67 34.58
August, 2001 269 21,479,604.17 25.12
September, 2001 15 1,826,100.00 2.14
- ----------------------------------------------------------------------------------------------------------------------------
Total: 946 $ 85,516,622.84 100.00%
============================================================================================================================
</TABLE>
IV-28
<PAGE>
ContiMortgage Corporation
The following chart generally outlines certain parameters of the credit grades
of ContiMortgage's current underwriting guidelines:
Description of Credit Grades
<TABLE>
<CAPTION>
- ------------------------- -------------------------- ---------------------------
"A1 CREDIT GRADE "A2" CREDIT GRADE
- ------------------------- -------------------------- ---------------------------
<S> <C> <C>
General Repayment Has a good credit but Has a good credit but
might have some minor might have some minor
delinquency. delinquency.
- ------------------------- -------------------------- ---------------------------
- ------------------------- -------------------------- ---------------------------
Existing Mortgage Loans Current at time of Current at application
application. Cannot time and a maximum of two
exceed 1 x 30 in last 12 30-day delinquencies in
months. the past 12 months.
- ------------------------- -------------------------- ---------------------------
- ------------------------- -------------------------- ---------------------------
Non-Mortgage Credit Should be paid as Major credit and
agreed. Minor installment debt should be
delinquencies acceptable. current but may exhibit
some minor 30-day
delinquency. Minor credit
may exhibit some minor
delinquency.
- ------------------------- -------------------------- ---------------------------
- ------------------------- -------------------------- ---------------------------
Bankruptcy Filings. None Charge-offs, judgements,
liens, and former
bankruptcies are generally
unacceptable.
- ------------------------- -------------------------- ---------------------------
- ------------------------- -------------------------- ---------------------------
Debt Service-to Income Generally not to exceed Generally not to exceed
Ratio 45%. 45%.
- ------------------------- -------------------------- ---------------------------
- ------------------------- -------------------------- ---------------------------
Maximum Loan-to-Value
Ratio:
- ------------------------- -------------------------- ---------------------------
- ------------------------- -------------------------- ---------------------------
Owner-Occupied Generally 80% (or 90%) Generally 80% (or 90%) for
for dwelling residence; dwelling residence; 75%
80% for a condominium. for a condominium.
- ------------------------- -------------------------- ---------------------------
- ------------------------- -------------------------- ---------------------------
Non-Owner Occupied N/A Generally 70% for a 1 to 2
family dwelling, 65% for a
3 to 4 family.
- ------------------------- -------------------------- ---------------------------
<CAPTION>
- ------------------------- ------------------------- -------------------------- --------------------------
"B" CREDIT GRADE "C" CREDIT GRADE "D" CREDIT GRADE
- ------------------------- ------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
General Repayment Pays the majority of Marginal credit history Designed to provide a
accounts on time but which is offset by other borrower with poor
has some 30-and/or positive attributes. credit history an
60-day delinquency. opportunity to correct
past credit problems
through lower monthly
payments.
- ------------------------- ------------------------- -------------------------- --------------------------
- ------------------------- ------------------------- -------------------------- --------------------------
Existing Mortgage Loans Current at application Cannot exceed four Must be paid in full
time and a maximum of 30-day delinquencies or from loan proceeds and
three 30-day one 60-day delinquency no more than 119 days of
delinquencies in the in the past 12 months. delinquency.
past 12 months.
- ------------------------- ------------------------- -------------------------- --------------------------
- ------------------------- ------------------------- -------------------------- --------------------------
Non-Mortgage Credit Major credit and Major credit and Major and minor credit
installment debt can installment can exhibit delinquency is
exhibit some minor some minor 30-and/or acceptable, but must
30-and/or 60-day 90-day delinquency. demonstrate some payment
delinquency. Minor Minor credit may exhibit regularity.
credit may exhibit up more serious delinquency.
to 90-day delinquency.
- ------------------------- ------------------------- -------------------------- --------------------------
- ------------------------- ------------------------- -------------------------- --------------------------
Bankruptcy Filings. Discharged more than Discharged more than two Discharged prior to
two years with years with closing.
reestablished credit. re-established credit.
- ------------------------- ------------------------- -------------------------- --------------------------
- ------------------------- ------------------------- -------------------------- --------------------------
Debt Service-to Income Generally not to exceed Generally not to exceed Generally not to exceed
Ratio 45%. 45%. 50%.
- ------------------------- ------------------------- -------------------------- --------------------------
- ------------------------- ------------------------- -------------------------- --------------------------
Maximum Loan-to-Value
Ratio:
- ------------------------- ------------------------- -------------------------- --------------------------
- ------------------------- ------------------------- -------------------------- --------------------------
Owner-Occupied Generally 80% (or 85%) Generally 75% (or 80%) Generally 65% (or 70%)
for a 1 to 4 family for a 1 to 4 family for a 1 to 4 family
dwelling residence. dwelling residence. dwelling residence.
- ------------------------- ------------------------- -------------------------- --------------------------
- ------------------------- ------------------------- -------------------------- --------------------------
Non-Owner Occupied Generally 65% for a 1 Generally 65% for a 1 to N/A
to 2 family dwelling, 2 family dwelling, 65%
60% for a 3 to 4 family. for a 3 to 4 family.
- ------------------------- ------------------------- -------------------------- --------------------------
</TABLE>
IV-29
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Loan Group I
- ----------------------------------------------------------------------------------------------------------
Number Aggregate % of
of Loan Aggregate
Home Balance Loan
Equity Balance
Loans
<S> <C> <C> <C>
Credit Grade
- ----------------------------------------------------------------------------------------------------------
A 5,156 440,351,778.89 72.92
- ----------------------------------------------------------------------------------------------------------
B 1,510 105,899,597.96 17.54
- ----------------------------------------------------------------------------------------------------------
C 801 50,683,609.22 8.39
- ----------------------------------------------------------------------------------------------------------
D 147 6,948,434.23 1.15
- ----------------------------------------------------------------------------------------------------------
Total: 7,614 603,883,420.30 100.00
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Loan Group IIa - Adjustable Rate
- ----------------------------------------------------------------------------------------------------------
Number Aggregate % of
of Loan Aggregate
Home Balance Loan
Equity Balance
Loans
<S> <C> <C> <C>
Credit Grade
- ----------------------------------------------------------------------------------------------------------
A 1,455 163,676,191.15 62.39
- ----------------------------------------------------------------------------------------------------------
B 687 61,204,385.17 23.33
- ----------------------------------------------------------------------------------------------------------
C 464 34,969,247.21 13.33
- ----------------------------------------------------------------------------------------------------------
D 41 2,511,713.26 0.96
- ----------------------------------------------------------------------------------------------------------
Total: 2,647 262,361,536.79 100.00
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Loan Group IIb - Fixed Rate
- ----------------------------------------------------------------------------------------------------------
Number Aggregate % of
of Loan Aggregate
Home Balance Loan
Equity Balance
Loans
<S> <C> <C> <C>
Credit Grade
- ----------------------------------------------------------------------------------------------------------
A 7,992 507,148,430.75 69.00
- ----------------------------------------------------------------------------------------------------------
B 2,460 138,043,852.20 18.78
- ----------------------------------------------------------------------------------------------------------
C 1,409 73,370,086.46 9.98
- ----------------------------------------------------------------------------------------------------------
D 439 16,451,155.80 2.24
- ----------------------------------------------------------------------------------------------------------
Total: 12,300 735,013,525.21 100.00
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Loan Group IIb - Adjustable Rate
- ----------------------------------------------------------------------------------------------------------
Number Aggregate % of
of Loan Aggregate
Home Balance Loan
Equity Balance
Loans
<S> <C> <C> <C>
Credit Grade
- ----------------------------------------------------------------------------------------------------------
A 458 48,707,657.19 56.96
- ----------------------------------------------------------------------------------------------------------
B 278 24,000,270.02 28.07
- ----------------------------------------------------------------------------------------------------------
C 179 11,318,659.44 13.24
- ----------------------------------------------------------------------------------------------------------
D 31 1,490,036.19 1.74
- ----------------------------------------------------------------------------------------------------------
Total: 946 85,516,622.84 100.00
- ----------------------------------------------------------------------------------------------------------
</TABLE>
IV-30
<PAGE>
ANNEX V
DECREMENT TABLES
The model used in this Prospectus Supplement is the prepayment
assumption (the "Prepayment Assumption") which represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans for the life of such mortgage loans. A 100% Fixed
Prepayment Assumption assumes constant prepayment rates of 4% per annum of the
then outstanding principal balance of the Home Equity Loans in the first month
of the life of the mortgage loans and an additional approximate 1.455% per
annum 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, 100% Fixed Prepayment Assumption assumes a constant prepayment rate of
20% per annum each month. As used in the table below, 0% Fixed Prepayment
Assumption assumes prepayment rates equal to 0% of the Fixed Prepayment
Assumption i.e., no prepayments. Correspondingly, 125% Fixed Prepayment
Assumption assumes prepayment rates equal to 125% of the 100% Fixed Prepayment
Assumption, and so forth. The Fixed 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
Home Equity Loans. The Depositor believes that no existing statistics of which
it is aware provide a reliable basis for holders of Offered Certificates to
predict the amount or the timing of receipt of prepayments on the Home Equity
Loans.
A 100% Adjustable Prepayment Assumption assumes constant prepayment
rates of 4% per annum of the then outstanding principal balance of the Home
Equity Loans in the first month of the life of the mortgage loans and an
additional approximate 1.824% per annum in each month thereafter until the
eighteenth month. Beginning in the eighteenth month and in each month
thereafter during the life of the mortgage loans, 100% Adjustable Prepayment
Assumption assumes a constant prepayment rate of 35% per annum each month. As
used in the table below, 0% Adjustable Prepayment Assumption assumes
prepayment rates equal to 0% of the Prepayment Assumption i.e., no
prepayments. Correspondingly, 125% Adjustable Prepayment Assumption assumes
prepayment rates equal to 125% of the 100% Adjustable Prepayment Assumption,
and so forth. The Adjustable 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
Home Equity Loans. The Depositor believes that no existing statistics of which
it is aware provide a reliable basis for holders of Offered Certificates to
predict the amount or the timing of receipt of prepayments on the Home Equity
Loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph (the "Modeling Assumptions"), there are discrepancies
between the characteristics of the actual Home Equity Loans and the
characteristics of the Home Equity Loans assumed in preparing the tables. Any
such discrepancy may have an effect upon the percentages of the Certificate
Principal Balances outstanding and weighted average lives of the Offered
Certificates set forth in the tables. In addition, since the actual Home
Equity Loans in the Trust have characteristics which differ from those assumed
in preparing the tables set forth below, the distributions of principal on the
Offered Certificates may be made earlier or later than as indicated in the
tables.
For the purpose of the tables below, it is assumed that: (i) the Home
Equity Loans consist of pools of loans with level-pay and balloon amortization
methodologies, Statistical Calculation Date Loan Balances, mortgage rates, net
mortgage rates, original and remaining terms to maturity, and original
amortization terms as applicable, as set forth in the "Representative Loan
Pools" table below; (ii) the Closing Date for the Certificates occurs on
September 25, 1998; (iii) distributions on the Certificates are made on the
15th day of each month regardless of the day on which the Payment Date
actually occurs, commencing October 15, 1998, in accordance with the
priorities described herein; (iv) the difference between the Gross Coupon Rate
and the Net Coupon Rate is equal to the Servicing Fee and the Net Coupon Rate
is further reduced by the Trustee Fee, the Auction Agent Fee, the
Broker-Dealer Fee and the Premium Amount; (v) the prepayment rates with
respect to the Fixed Rate Loans are a multiple of the applicable Fixed
Prepayment Assumption and with respect to Adjustable Rate Loans are a multiple
of the applicable Adjustable Prepayment Assumption each as stated in the
"Prepayment Scenarios" table below; (vi) prepayments include 30 days' interest
thereon; (vii) except as otherwise indicated with respect to certain tables,
no optional termination or mandatory termination is exercised; (viii) the
Targeted Overcollateralization Amount is set initially as specified in this
Prospectus Supplement and the Pooling and Servicing Agreement and thereafter
decreases in accordance with its provisions; (ix) the Coupon Rate for each
Adjustable Rate Loan is adjusted on its next rate adjustment date (and on
subsequent rate adjustment dates, if necessary) to equal the sum of (a)
six-month LIBOR (at an assumed level of 5.40625%) and (b) the respective gross
margin (such sum being subject to the applicable periodic adjustment cap and
maximum interest rate); (x) the Pass-Through Rate for the Class A-9
Certificates remains constant at their initial rates (the assumed level of
one-month LIBOR is 5.58984%) up to and including the Clean-Up Call Date and,
thereafter, at its initial rate plus the step-up required after the Clean-Up
Call Date, (xi) the Pass-Through Rates for the Class A-12, Class A-13, Class
A-14, Class A-15 and Class A-16 Certificates are assumed to be 5.48%, 5.53%,
5.595%, 5.70% and 5.84%, respectively, (xii) no Delinquency Trigger Event or
Cumulative Realized Loss Trigger Event occurs and (xiii) the Pass-Through Rate
on the Auction Rate Certificates remains constant at 5.58984% per annum.
V-1
<PAGE>
PREPAYMENT SCENARIOS
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario Scenario VI Scenario Scenario
I II III IV V VI VII VIII
-------- -------- -------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Loans (1) 0% 35% 65% 100% 130% 150% 175% 200%
Adjustable Rate Loans (2) 0% 25% 50% 75% 100% 125% 150% 175%
</TABLE>
- -----------------------------
(1) As a percentage of the Fixed Prepayment Assumption.
(2) As a percentage of the Adjustable Prepayment Assumption.
V-2
<PAGE>
REPRESENTATIVE LOAN POOLS
LOAN GROUP I
<TABLE>
<CAPTION>
Pool # Principal Gross Net Coupon Original Remaining Orig. Amort. Method
Balance Coupon Rate Term to Term to Amortization Term
Rate Maturity Maturity
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
1 $16,637,889.29 10.089% 9.589% 298 296 298 Fully Amortizing
2 783,362,110.71 10.010 9.510 360 358 360 Fully Amortizing
--------------
Total $800,000,000.00
LOAN GROUP IIa
<CAPTION>
Pool # Principal Gross Net Coupon Months to Gross Current Next Life Life Original
Balance Coupon Rate Rate Rate Change Margin Periodic Periodic Rate Rate Cap Term to
Rate Cap Rate Cap Floor Maturity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 $2,281,004.01 9.510% 9.010% 1 6.241% 1.0000% 1.0000% 9.510 15.910 360
2 4,775,493.35 9.922 9.422 2 6.878 1.0000 1.0000 9.922 16.216 360
3 13,306,967.38 9.863 9.363 3 6.420 1.0110 1.0110 9.863 16.286 360
4 20,269,793.73 9.501 9.001 4 6.348 1.0020 1.0020 9.501 15.830 360
5 13,237,153.82 9.314 8.814 5 6.258 1.0000 1.0000 9.314 15.766 360
6 1,129,587.71 10.213 9.713 6 6.365 1.0730 1.0730 9.724 15.912 360
7 270,000,000.00 10.162 9.662 22 6.273 2.9800 1.0040 10.162 16.441 360
--------------
Total $325,000,000.00
<CAPTION>
Pool # Remaining Orig. Amort. Method
Term to Amortization
Maturity Term
<S> <C> <C> <C>
- ------------------------------------------------------------------
1 355 360 Fully Amortizing
2 356 360 Fully Amortizing
3 357 360 Fully Amortizing
4 358 360 Fully Amortizing
5 359 360 Fully Amortizing
6 357 360 Fully Amortizing
7 358 360 Fully Amortizing
<CAPTION>
LOAN GROUP IIb-Fixed Rate
Pool# Principal Gross Net Coupon Original Remaining Orig. Amort. Method
Balance Coupon Rate Rate Term to Term to Amortization
Maturity Maturity Term
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
1 $451,614,449.75 10.903% 10.403% 179 176 360 Balloon
2 1,936,414.49 10.859 10.359 58 56 58 Fully Amortizing
3 24,217,508.89 10.483 9.983 118 115 118 Fully Amortizing
4 180,983,676.69 10.466 9.966 180 177 180 Fully Amortizing
5 145,138,643.00 10.176 9.676 240 238 240 Fully Amortizing
6 46,109,307.18 9.608 9.108 360 358 360 Fully Amortizing
-------------
Total $850,000,000.00
<CAPTION>
LOAN GROUP IIb-Adjustable Rate
Pool # Principal Gross Net Coupon Months to Gross Current Next Life Life Original
Balance Coupon Rate Rate Rate Change Margin Periodic Rate Periodic Rate Rate Cap Term to
Cap Rate Cap Floor Maturity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
1 $20,641,253.73 9.958% 9.458% 23 6.017% 2.9930% 1.0020% 9.958% 16.226% 360
2 104,358,746.27 10.397 9.897 34 6.579 2.9840 1.0210 10.397 16.774 360
--------------
Total $125,000,000.00
Pool # Remaining Orig. Amort. Method
Term to Amortization
Maturity Term
<S> <C> <C> <C>
- ------------------------------------------------------------
1 359 360 Fully Amortizing
2 358 360 Fully Amortizing
--------------
Total $125,000,000.00
</TABLE>
V-3
<PAGE>
The following tables set forth the percentages of the initial
principal amount of the Offered Certificates that would be outstanding after
each of the dates shown, based on prepayment scenarios described in the table
entitled "Prepayment Scenarios." The percentages have been rounded to the
nearest 1%.
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-1
Scenario
----------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 84% 35% 0% 0% 0% 0% 0% 0%
September-2000 78% 0% 0% 0% 0% 0% 0% 0%
September-2001 71% 0% 0% 0% 0% 0% 0% 0%
September-2002 64% 0% 0% 0% 0% 0% 0% 0%
September-2003 56% 0% 0% 0% 0% 0% 0% 0%
September-2004 47% 0% 0% 0% 0% 0% 0% 0%
September-2005 38% 0% 0% 0% 0% 0% 0% 0%
September-2006 30% 0% 0% 0% 0% 0% 0% 0%
September-2007 21% 0% 0% 0% 0% 0% 0% 0%
September-2008 11% 0% 0% 0% 0% 0% 0% 0%
September-2009 0% 0% 0% 0% 0% 0% 0% 0%
September-2010 0% 0% 0% 0% 0% 0% 0% 0%
September-2011 0% 0% 0% 0% 0% 0% 0% 0%
September-2012 0% 0% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
LifeYears (1) 5.55 0.84 0.59 0.46 0.39 0.36 0.32 0.29
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-2
Scenario
---------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 96% 69% 47% 32% 12% 0%
September-2000 100% 81% 32% 0% 0% 0% 0% 0%
September-2001 100% 46% 0% 0% 0% 0% 0% 0%
September-2002 100% 16% 0% 0% 0% 0% 0% 0%
September-2003 100% 0% 0% 0% 0% 0% 0% 0%
September-2004 100% 0% 0% 0% 0% 0% 0% 0%
September-2005 100% 0% 0% 0% 0% 0% 0% 0%
September-2006 100% 0% 0% 0% 0% 0% 0% 0%
September-2007 100% 0% 0% 0% 0% 0% 0% 0%
September-2008 100% 0% 0% 0% 0% 0% 0% 0%
September-2009 100% 0% 0% 0% 0% 0% 0% 0%
September-2010 94% 0% 0% 0% 0% 0% 0% 0%
September-2011 87% 0% 0% 0% 0% 0% 0% 0%
September-2012 79% 0% 0% 0% 0% 0% 0% 0%
September-2013 69% 0% 0% 0% 0% 0% 0% 0%
September-2014 59% 0% 0% 0% 0% 0% 0% 0%
September-2015 48% 0% 0% 0% 0% 0% 0% 0%
September-2016 35% 0% 0% 0% 0% 0% 0% 0%
September-2017 20% 0% 0% 0% 0% 0% 0% 0%
September-2018 3% 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%
Weighted
Average
LifeYears (1) 16.44 2.94 1.73 1.22 1.00 0.90 0.81 0.74
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined
by (i) multiplying the amount of each principal payment by the number
of years from the date of issuance to the related Payment Date, (ii)
adding the results, and (iii) dividing the sum by the initial
respective Certificate Principal Balance for such Class of Offered
Certificates.
V-4
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-3
Scenario
----------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 94%
September-2000 100% 100% 100% 83% 47% 25% 0% 0%
September-2001 100% 100% 81% 23% 0% 0% 0% 0%
September-2002 100% 100% 45% 0% 0% 0% 0% 0%
September-2003 100% 90% 14% 0% 0% 0% 0% 0%
September-2004 100% 69% 0% 0% 0% 0% 0% 0%
September-2005 100% 51% 0% 0% 0% 0% 0% 0%
September-2006 100% 39% 0% 0% 0% 0% 0% 0%
September-2007 100% 27% 0% 0% 0% 0% 0% 0%
September-2008 100% 14% 0% 0% 0% 0% 0% 0%
September-2009 100% 3% 0% 0% 0% 0% 0% 0%
September-2010 100% 0% 0% 0% 0% 0% 0% 0%
September-2011 100% 0% 0% 0% 0% 0% 0% 0%
September-2012 100% 0% 0% 0% 0% 0% 0% 0%
September-2013 100% 0% 0% 0% 0% 0% 0% 0%
September-2014 100% 0% 0% 0% 0% 0% 0% 0%
September-2015 100% 0% 0% 0% 0% 0% 0% 0%
September-2016 100% 0% 0% 0% 0% 0% 0% 0%
September-2017 100% 0% 0% 0% 0% 0% 0% 0%
September-2018 100% 0% 0% 0% 0% 0% 0% 0%
September-2019 87% 0% 0% 0% 0% 0% 0% 0%
September-2020 70% 0% 0% 0% 0% 0% 0% 0%
September-2021 50% 0% 0% 0% 0% 0% 0% 0%
September-2022 28% 0% 0% 0% 0% 0% 0% 0%
September-2023 6% 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%
Weighted
Average
LifeYears (1) 22.92 7.46 3.92 2.57 2.00 1.75 1.51 1.33
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-4
Scenario
---------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 95% 21%
September-2001 100% 100% 100% 100% 42% 0% 0% 0%
September-2002 100% 100% 100% 48% 0% 0% 0% 0%
September-2003 100% 100% 100% 0% 0% 0% 0% 0%
September-2004 100% 100% 70% 0% 0% 0% 0% 0%
September-2005 100% 100% 16% 0% 0% 0% 0% 0%
September-2006 100% 100% 0% 0% 0% 0% 0% 0%
September-2007 100% 100% 0% 0% 0% 0% 0% 0%
September-2008 100% 100% 0% 0% 0% 0% 0% 0%
September-2009 100% 100% 0% 0% 0% 0% 0% 0%
September-2010 100% 76% 0% 0% 0% 0% 0% 0%
September-2011 100% 45% 0% 0% 0% 0% 0% 0%
September-2012 100% 14% 0% 0% 0% 0% 0% 0%
September-2013 100% 0% 0% 0% 0% 0% 0% 0%
September-2014 100% 0% 0% 0% 0% 0% 0% 0%
September-2015 100% 0% 0% 0% 0% 0% 0% 0%
September-2016 100% 0% 0% 0% 0% 0% 0% 0%
September-2017 100% 0% 0% 0% 0% 0% 0% 0%
September-2018 100% 0% 0% 0% 0% 0% 0% 0%
September-2019 100% 0% 0% 0% 0% 0% 0% 0%
September-2020 100% 0% 0% 0% 0% 0% 0% 0%
September-2021 100% 0% 0% 0% 0% 0% 0% 0%
September-2022 100% 0% 0% 0% 0% 0% 0% 0%
September-2023 100% 0% 0% 0% 0% 0% 0% 0%
September-2024 45% 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%
Weighted
Average
LifeYears (1) 25.94 12.86 6.42 4.01 3.00 2.57 2.20 1.91
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-5
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-5
Scenario
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 75% 10% 0%
September-2002 100% 100% 100% 100% 47% 0% 0% 0%
September-2003 100% 100% 100% 69% 0% 0% 0% 0%
September-2004 100% 100% 100% 22% 0% 0% 0% 0%
September-2005 100% 100% 100% 0% 0% 0% 0% 0%
September-2006 100% 100% 91% 0% 0% 0% 0% 0%
September-2007 100% 100% 66% 0% 0% 0% 0% 0%
September-2008 100% 100% 42% 0% 0% 0% 0% 0%
September-2009 100% 100% 18% 0% 0% 0% 0% 0%
September-2010 100% 100% 0% 0% 0% 0% 0% 0%
September-2011 100% 100% 0% 0% 0% 0% 0% 0%
September-2012 100% 100% 0% 0% 0% 0% 0% 0%
September-2013 100% 88% 0% 0% 0% 0% 0% 0%
September-2014 100% 66% 0% 0% 0% 0% 0% 0%
September-2015 100% 45% 0% 0% 0% 0% 0% 0%
September-2016 100% 25% 0% 0% 0% 0% 0% 0%
September-2017 100% 6% 0% 0% 0% 0% 0% 0%
September-2018 100% 0% 0% 0% 0% 0% 0% 0%
September-2019 100% 0% 0% 0% 0% 0% 0% 0%
September-2020 100% 0% 0% 0% 0% 0% 0% 0%
September-2021 100% 0% 0% 0% 0% 0% 0% 0%
September-2022 100% 0% 0% 0% 0% 0% 0% 0%
September-2023 100% 0% 0% 0% 0% 0% 0% 0%
September-2024 100% 0% 0% 0% 0% 0% 0% 0%
September-2025 73% 0% 0% 0% 0% 0% 0% 0%
September-2026 3% 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%
Weighted
Average
LifeYears (1) 27.34 16.82 9.69 5.44 4.00 3.36 2.75 2.37
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-6
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-6 (To Call)
Scenario
------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 30%
September-2002 100% 100% 100% 100% 100% 96% 19% 0%
September-2003 100% 100% 100% 100% 77% 12% 0% 0%
September-2004 100% 100% 100% 100% 20% 0% 0% 0%
September-2005 100% 100% 100% 80% 0% 0% 0% 0%
September-2006 100% 100% 100% 62% 0% 0% 0% 0%
September-2007 100% 100% 100% 36% 0% 0% 0% 0%
September-2008 100% 100% 100% 0% 0% 0% 0% 0%
September-2009 100% 100% 100% 0% 0% 0% 0% 0%
September-2010 100% 100% 95% 0% 0% 0% 0% 0%
September-2011 100% 100% 65% 0% 0% 0% 0% 0%
September-2012 100% 100% 0% 0% 0% 0% 0% 0%
September-2013 100% 100% 0% 0% 0% 0% 0% 0%
September-2014 100% 100% 0% 0% 0% 0% 0% 0%
September-2015 100% 100% 0% 0% 0% 0% 0% 0%
September-2016 100% 100% 0% 0% 0% 0% 0% 0%
September-2017 100% 100% 0% 0% 0% 0% 0% 0%
September-2018 100% 0% 0% 0% 0% 0% 0% 0%
September-2019 100% 0% 0% 0% 0% 0% 0% 0%
September-2020 100% 0% 0% 0% 0% 0% 0% 0%
September-2021 100% 0% 0% 0% 0% 0% 0% 0%
September-2022 100% 0% 0% 0% 0% 0% 0% 0%
September-2023 100% 0% 0% 0% 0% 0% 0% 0%
September-2024 100% 0% 0% 0% 0% 0% 0% 0%
September-2025 100% 0% 0% 0% 0% 0% 0% 0%
September-2026 100% 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%
Weighted
Average
LifeYears (1) 28.21 19.22 13.28 8.32 5.50 4.54 3.71 2.99
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-6 (To Maturity)
Scenario
-----------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 30%
September-2002 100% 100% 100% 100% 100% 96% 19% 0%
September-2003 100% 100% 100% 100% 77% 12% 0% 0%
September-2004 100% 100% 100% 100% 20% 0% 0% 0%
September-2005 100% 100% 100% 80% 0% 0% 0% 0%
September-2006 100% 100% 100% 62% 0% 0% 0% 0%
September-2007 100% 100% 100% 36% 0% 0% 0% 0%
September-2008 100% 100% 100% 9% 0% 0% 0% 0%
September-2009 100% 100% 100% 0% 0% 0% 0% 0%
September-2010 100% 100% 95% 0% 0% 0% 0% 0%
September-2011 100% 100% 65% 0% 0% 0% 0% 0%
September-2012 100% 100% 39% 0% 0% 0% 0% 0%
September-2013 100% 100% 16% 0% 0% 0% 0% 0%
September-2014 100% 100% 0% 0% 0% 0% 0% 0%
September-2015 100% 100% 0% 0% 0% 0% 0% 0%
September-2016 100% 100% 0% 0% 0% 0% 0% 0%
September-2017 100% 100% 0% 0% 0% 0% 0% 0%
September-2018 100% 82% 0% 0% 0% 0% 0% 0%
September-2019 100% 57% 0% 0% 0% 0% 0% 0%
September-2020 100% 33% 0% 0% 0% 0% 0% 0%
September-2021 100% 10% 0% 0% 0% 0% 0% 0%
September-2022 100% 0% 0% 0% 0% 0% 0% 0%
September-2023 100% 0% 0% 0% 0% 0% 0% 0%
September-2024 100% 0% 0% 0% 0% 0% 0% 0%
September-2025 100% 0% 0% 0% 0% 0% 0% 0%
September-2026 100% 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%
Weighted
Average
LifeYears (1) 28.50 21.34 13.67 8.42 5.50 4.54 3.71 2.99
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-7
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-7 (To Call)
Scenario
--------------------------------------------------------------------
Payment 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-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 100% 100% 100% 100% 62%
September-2003 100% 100% 100% 100% 100% 100% 56% 0%
September-2004 100% 100% 100% 100% 100% 72% 0% 0%
September-2005 100% 100% 100% 100% 86% 0% 0% 0%
September-2006 100% 100% 100% 100% 0% 0% 0% 0%
September-2007 100% 100% 100% 100% 0% 0% 0% 0%
September-2008 100% 100% 100% 0% 0% 0% 0% 0%
September-2009 100% 100% 100% 0% 0% 0% 0% 0%
September-2010 100% 100% 100% 0% 0% 0% 0% 0%
September-2011 100% 100% 100% 0% 0% 0% 0% 0%
September-2012 100% 100% 0% 0% 0% 0% 0% 0%
September-2013 100% 100% 0% 0% 0% 0% 0% 0%
September-2014 100% 100% 0% 0% 0% 0% 0% 0%
September-2015 100% 100% 0% 0% 0% 0% 0% 0%
September-2016 100% 100% 0% 0% 0% 0% 0% 0%
September-2017 100% 100% 0% 0% 0% 0% 0% 0%
September-2018 100% 0% 0% 0% 0% 0% 0% 0%
September-2019 100% 0% 0% 0% 0% 0% 0% 0%
September-2020 100% 0% 0% 0% 0% 0% 0% 0%
September-2021 100% 0% 0% 0% 0% 0% 0% 0%
September-2022 100% 0% 0% 0% 0% 0% 0% 0%
September-2023 100% 0% 0% 0% 0% 0% 0% 0%
September-2024 100% 0% 0% 0% 0% 0% 0% 0%
September-2025 100% 0% 0% 0% 0% 0% 0% 0%
September-2026 100% 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%
Weighted
Average
Life Years (1) 28.22 19.22 13.89 9.47 7.16 5.99 4.90 4.10
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-7 (To Maturity)
Scenario
--------------------------------------------------------------------
Payment 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-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 100% 100% 100% 100% 62%
September-2003 100% 100% 100% 100% 100% 100% 56% 17%
September-2004 100% 100% 100% 100% 100% 72% 31% 4%
September-2005 100% 100% 100% 100% 86% 50% 20% 2%
September-2006 100% 100% 100% 100% 81% 49% 20% 2%
September-2007 100% 100% 100% 100% 66% 40% 18% 2%
September-2008 100% 100% 100% 100% 51% 28% 11% 2%
September-2009 100% 100% 100% 87% 37% 18% 5% 0%
September-2010 100% 100% 100% 69% 25% 10% 1% 0%
September-2011 100% 100% 100% 55% 17% 5% 0% 0%
September-2012 100% 100% 100% 42% 10% 2% 0% 0%
September-2013 100% 100% 100% 31% 6% 0% 0% 0%
September-2014 100% 100% 96% 23% 2% 0% 0% 0%
September-2015 100% 100% 81% 16% 0% 0% 0% 0%
September-2016 100% 100% 68% 11% 0% 0% 0% 0%
September-2017 100% 100% 56% 7% 0% 0% 0% 0%
September-2018 100% 100% 45% 4% 0% 0% 0% 0%
September-2019 100% 100% 36% 1% 0% 0% 0% 0%
September-2020 100% 100% 28% 0% 0% 0% 0% 0%
September-2021 100% 100% 21% 0% 0% 0% 0% 0%
September-2022 100% 90% 15% 0% 0% 0% 0% 0%
September-2023 100% 72% 9% 0% 0% 0% 0% 0%
September-2024 100% 56% 5% 0% 0% 0% 0% 0%
September-2025 100% 39% 1% 0% 0% 0% 0% 0%
September-2026 100% 22% 0% 0% 0% 0% 0% 0%
September-2027 91% 6% 0% 0% 0% 0% 0% 0%
September-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life Years (1) 29.38 26.38 20.13 13.98 10.37 8.26 6.15 4.49
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-8
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-8 (To Call)
Scenario
--------------------------------------------------------------------
Payment 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-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 96% 93% 90% 87% 86% 84% 83%
September-2003 99% 93% 87% 81% 76% 73% 69% 0%
September-2004 98% 86% 76% 67% 59% 55% 0% 0%
September-2005 97% 79% 66% 53% 43% 0% 0% 0%
September-2006 94% 59% 41% 26% 0% 0% 0% 0%
September-2007 90% 45% 26% 12% 0% 0% 0% 0%
September-2008 85% 34% 16% 0% 0% 0% 0% 0%
September-2009 81% 26% 10% 0% 0% 0% 0% 0%
September-2010 76% 19% 6% 0% 0% 0% 0% 0%
September-2011 71% 15% 4% 0% 0% 0% 0% 0%
September-2012 65% 11% 0% 0% 0% 0% 0% 0%
September-2013 60% 8% 0% 0% 0% 0% 0% 0%
September-2014 54% 6% 0% 0% 0% 0% 0% 0%
September-2015 48% 4% 0% 0% 0% 0% 0% 0%
September-2016 42% 3% 0% 0% 0% 0% 0% 0%
September-2017 36% 2% 0% 0% 0% 0% 0% 0%
September-2018 30% 0% 0% 0% 0% 0% 0% 0%
September-2019 24% 0% 0% 0% 0% 0% 0% 0%
September-2020 18% 0% 0% 0% 0% 0% 0% 0%
September-2021 13% 0% 0% 0% 0% 0% 0% 0%
September-2022 9% 0% 0% 0% 0% 0% 0% 0%
September-2023 6% 0% 0% 0% 0% 0% 0% 0%
September-2024 3% 0% 0% 0% 0% 0% 0% 0%
September-2025 2% 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%
Weighted
Average
Life Years (1) 16.53 9.34 7.75 6.76 6.03 5.44 4.80 4.24
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-8 (To Maturity)
Scenario
--------------------------------------------------------------------
Payment 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-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 96% 93% 90% 87% 86% 84% 83%
September-2003 99% 93% 87% 81% 76% 73% 69% 66%
September-2004 98% 86% 76% 67% 59% 55% 49% 44%
September-2005 97% 79% 66% 53% 43% 38% 31% 24%
September-2006 94% 59% 41% 26% 17% 14% 13% 11%
September-2007 90% 45% 26% 12% 6% 4% 3% 4%
September-2008 85% 34% 16% 6% 2% 1% 0% 0%
September-2009 81% 26% 10% 3% 1% 0% 0% 0%
September-2010 76% 19% 6% 1% 0% 0% 0% 0%
September-2011 71% 15% 4% 1% 0% 0% 0% 0%
September-2012 65% 11% 2% 0% 0% 0% 0% 0%
September-2013 60% 8% 1% 0% 0% 0% 0% 0%
September-2014 54% 6% 1% 0% 0% 0% 0% 0%
September-2015 48% 4% 0% 0% 0% 0% 0% 0%
September-2016 42% 3% 0% 0% 0% 0% 0% 0%
September-2017 36% 2% 0% 0% 0% 0% 0% 0%
September-2018 30% 1% 0% 0% 0% 0% 0% 0%
September-2019 24% 1% 0% 0% 0% 0% 0% 0%
September-2020 18% 1% 0% 0% 0% 0% 0% 0%
September-2021 13% 0% 0% 0% 0% 0% 0% 0%
September-2022 9% 0% 0% 0% 0% 0% 0% 0%
September-2023 6% 0% 0% 0% 0% 0% 0% 0%
September-2024 3% 0% 0% 0% 0% 0% 0% 0%
September-2025 2% 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%
Weighted
Average
Life Years (1) 16.53 9.38 7.80 6.88 6.41 6.20 5.99 5.82
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-9
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-9 (To Call)
Scenario
--------------------------------------------------------------------
Payment 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-1999 97% 91% 85% 78% 72% 66% 60% 53%
September-2000 96% 81% 66% 52% 39% 26% 15% 4%
September-2001 96% 81% 66% 51% 37% 25% 15% 4%
September-2002 96% 79% 58% 40% 27% 17% 9% 4%
September-2003 96% 75% 49% 30% 17% 9% 4% 0%
September-2004 96% 73% 41% 22% 11% 5% 0% 0%
September-2005 96% 65% 34% 16% 7% 0% 0% 0%
September-2006 96% 58% 27% 12% 0% 0% 0% 0%
September-2007 96% 52% 22% 9% 0% 0% 0% 0%
September-2008 96% 47% 18% 0% 0% 0% 0% 0%
September-2009 96% 42% 15% 0% 0% 0% 0% 0%
September-2010 96% 38% 12% 0% 0% 0% 0% 0%
September-2011 96% 34% 10% 0% 0% 0% 0% 0%
September-2012 96% 31% 0% 0% 0% 0% 0% 0%
September-2013 96% 27% 0% 0% 0% 0% 0% 0%
September-2014 96% 24% 0% 0% 0% 0% 0% 0%
September-2015 96% 21% 0% 0% 0% 0% 0% 0%
September-2016 93% 19% 0% 0% 0% 0% 0% 0%
September-2017 89% 16% 0% 0% 0% 0% 0% 0%
September-2018 85% 0% 0% 0% 0% 0% 0% 0%
September-2019 80% 0% 0% 0% 0% 0% 0% 0%
September-2020 75% 0% 0% 0% 0% 0% 0% 0%
September-2021 68% 0% 0% 0% 0% 0% 0% 0%
September-2022 61% 0% 0% 0% 0% 0% 0% 0%
September-2023 54% 0% 0% 0% 0% 0% 0% 0%
September-2024 45% 0% 0% 0% 0% 0% 0% 0%
September-2025 35% 0% 0% 0% 0% 0% 0% 0%
September-2026 24% 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%
Weighted
Average
Life Years (1) 23.91 10.04 5.58 3.62 2.60 1.98 1.52 1.15
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-9 (To Maturity)
Scenario
----------------------------------------------------------------------
Payment 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-1999 97% 91% 85% 78% 72% 66% 60% 53%
September-2000 96% 81% 66% 52% 39% 26% 15% 4%
September-2001 96% 81% 66% 51% 37% 25% 15% 4%
September-2002 96% 79% 58% 40% 27% 17% 9% 4%
September-2003 96% 75% 49% 30% 17% 9% 4% 2%
September-2004 96% 73% 41% 22% 11% 5% 2% 1%
September-2005 96% 65% 34% 16% 7% 3% 1% 0%
September-2006 96% 58% 27% 12% 5% 2% 0% 0%
September-2007 96% 52% 22% 9% 3% 1% 0% 0%
September-2008 96% 47% 18% 6% 2% 0% 0% 0%
September-2009 96% 42% 15% 5% 1% 0% 0% 0%
September-2010 96% 38% 12% 3% 1% 0% 0% 0%
September-2011 96% 34% 10% 2% 0% 0% 0% 0%
September-2012 96% 31% 8% 2% 0% 0% 0% 0%
September-2013 96% 27% 6% 0% 0% 0% 0% 0%
September-2014 96% 24% 5% 0% 0% 0% 0% 0%
September-2015 96% 21% 3% 0% 0% 0% 0% 0%
September-2016 93% 19% 2% 0% 0% 0% 0% 0%
September-2017 89% 16% 1% 0% 0% 0% 0% 0%
September-2018 85% 14% 1% 0% 0% 0% 0% 0%
September-2019 80% 12% 0% 0% 0% 0% 0% 0%
September-2020 75% 10% 0% 0% 0% 0% 0% 0%
September-2021 68% 8% 0% 0% 0% 0% 0% 0%
September-2022 61% 7% 0% 0% 0% 0% 0% 0%
September-2023 54% 5% 0% 0% 0% 0% 0% 0%
September-2024 45% 3% 0% 0% 0% 0% 0% 0%
September-2025 35% 2% 0% 0% 0% 0% 0% 0%
September-2026 24% 0% 0% 0% 0% 0% 0% 0%
September-2027 11% 0% 0% 0% 0% 0% 0% 0%
September-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life Years (1) 24.08 10.70 5.81 3.81 2.74 2.06 1.58 1.18
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-10
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-10
Scenario
--------------------------------------------------------------------
Payment 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-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 94% 90% 86% 84% 82% 81% 82%
September-2001 97% 61% 36% 20% 11% 7% 8% 17%
September-2002 95% 36% 11% 4% 1% 0% 0% 3%
September-2003 92% 21% 4% 1% 0% 0% 0% 0%
September-2004 89% 0% 0% 0% 0% 0% 0% 0%
September-2005 85% 0% 0% 0% 0% 0% 0% 0%
September-2006 81% 0% 0% 0% 0% 0% 0% 0%
September-2007 76% 0% 0% 0% 0% 0% 0% 0%
September-2008 71% 0% 0% 0% 0% 0% 0% 0%
September-2009 65% 0% 0% 0% 0% 0% 0% 0%
September-2010 58% 0% 0% 0% 0% 0% 0% 0%
September-2011 51% 0% 0% 0% 0% 0% 0% 0%
September-2012 42% 0% 0% 0% 0% 0% 0% 0%
September-2013 19% 0% 0% 0% 0% 0% 0% 0%
September-2014 11% 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%
Weighted
Average
Life Years (1) 11.85 3.61 2.90 2.61 2.48 2.43 2.43 2.56
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-11
Scenario
----------------------------------------------------------------------
Payment 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-1999 83% 31% 0% 0% 0% 0% 0% 0%
September-2000 83% 0% 0% 0% 0% 0% 0% 0%
September-2001 83% 0% 0% 0% 0% 0% 0% 0%
September-2002 82% 0% 0% 0% 0% 0% 0% 0%
September-2003 82% 0% 0% 0% 0% 0% 0% 0%
September-2004 82% 0% 0% 0% 0% 0% 0% 0%
September-2005 81% 0% 0% 0% 0% 0% 0% 0%
September-2006 81% 0% 0% 0% 0% 0% 0% 0%
September-2007 80% 0% 0% 0% 0% 0% 0% 0%
September-2008 79% 0% 0% 0% 0% 0% 0% 0%
September-2009 39% 0% 0% 0% 0% 0% 0% 0%
September-2010 0% 0% 0% 0% 0% 0% 0% 0%
September-2011 0% 0% 0% 0% 0% 0% 0% 0%
September-2012 0% 0% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
Life Years (1) 9.09 0.82 0.57 0.45 0.38 0.34 0.30 0.28
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-11
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-12
Scenario
--------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 91% 61% 48% 48% 48% 48%
September-2000 100% 78% 19% 0% 0% 0% 0% 0%
September-2001 100% 40% 0% 0% 0% 0% 0% 0%
September-2002 100% 5% 0% 0% 0% 0% 0% 0%
September-2003 100% 0% 0% 0% 0% 0% 0% 0%
September-2004 100% 0% 0% 0% 0% 0% 0% 0%
September-2005 100% 0% 0% 0% 0% 0% 0% 0%
September-2006 100% 0% 0% 0% 0% 0% 0% 0%
September-2007 100% 0% 0% 0% 0% 0% 0% 0%
September-2008 100% 0% 0% 0% 0% 0% 0% 0%
September-2009 100% 0% 0% 0% 0% 0% 0% 0%
September-2010 97% 0% 0% 0% 0% 0% 0% 0%
September-2011 68% 0% 0% 0% 0% 0% 0% 0%
September-2012 37% 0% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
Life Years (1) 13.53 2.76 1.58 1.12 1.00 1.00 1.00 1.00
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-13
Scenario
--------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 71% 48% 48% 48% 24%
September-2001 100% 100% 70% 14% 0% 0% 0% 0%
September-2002 100% 100% 34% 0% 0% 0% 0% 0%
September-2003 100% 81% 2% 0% 0% 0% 0% 0%
September-2004 100% 61% 0% 0% 0% 0% 0% 0%
September-2005 100% 41% 0% 0% 0% 0% 0% 0%
September-2006 100% 23% 0% 0% 0% 0% 0% 0%
September-2007 100% 9% 0% 0% 0% 0% 0% 0%
September-2008 100% 0% 0% 0% 0% 0% 0% 0%
September-2009 100% 0% 0% 0% 0% 0% 0% 0%
September-2010 100% 0% 0% 0% 0% 0% 0% 0%
September-2011 100% 0% 0% 0% 0% 0% 0% 0%
September-2012 100% 0% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
LifeYears (1) 14.64 6.65 3.60 2.38 2.01 2.01 1.99 1.76
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-12
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-14
Scenario
--------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 30% 30% 9% 0%
September-2002 100% 100% 100% 0% 0% 0% 0% 0%
September-2003 100% 100% 100% 0% 0% 0% 0% 0%
September-2004 100% 100% 4% 0% 0% 0% 0% 0%
September-2005 100% 100% 0% 0% 0% 0% 0% 0%
September-2006 100% 100% 0% 0% 0% 0% 0% 0%
September-2007 100% 100% 0% 0% 0% 0% 0% 0%
September-2008 100% 81% 0% 0% 0% 0% 0% 0%
September-2009 100% 0% 0% 0% 0% 0% 0% 0%
September-2010 100% 0% 0% 0% 0% 0% 0% 0%
September-2011 100% 0% 0% 0% 0% 0% 0% 0%
September-2012 100% 0% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
LifeYears (1) 14.64 10.37 5.57 3.60 3.02 3.02 2.89 2.45
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-15
Scenario
----------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 37%
September-2002 100% 100% 100% 90% 48% 48% 43% 0%
September-2003 100% 100% 100% 8% 0% 0% 0% 0%
September-2004 100% 100% 100% 0% 0% 0% 0% 0%
September-2005 100% 100% 47% 0% 0% 0% 0% 0%
September-2006 100% 100% 0% 0% 0% 0% 0% 0%
September-2007 100% 100% 0% 0% 0% 0% 0% 0%
September-2008 100% 100% 0% 0% 0% 0% 0% 0%
September-2009 100% 99% 0% 0% 0% 0% 0% 0%
September-2010 100% 51% 0% 0% 0% 0% 0% 0%
September-2011 100% 7% 0% 0% 0% 0% 0% 0%
September-2012 100% 0% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
LifeYears (1) 14.64 12.06 6.98 4.48 4.02 4.02 3.96 3.14
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-13
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-16 (To Call)
Scenario
--------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 100% 100% 100% 100% 90%
September-2003 100% 100% 100% 100% 54% 54% 45% 0%
September-2004 100% 100% 100% 0% 0% 0% 0% 0%
September-2005 100% 100% 100% 0% 0% 0% 0% 0%
September-2006 100% 100% 98% 0% 0% 0% 0% 0%
September-2007 100% 100% 0% 0% 0% 0% 0% 0%
September-2008 100% 100% 0% 0% 0% 0% 0% 0%
September-2009 100% 100% 0% 0% 0% 0% 0% 0%
September-2010 100% 100% 0% 0% 0% 0% 0% 0%
September-2011 100% 100% 0% 0% 0% 0% 0% 0%
September-2012 100% 3% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
LifeYears (1) 14.64 13.61 8.42 5.38 5.05 5.05 4.96 4.22
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-16 (To Maturity)
Scenario
----------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 100% 100% 100% 100% 90%
September-2003 100% 100% 100% 100% 54% 54% 45% 0%
September-2004 100% 100% 100% 0% 0% 0% 0% 0%
September-2005 100% 100% 100% 0% 0% 0% 0% 0%
September-2006 100% 100% 98% 0% 0% 0% 0% 0%
September-2007 100% 100% 0% 0% 0% 0% 0% 0%
September-2008 100% 100% 0% 0% 0% 0% 0% 0%
September-2009 100% 100% 0% 0% 0% 0% 0% 0%
September-2010 100% 100% 0% 0% 0% 0% 0% 0%
September-2011 100% 100% 0% 0% 0% 0% 0% 0%
September-2012 100% 3% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
LifeYears (1) 14.64 13.61 8.42 5.38 5.05 5.05 4.99 4.24
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-14
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-17 (To Call)
Scenario
--------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 100% 100% 100% 100% 100%
September-2003 100% 100% 100% 100% 100% 100% 100% 0%
September-2004 100% 100% 100% 77% 77% 77% 0% 0%
September-2005 100% 100% 100% 49% 49% 0% 0% 0%
September-2006 100% 100% 100% 28% 0% 0% 0% 0%
September-2007 100% 100% 93% 15% 0% 0% 0% 0%
September-2008 100% 100% 56% 0% 0% 0% 0% 0%
September-2009 100% 100% 15% 0% 0% 0% 0% 0%
September-2010 100% 100% 0% 0% 0% 0% 0% 0%
September-2011 100% 100% 0% 0% 0% 0% 0% 0%
September-2012 100% 100% 0% 0% 0% 0% 0% 0%
September-2013 83% 0% 0% 0% 0% 0% 0% 0%
September-2014 64% 0% 0% 0% 0% 0% 0% 0%
September-2015 43% 0% 0% 0% 0% 0% 0% 0%
September-2016 19% 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%
Weighted
Average
LifeYears (1) 16.62 14.56 10.13 7.24 6.66 6.04 5.14 4.39
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-17 (To Maturity)
Scenario
----------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 100% 100% 100% 100% 100%
September-2003 100% 100% 100% 100% 100% 100% 100% 79%
September-2004 100% 100% 100% 77% 77% 77% 75% 46%
September-2005 100% 100% 100% 49% 49% 49% 48% 24%
September-2006 100% 100% 100% 28% 28% 28% 27% 10%
September-2007 100% 100% 93% 15% 15% 15% 14% 2%
September-2008 100% 100% 56% 6% 6% 6% 6% 0%
September-2009 100% 100% 15% 0% 0% 0% 0% 0%
September-2010 100% 100% 0% 0% 0% 0% 0% 0%
September-2011 100% 100% 0% 0% 0% 0% 0% 0%
September-2012 100% 100% 0% 0% 0% 0% 0% 0%
September-2013 83% 0% 0% 0% 0% 0% 0% 0%
September-2014 64% 0% 0% 0% 0% 0% 0% 0%
September-2015 43% 0% 0% 0% 0% 0% 0% 0%
September-2016 19% 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%
Weighted
Average
LifeYears (1) 16.62 14.56 10.13 7.31 7.28 7.28 7.23 6.15
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-15
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-18 (To Call)
Scenario
--------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 86% 66% 42% 18%
September-2000 100% 100% 100% 100% 81% 44% 2% 0%
September-2001 100% 100% 100% 100% 80% 37% 0% 0%
September-2002 100% 100% 100% 100% 65% 31% 0% 0%
September-2003 100% 100% 100% 100% 57% 26% 0% 0%
September-2004 100% 100% 100% 100% 47% 21% 0% 0%
September-2005 100% 100% 100% 86% 39% 0% 0% 0%
September-2006 100% 100% 100% 74% 0% 0% 0% 0%
September-2007 100% 100% 100% 63% 0% 0% 0% 0%
September-2008 100% 100% 100% 0% 0% 0% 0% 0%
September-2009 100% 100% 100% 0% 0% 0% 0% 0%
September-2010 100% 100% 89% 0% 0% 0% 0% 0%
September-2011 100% 100% 72% 0% 0% 0% 0% 0%
September-2012 100% 100% 0% 0% 0% 0% 0% 0%
September-2013 100% 44% 0% 0% 0% 0% 0% 0%
September-2014 100% 37% 0% 0% 0% 0% 0% 0%
September-2015 100% 31% 0% 0% 0% 0% 0% 0%
September-2016 100% 25% 0% 0% 0% 0% 0% 0%
September-2017 96% 20% 0% 0% 0% 0% 0% 0%
September-2018 82% 0% 0% 0% 0% 0% 0% 0%
September-2019 77% 0% 0% 0% 0% 0% 0% 0%
September-2020 72% 0% 0% 0% 0% 0% 0% 0%
September-2021 66% 0% 0% 0% 0% 0% 0% 0%
September-2022 59% 0% 0% 0% 0% 0% 0% 0%
September-2023 52% 0% 0% 0% 0% 0% 0% 0%
September-2024 43% 0% 0% 0% 0% 0% 0% 0%
September-2025 34% 0% 0% 0% 0% 0% 0% 0%
September-2026 23% 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%
Weighted
Average
LifeYears (1) 24.49 16.11 13.36 8.70 4.94 2.72 1.02 0.76
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-18 (To Maturity)
Scenario
----------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 86% 66% 42% 18%
September-2000 100% 100% 100% 100% 81% 44% 2% 0%
September-2001 100% 100% 100% 100% 80% 37% 0% 0%
September-2002 100% 100% 100% 100% 65% 31% 0% 0%
September-2003 100% 100% 100% 100% 57% 26% 0% 0%
September-2004 100% 100% 100% 100% 47% 21% 0% 0%
September-2005 100% 100% 100% 86% 39% 17% 0% 0%
September-2006 100% 100% 100% 74% 32% 15% 0% 0%
September-2007 100% 100% 100% 63% 27% 12% 0% 0%
September-2008 100% 100% 100% 53% 22% 9% 0% 0%
September-2009 100% 100% 100% 43% 16% 6% 0% 0%
September-2010 100% 100% 89% 32% 10% 2% 0% 0%
September-2011 100% 100% 72% 24% 5% 0% 0% 0%
September-2012 100% 100% 59% 16% 2% 0% 0% 0%
September-2013 100% 44% 13% 1% 0% 0% 0% 0%
September-2014 100% 37% 10% 0% 0% 0% 0% 0%
September-2015 100% 31% 7% 0% 0% 0% 0% 0%
September-2016 100% 25% 4% 0% 0% 0% 0% 0%
September-2017 96% 20% 2% 0% 0% 0% 0% 0%
September-2018 82% 15% 1% 0% 0% 0% 0% 0%
September-2019 77% 13% 0% 0% 0% 0% 0% 0%
September-2020 72% 11% 0% 0% 0% 0% 0% 0%
September-2021 66% 9% 0% 0% 0% 0% 0% 0%
September-2022 59% 7% 0% 0% 0% 0% 0% 0%
September-2023 52% 5% 0% 0% 0% 0% 0% 0%
September-2024 43% 4% 0% 0% 0% 0% 0% 0%
September-2025 34% 2% 0% 0% 0% 0% 0% 0%
September-2026 23% 1% 0% 0% 0% 0% 0% 0%
September-2027 11% 0% 0% 0% 0% 0% 0% 0%
September-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
LifeYears (1) 24.66 16.84 14.14 10.43 6.19 3.41 1.02 0.76
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-16
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-19
Scenario
-----------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 80% 67% 55% 42% 30% 21% 11% 1%
September-2000 62% 33% 9% 0% 0% 0% 0% 0%
September-2001 42% 2% 0% 0% 0% 0% 0% 0%
September-2002 21% 0% 0% 0% 0% 0% 0% 0%
September-2003 0% 0% 0% 0% 0% 0% 0% 0%
September-2004 0% 0% 0% 0% 0% 0% 0% 0%
September-2005 0% 0% 0% 0% 0% 0% 0% 0%
September-2006 0% 0% 0% 0% 0% 0% 0% 0%
September-2007 0% 0% 0% 0% 0% 0% 0% 0%
September-2008 0% 0% 0% 0% 0% 0% 0% 0%
September-2009 0% 0% 0% 0% 0% 0% 0% 0%
September-2010 0% 0% 0% 0% 0% 0% 0% 0%
September-2011 0% 0% 0% 0% 0% 0% 0% 0%
September-2012 0% 0% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
LifeYears (1) 2.58 1.55 1.15 0.91 0.77 0.70 0.64 0.59
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-17
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-20 (To Call)
Scenario
--------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 90% 77% 68% 58% 48%
September-2001 100% 100% 82% 63% 48% 39% 29% 21%
September-2002 100% 83% 62% 44% 33% 26% 19% 14%
September-2003 98% 67% 46% 31% 21% 16% 11% 0%
September-2004 82% 51% 33% 20% 13% 9% 0% 0%
September-2005 64% 37% 23% 13% 7% 0% 0% 0%
September-2006 45% 23% 14% 7% 0% 0% 0% 0%
September-2007 23% 11% 6% 3% 0% 0% 0% 0%
September-2008 0% 0% 0% 0% 0% 0% 0% 0%
September-2009 0% 0% 0% 0% 0% 0% 0% 0%
September-2010 0% 0% 0% 0% 0% 0% 0% 0%
September-2011 0% 0% 0% 0% 0% 0% 0% 0%
September-2012 0% 0% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
LifeYears (1) 7.65 6.24 5.17 4.22 3.51 3.08 2.65 2.30
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-20 (To Maturity)
Scenario
---------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 90% 77% 68% 58% 48%
September-2001 100% 100% 82% 63% 48% 39% 29% 21%
September-2002 100% 83% 62% 44% 33% 26% 19% 14%
September-2003 98% 67% 46% 31% 21% 16% 11% 7%
September-2004 82% 51% 33% 20% 13% 9% 6% 4%
September-2005 64% 37% 23% 13% 7% 5% 3% 1%
September-2006 45% 23% 14% 7% 4% 2% 1% 0%
September-2007 23% 11% 6% 3% 1% 1% 0% 0%
September-2008 0% 0% 0% 0% 0% 0% 0% 0%
September-2009 0% 0% 0% 0% 0% 0% 0% 0%
September-2010 0% 0% 0% 0% 0% 0% 0% 0%
September-2011 0% 0% 0% 0% 0% 0% 0% 0%
September-2012 0% 0% 0% 0% 0% 0% 0% 0%
September-2013 0% 0% 0% 0% 0% 0% 0% 0%
September-2014 0% 0% 0% 0% 0% 0% 0% 0%
September-2015 0% 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%
Weighted
Average
LifeYears (1) 7.65 6.24 5.17 4.23 3.58 3.19 2.79 2.44
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-18
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class B-I(To Call)
Scenario
--------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 92% 69% 56% 41% 27%
September-2003 100% 100% 100% 73% 51% 36% 22% 0%
September-2004 100% 100% 93% 58% 34% 21% 0% 0%
September-2005 100% 100% 80% 44% 21% 0% 0% 0%
September-2006 100% 100% 69% 32% 0% 0% 0% 0%
September-2007 100% 100% 59% 23% 0% 0% 0% 0%
September-2008 100% 96% 50% 0% 0% 0% 0% 0%
September-2009 100% 88% 41% 0% 0% 0% 0% 0%
September-2010 100% 80% 33% 0% 0% 0% 0% 0%
September-2011 100% 73% 26% 0% 0% 0% 0% 0%
September-2012 100% 66% 0% 0% 0% 0% 0% 0%
September-2013 100% 60% 0% 0% 0% 0% 0% 0%
September-2014 100% 54% 0% 0% 0% 0% 0% 0%
September-2015 100% 48% 0% 0% 0% 0% 0% 0%
September-2016 100% 41% 0% 0% 0% 0% 0% 0%
September-2017 100% 35% 0% 0% 0% 0% 0% 0%
September-2018 100% 0% 0% 0% 0% 0% 0% 0%
September-2019 100% 0% 0% 0% 0% 0% 0% 0%
September-2020 100% 0% 0% 0% 0% 0% 0% 0%
September-2021 100% 0% 0% 0% 0% 0% 0% 0%
September-2022 98% 0% 0% 0% 0% 0% 0% 0%
September-2023 85% 0% 0% 0% 0% 0% 0% 0%
September-2024 70% 0% 0% 0% 0% 0% 0% 0%
September-2025 55% 0% 0% 0% 0% 0% 0% 0%
September-2026 34% 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%
Weighted
Average
LifeYears (1) 26.85 15.85 10.12 6.73 5.14 4.47 3.91 3.55
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class B-I (To Maturity)
Scenario
----------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 92% 69% 56% 41% 27%
September-2003 100% 100% 100% 73% 51% 36% 22% 11%
September-2004 100% 100% 93% 58% 34% 21% 9% 1%
September-2005 100% 100% 80% 44% 21% 10% 1% 0%
September-2006 100% 100% 69% 32% 12% 3% 0% 0%
September-2007 100% 100% 59% 23% 5% 0% 0% 0%
September-2008 100% 96% 50% 15% 0% 0% 0% 0%
September-2009 100% 88% 41% 9% 0% 0% 0% 0%
September-2010 100% 80% 33% 4% 0% 0% 0% 0%
September-2011 100% 73% 26% 0% 0% 0% 0% 0%
September-2012 100% 66% 20% 0% 0% 0% 0% 0%
September-2013 100% 60% 15% 0% 0% 0% 0% 0%
September-2014 100% 54% 11% 0% 0% 0% 0% 0%
September-2015 100% 48% 7% 0% 0% 0% 0% 0%
September-2016 100% 41% 3% 0% 0% 0% 0% 0%
September-2017 100% 35% 1% 0% 0% 0% 0% 0%
September-2018 100% 29% 0% 0% 0% 0% 0% 0%
September-2019 100% 24% 0% 0% 0% 0% 0% 0%
September-2020 100% 18% 0% 0% 0% 0% 0% 0%
September-2021 100% 14% 0% 0% 0% 0% 0% 0%
September-2022 98% 9% 0% 0% 0% 0% 0% 0%
September-2023 85% 5% 0% 0% 0% 0% 0% 0%
September-2024 70% 0% 0% 0% 0% 0% 0% 0%
September-2025 55% 0% 0% 0% 0% 0% 0% 0%
September-2026 34% 0% 0% 0% 0% 0% 0% 0%
September-2027 9% 0% 0% 0% 0% 0% 0% 0%
September-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
LifeYears (1) 27.01 16.94 10.61 7.02 5.37 4.67 4.08 3.70
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-19
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class B-II (To Call)
Scenario
--------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 83% 59% 45% 32% 20%
September-2003 100% 100% 97% 63% 42% 29% 16% 0%
September-2004 100% 100% 81% 48% 29% 16% 0% 0%
September-2005 100% 100% 68% 37% 17% 0% 0% 0%
September-2006 100% 100% 57% 27% 0% 0% 0% 0%
September-2007 100% 92% 47% 18% 0% 0% 0% 0%
September-2008 100% 82% 39% 0% 0% 0% 0% 0%
September-2009 100% 73% 32% 0% 0% 0% 0% 0%
September-2010 100% 65% 25% 0% 0% 0% 0% 0%
September-2011 100% 57% 19% 0% 0% 0% 0% 0%
September-2012 100% 50% 0% 0% 0% 0% 0% 0%
September-2013 80% 20% 0% 0% 0% 0% 0% 0%
September-2014 76% 16% 0% 0% 0% 0% 0% 0%
September-2015 72% 12% 0% 0% 0% 0% 0% 0%
September-2016 68% 9% 0% 0% 0% 0% 0% 0%
September-2017 62% 6% 0% 0% 0% 0% 0% 0%
September-2018 57% 0% 0% 0% 0% 0% 0% 0%
September-2019 54% 0% 0% 0% 0% 0% 0% 0%
September-2020 50% 0% 0% 0% 0% 0% 0% 0%
September-2021 46% 0% 0% 0% 0% 0% 0% 0%
September-2022 41% 0% 0% 0% 0% 0% 0% 0%
September-2023 36% 0% 0% 0% 0% 0% 0% 0%
September-2024 30% 0% 0% 0% 0% 0% 0% 0%
September-2025 21% 0% 0% 0% 0% 0% 0% 0%
September-2026 11% 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%
Weighted
Average
LifeYears (1) 21.57 13.36 9.21 6.28 4.84 4.21 3.77 3.53
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class B-II (To Maturity)
Scenario
----------------------------------------------------------------------
Payment Date I II III IV V VI VII VIII
- -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
September-1999 100% 100% 100% 100% 100% 100% 100% 100%
September-2000 100% 100% 100% 100% 100% 100% 100% 100%
September-2001 100% 100% 100% 100% 100% 100% 100% 100%
September-2002 100% 100% 100% 83% 59% 45% 32% 20%
September-2003 100% 100% 97% 63% 42% 29% 16% 6%
September-2004 100% 100% 81% 48% 29% 16% 5% 0%
September-2005 100% 100% 68% 37% 17% 7% 0% 0%
September-2006 100% 100% 57% 27% 9% 1% 0% 0%
September-2007 100% 92% 47% 18% 3% 0% 0% 0%
September-2008 100% 82% 39% 11% 0% 0% 0% 0%
September-2009 100% 73% 32% 6% 0% 0% 0% 0%
September-2010 100% 65% 25% 2% 0% 0% 0% 0%
September-2011 100% 57% 19% 0% 0% 0% 0% 0%
September-2012 100% 50% 13% 0% 0% 0% 0% 0%
September-2013 80% 20% 0% 0% 0% 0% 0% 0%
September-2014 76% 16% 0% 0% 0% 0% 0% 0%
September-2015 72% 12% 0% 0% 0% 0% 0% 0%
September-2016 68% 9% 0% 0% 0% 0% 0% 0%
September-2017 62% 6% 0% 0% 0% 0% 0% 0%
September-2018 57% 3% 0% 0% 0% 0% 0% 0%
September-2019 54% 1% 0% 0% 0% 0% 0% 0%
September-2020 50% 0% 0% 0% 0% 0% 0% 0%
September-2021 46% 0% 0% 0% 0% 0% 0% 0%
September-2022 41% 0% 0% 0% 0% 0% 0% 0%
September-2023 36% 0% 0% 0% 0% 0% 0% 0%
September-2024 30% 0% 0% 0% 0% 0% 0% 0%
September-2025 21% 0% 0% 0% 0% 0% 0% 0%
September-2026 11% 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%
Weighted
Average
LifeYears (1) 21.60 13.41 9.30 6.48 5.00 4.34 3.87 3.62
</TABLE>
- -----------------------------
(1) The weighted average life of the Offered Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii) adding
the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Offered Certificates.
V-20
<PAGE>
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<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accrual Period...................................................................................................31
Actuarial Loans..................................................................................................23
Applied Realized Loss Amount.................................................................................13, 49
Appraised Values.................................................................................................22
Auction Rate Certificates.........................................................................................1
Available Certificates...........................................................................................10
Average Amount Outstanding.......................................................................................21
Balloon Loans....................................................................................................16
Beneficial Owners............................................................................................10, 42
Bid 8
Bid Auction Rate.................................................................................................10
Bidder............................................................................................................8
Book-Entry Certificates..........................................................................................42
Business Day.....................................................................................................31
Buyer's Broker-Dealer............................................................................................14
Cedel............................................................................................................10
Cedel Participants...............................................................................................43
Certificate.......................................................................................................1
Certificate Account..............................................................................................30
Certificate Insurer..............................................................................................49
Certificate Principal Balance.....................................................................................2
Certificateholder.................................................................................................1
Class.............................................................................................................2
Class A Optimal Balance......................................................................................34, 35
Class A Overcollateralization Deficit............................................................................50
Class A Principal Distribution Amount............................................................................33
Class B Applied Realized Loss Amount.............................................................................50
Class B Certificate Principal Balance............................................................................50
Class B Optimal Balance......................................................................................36, 37
Class B Principal Distribution Amount............................................................................33
Class B Realized Loss Amortization Amount........................................................................51
Class B Unpaid Realized Loss Amount..............................................................................51
Class Distribution Amount........................................................................................31
Clean-Up Call Date...........................................................................................10, 64
Code.............................................................................................................66
Combined Loan-to-Value Ratios.....................................................................................4
Commission........................................................................................................1
Compensating Interest............................................................................................59
Cooperative......................................................................................................44
Cumulative Realized Loss Trigger Event...........................................................................47
Current Interest.................................................................................................33
Daily Collections................................................................................................58
Date-of-Payment Loans............................................................................................23
Definitive Certificate...........................................................................................42
Delinquency Advances.............................................................................................58
Delinquency Trigger Event........................................................................................48
Depositor.........................................................................................................6
DOL..............................................................................................................67
DTC..............................................................................................................10
DTC Participants.................................................................................................43
Dutch Auction.....................................................................................................1
ERISA............................................................................................................67
Euroclear........................................................................................................10
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Euroclear Operator...............................................................................................44
Euroclear Participants...........................................................................................44
European Depositaries............................................................................................42
Exemptions.......................................................................................................67
Existing Certificateholders.......................................................................................5
FannieMae........................................................................................................61
FannieMae Guide..................................................................................................57
FHLMC............................................................................................................61
Final Certification..............................................................................................57
Final Determination..............................................................................................65
Final Scheduled Payment Date.....................................................................................27
Financial Intermediary...........................................................................................42
Fiscal Agent.....................................................................................................52
Fitch............................................................................................................10
GAAP.............................................................................................................54
Global Securities.................................................................................................1
Gross Losses.....................................................................................................21
Group I Loan Balance.............................................................................................37
Group II Loan Balance............................................................................................37
Hold Order........................................................................................................8
IML..............................................................................................................43
Initial Certificate Principal Balance............................................................................27
Interest Carry Forward Amount....................................................................................34
Interest Remittance Amount.......................................................................................59
Internal Certificates............................................................................................29
Internal Pass-Through Rate.......................................................................................29
LIBOR............................................................................................................41
LIBOR Determination Date.........................................................................................42
Loan Purchase Price..............................................................................................56
Loan-to-Value Ratios..............................................................................................3
Maximum Insurer Current Reimbursement Amount.....................................................................34
Monthly Remittance Date..........................................................................................59
Moody's..........................................................................................................10
Mortgages.....................................................................................................7, 22
Mortgagor........................................................................................................23
Net Liquidation Proceeds.........................................................................................58
Net Losses.......................................................................................................21
Non-U.S. Person...................................................................................................3
Notes.........................................................................................................7, 22
Order.............................................................................................................8
Original Group I Loan Balance....................................................................................37
Original Group II Loan Balance...................................................................................37
Originator........................................................................................................6
Overcollateralization Amount.................................................................................46, 47
Participant......................................................................................................14
Participants.....................................................................................................42
Payment Date.....................................................................................................31
Percentage Interest..............................................................................................30
Plans............................................................................................................67
Pooling and Servicing Agreement...................................................................................2
Preference Amount................................................................................................50
Prepayment Assumption.............................................................................................1
Prepayments......................................................................................................12
Preservation Expenses............................................................................................59
Principal and Interest Account...................................................................................58
Principal Remittance Amount......................................................................................59
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Qualified Replacement Mortgage...................................................................................57
Rating Agencies..............................................................................................10, 68
Realized Loss....................................................................................................48
Record Date......................................................................................................31
Recoveries.......................................................................................................21
Register.........................................................................................................30
Registrar........................................................................................................30
Relevant Depositary..............................................................................................42
REMIC.........................................................................................................1, 11
REMIC Opinion....................................................................................................55
Remittance Period................................................................................................59
Restricted Group.................................................................................................68
Riegle Act.......................................................................................................15
Rules............................................................................................................42
SAP..............................................................................................................54
Sell Order........................................................................................................8
Seller's Broker-Dealer...........................................................................................14
Servicer Termination Event.......................................................................................61
SMMEA............................................................................................................11
Standard & Poor's................................................................................................10
Stepdown Date................................................................................................46, 47
Submitted Hold Order..............................................................................................9
Submitted Orders..................................................................................................9
Sub-Servicers....................................................................................................17
Sub-Servicing Agreements.........................................................................................17
Substitution Amount..............................................................................................57
Sufficient Bids..................................................................................................10
Swap Agreement...................................................................................................29
Swap Counterparty................................................................................................29
Swap Trust.......................................................................................................29
Swapped Certificates.............................................................................................29
Targeted Overcollateralization Amount........................................................................46, 47
Telerate Page 3750...............................................................................................42
Terms and Conditions.............................................................................................44
Trust.............................................................................................................2
Trust Estate.....................................................................................................29
U.S. Person.......................................................................................................3
Underwriting Agreement...........................................................................................71
Weighted average life............................................................................................28
</TABLE>
A-3
<PAGE>
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<PAGE>
PROSPECTUS
Asset Backed Certificates
(Issuable in Series)
ContiSecurities Asset Funding Corp.
(Depositor)
This Prospectus relates to Asset Backed Certificates to be issued from
time to time in one or more series (and one or more classes within a series),
certain classes of which may be offered on terms determined at the time of
sale and described in this Prospectus and the related Prospectus Supplement.
Each series of Certificates will be issued by a separate trust (each, a
"Trust") and will evidence either a beneficial ownership interest in, such
Trust. The assets of a Trust will include one or more of the following: (i)
one-to-four family and/or multifamily residential mortgage loans, including
mortgage loans secured by junior liens on the related mortgaged properties and
Title I loans and other types of home improvement retail installment
contracts, (ii) conditional sales contracts and installment sales or loan
agreements or participation interests therein secured by manufactured housing,
(iii) mortgage-backed securities, (iv) other mortgage-related assets and
securities and (v) reinvestment income, reserve funds, cash accounts,
insurance policies, guaranties, letters of credit or other assets as described
in the related Prospectus Supplement.
One or more classes of Certificates of a series may be (i) entitled to
receive distributions allocable to principal, principal prepayments, interest
or any combination thereof prior to one or more other classes of Certificates
of such series or after the occurrence of certain events or (ii) subordinated
in the right to receive such distributions to one or more senior classes of
Certificates of such series, in each case as specified in the related
Prospectus Supplement. Interest on each class of Certificates entitled to
distributions allocable to interest may accrue at a fixed rate or at a rate
that is subject to change from time to time as specified in the related
Prospectus Supplement. The Depositor or its affiliates may retain or hold for
sale from time to time one or more classes of a series of Certificates.
Distributions on the Certificates will be made at the intervals and on
the dates specified in the related Prospectus Supplement from the assets of
the related Trust and any other assets pledged for the benefit of the
Certificates. An affiliate of the Depositor may make or obtain for the benefit
of the Certificates limited representations and warranties with respect to
mortgage assets assigned to the related Trust. Neither the Depositor nor any
affiliates will have any other obligation with respect to the Certificates.
The yield on Certificates will be affected by the rate of payment of
principal (including prepayments) of mortgage assets in the related Trust.
Each series of Certificates will be subject to early termination under the
circumstances described herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, one or more separate elections
may be made to treat the Trust for the related series or specified portions
thereof as a "real estate mortgage investment conduit" ("REMIC") for federal
income tax purposes. See "Certain Federal Income Tax Consequences" herein and
in the related Prospectus Supplement.
It is a condition to the issuance of the Certificates that the
Certificates be rated in not less than the fourth highest rating category by a
nationally recognized rating organization.
See "Risk Factors" beginning on page 6 herein and in the related
Prospectus Supplement for a discussion of significant matters affecting
investments in the Certificates.
See "ERISA Considerations" herein and in the related Prospectus
Supplement for a discussion of restrictions on the acquisition of Certificates
by "plan fiduciaries."
THE ASSETS OF A TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE RELATED
CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION
OF THE DEPOSITOR, ANY SERVICER, ANY MASTER SERVICER, ANY ORIGINATOR, ANY
TRUSTEE OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH HEREIN AND IN THE
RELATED PROSPECTUS SUPPLEMENT. NEITHER THE CERTIFICATES NOR THE UNDERLYING
MORTGAGE ASSETS WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, ANY SERVICER, ANY MASTER SERVICER, ANY
ORIGINATOR, ANY TRUSTEE OR ANY OF THEIR AFFILIATES, 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 SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described
herein and in the related Prospectus Supplement. See "Plan of Distribution"
herein and in the related Prospectus Supplement.
Prior to their issuance there will have been no market for the
Certificates nor can there by any assurance that one will develop or if it
does develop, that it will provide the Owners of the Certificates with
liquidity or will continue for the life of the Certificates.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Certificates unless accompanied by a Prospectus
Supplement.
- ------------------------------------------------------------------------------
The date of this Prospectus is September 17, 1998
<PAGE>
(INTENTIONALLY LEFT BLANK)
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Certificates offered hereby and thereby or an offer of such Certificates to
any person in any state or other jurisdiction in which such offer would be
unlawful. The delivery of this Prospectus at any time does not imply that
information herein is correct as of any time subsequent to its date; however,
if any material change occurs while this Prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly.
TABLE OF CONTENTS
Page
SUMMARY OF PROSPECTUS.......................................................1
RISK FACTORS................................................................6
DESCRIPTION OF THE CERTIFICATES.............................................9
General...............................................................10
Classes of Certificates...............................................10
Distributions of Principal and Interest...............................11
Book Entry Registration...............................................13
List of Owners of Certificates........................................13
THE TRUSTS.................................................................14
Mortgage Loans........................................................14
Contracts.............................................................17
Mortgage-Backed Securities............................................18
Other Mortgage Securities.............................................18
CREDIT ENHANCEMENT.........................................................18
SERVICING OF MORTGAGE LOANS AND CONTRACTS..................................23
Payments on Mortgage Loans............................................24
Advances..............................................................24
Collection and Other Servicing Procedures.............................25
Primary Mortgage Insurance............................................27
Standard Hazard Insurance.............................................27
Title Insurance Policies..............................................28
Claims Under Primary Mortgage Insurance Policies and
Standard Hazard Insurance Policies; Other Realization
Upon Defaulted Loan...............................................28
Realization Upon or Sale of Defaulted Multifamily Loans...............29
Servicing Compensation and Payment of Expenses........................29
Master Servicer.......................................................30
ADMINISTRATION.............................................................30
Assignment of Mortgage Assets.........................................30
Evidence as to Compliance.............................................32
The Trustee...........................................................33
Administration of the Certificate Account.............................33
Reports...............................................................34
Forward Commitments; Pre-Funding......................................35
Servicer Events of Default............................................35
Rights Upon Servicer Event of Default.................................35
Amendment.............................................................36
Termination...........................................................36
USE OF PROCEEDS............................................................36
THE DEPOSITOR..............................................................36
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS...............................37
General...............................................................37
Foreclosure...........................................................38
Soldiers' and Sailors' Civil Relief Act...............................42
The Contracts.........................................................43
The Title I Program...................................................45
LEGAL INVESTMENT MATTERS...................................................50
ERISA CONSIDERATIONS.......................................................50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................52
Federal Income Tax Consequences For REMIC Certificates................52
Taxation of Regular Certificates......................................53
Taxation of Residual Certificates.....................................58
Treatment of Certain Items of REMIC Income and Expense................60
Tax-Related Restrictions on Transfer of Residual Certificates.........61
Sale or Exchange of a Residual Certificate............................64
Taxes That May Be Imposed on the REMIC Pool...........................64
Liquidation of the REMIC Pool.........................................64
Administrative Matters................................................64
Limitations on Deduction of Certain Expenses..........................65
Taxation of Certain Foreign Investors.................................65
Backup Withholding....................................................65
Reporting Requirements................................................66
Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made...................................67
Standard Certificates.................................................67
Premium and Discount..................................................68
Stripped Certificates.................................................70
Reporting Requirements and Backup Withholding.........................72
Taxation of Certain Foreign Investors.................................72
Taxation of Securities Classified as Partnership Interests............72
PLAN OF DISTRIBUTION.......................................................72
LEGAL MATTERS..............................................................73
FINANCIAL INFORMATION......................................................73
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS...............................74
Until 90 days after the date of each Prospectus Supplement, all
dealers effecting transactions in the related Certificates, whether or not
participating in the distribution thereof, may be required to deliver this
Prospectus and the related Prospectus Supplement. This delivery requirement is
in addition to the obligation of dealers to deliver a Prospectus Supplement
and Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by the
Depositor can be inspected and copied at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its Regional Offices located as
follows: Chicago Regional Office, 500 West Madison, 14th Floor, Chicago,
Illinois 60661; New York Regional Office, Seven World Trade Center, New York,
New York 10048. Copies of such material can also be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and electronically through the Commission's
<PAGE>
Electronic Data Gathering, Analysis and Retrieval System at the Commission's
web site (http:\\www.sec.gov). The Depositor does not intend to send any
financial reports to Owners.
This Prospectus does not contain all of the information set forth in
the Registration Statement (of which this Prospectus forms a part) and
exhibits thereto which the Depositor has filed with the Commission under the
Securities act of 1933 (the "Securities Act") and to which reference is hereby
made.
REPORTS TO OWNERS
The Trustee or other designated person will be required to provide
periodic unaudited reports concerning the Certificates and the Trust to all
registered holders of Certificates of the related series. See
"Administration-Reports."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with respect to each respective Trust pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the
securities of such Trust offered hereby shall be deemed to be incorporated by
reference into this Prospectus when delivered with respect to such Trust. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without
charge, upon written or oral request, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such documents
(other than the documents expressly incorporated therein by reference).
Requests should be directed to ContiSecurities Asset Funding Corp., 277 Park
Avenue, 38th Floor, New York, New York 10172 (telephone number (212)
207-2840).
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus and by
reference to the Prospectus Supplement relating to a particular series of
Certificates and to the related Agreement which will be prepared in connection
with each series of Certificates. Unless otherwise specified, capitalized
terms used and not defined in this Summary of Prospectus have the meanings
given to them in this Prospectus. An index indicating where certain
capitalized terms used herein are defined appears in Appendix A hereto.
Securities............................ Asset Backed Certificates, issuable
from time to time in series, in fully
registered form or book entry only
form, in authorized denominations, as
described in the Prospectus
Supplement (the "Certificates"). Each
Certificate will represent a
beneficial ownership interest in a
trust (a "Trust") created from time
to time pursuant to a pooling and
servicing agreement or trust
agreement (each, an "Agreement").
The Depositor......................... ContiSecurities Asset Funding Corp.
(the "Depositor") is a Delaware
corporation. The Depositor's
principal executive offices are
located at 277 Park Avenue, 38th
Floor, New York, New York, 10172;
telephone number (212) 207-2840. See
"The Depositor" herein. The Depositor
or its affiliates may retain or hold
for sale from time to time one or
more classes of a series of
Certificates.
The Servicer.......................... The entity or entities named as the
Servicer in the Prospectus Supplement
(the "Servicer"), will act as
servicer, with respect to the
Mortgage Loans and Contracts included
in the related Trust. The Servicer
may be an affiliate of the Depositor
and may be a seller of Mortgage
Assets to the Depositor (each, a
"Seller").
The Master Servicer................... A "Master Servicer" may be specified
in the related Prospectus Supplement
for the related series of
Certificates.
The Trustee........................... The trustee (the "Trustee") for each
series of Certificates will be
specified in the related Prospectus
Supplement.
Trust Assets.......................... The assets of a Trust will be
mortgage-related assets (the
"Mortgage Assets") consisting of one
or more of the following types of
assets:
A. The Mortgage Loans................ "Mortgage Loans" may include: (i)
conventional (i.e., not insured or
guaranteed by any governmental
agency) Mortgage Loans secured by
one-to-four family residential
properties; (ii) conventional
multifamily mortgage loans
("Conventional Multifamily Loans") or
mortgages insured by the Federal
Housing Administration (the "FHA")
("FHA-Insured Multifamily Loans" and
together with the Conventional
Multifamily Loans, the "Multifamily
Loans"); (iii) Mortgage Loans secured
by security interests in shares
issued by private, non-profit,
cooperative housing corporations
("Cooperatives") and in the related
proprietary leases or occupancy
agreements granting exclusive rights
to occupy specific dwelling units in
such Cooperatives' buildings; and,
(iv) Mortgage Loans secured by junior
liens on the related mortgaged
properties, including Title I Loans
and other types of home improvement
retail installment contracts. The
Mortgage Loans may be located in any
one of the 50 states,
1
<PAGE>
the District of Columbia or the
Commonwealth of Puerto Rico. See "The
Trusts - Mortgage Loans" herein.
B. Contracts......................... Contracts may include conditional
sales contracts and installment sales
or loan agreements or participation
interests therein secured by new or
used Manufactured Homes (as defined
herein). Contracts may be
conventional (i.e., not insured or
guaranteed by any government agency)
or insured by the FHA, including
Title I Contracts, or partially
guaranteed by the Veterans
Administration ("VA"), as specified
in the related Prospectus Supplement.
See "The Trusts - Contracts" herein.
C. Mortgage-
Backed Securities.................. "Mortgage-Backed Securities" (or
"MBS") may include (i) private (that
is, not guaranteed or insured by the
United States or any agency or
instrumentality thereof) mortgage
participations, mortgage pass-through
certificates or other mortgage-backed
securities or (ii) certificates
insured or guaranteed by Federal Home
Loan Mortgage Corporation ("FHLMC")
or Federal National Mortgage
Association ("FNMA") or Government
National Mortgage Association
("GNMA"). See "The Trusts -
Mortgage-Backed Securities" herein.
D. Other Mortgage Securities......... Other Mortgage Securities may include
other securities that directly or
indirectly represent an ownership
interest in, or are secured by and
payable from, mortgage loans on real
property or mortgage-backed
securities, such as residual
interests in issuances of
collateralized mortgage obligations
or mortgage pass-through
certificates. See "The Trusts - Other
Mortgage Securities" herein.
Trust assets may also include
reinvestment income, reserve funds,
cash accounts, insurance policies,
guaranties, letters of credit or
other assets as described in the
related Prospectus Supplement.
The related Prospectus Supplement for
a series of Certificates will
describe the Mortgage Assets to be
included in the Trust for such
series.
The Certificates...................... The Certificates of any series may be
issued in one or more classes, as
specified in the Prospectus
Supplement. One or more classes of
Certificates of each series (i) may
be entitled to receive distributions
allocable only to principal, only to
interest or to any combination
thereof; (ii) may be entitled to
receive distributions only of
prepayments of principal throughout
the lives of the Certificates or
during specified periods; (iii) may
be subordinated in the right to
receive distributions of scheduled
payments of principal, prepayments of
principal, interest or any
combination thereof to one or more
other classes of Certificates of such
series throughout the lives of the
Certificates or during specified
periods; (iv) may be entitled to
receive such distributions only after
the occurrence of events specified in
the Prospectus Supplement; (v) may be
entitled to receive distributions in
accordance with a schedule or formula
or on the basis of collections from
designated portions of the assets in
the related Trust; (vi) as to
Certificates entitled to
distributions allocable to interest,
may be entitled to receive interest
at a fixed rate or a rate that is
subject to change from time to time;
(vii) may accrue interest, with such
accrued interest added to the
principal or notional amount of the
Certificates, and no payments being
made thereon until certain other
classes of the series
2
<PAGE>
have been paid in full; and (viii) as
to Certificates entitled to
distributions allocable to interest,
may be entitled to distributions
allocable to interest only after the
occurrence of events specified in the
Prospectus Supplement and may accrue
interest until such events occur, in
each case as specified in the related
Prospectus Supplement. The timing and
amounts of such distributions may
vary among classes, over time, or
otherwise as specified in the related
Prospectus Supplement.
Distributions on
the Certificates................. The related Prospectus Supplement
will specify (i) whether
distributions on the Certificates
entitled thereto will be made
monthly, quarterly, semi-annually or
at other intervals and dates out of
the payments received in respect of
the Mortgage Assets included in the
related Trust and other assets, if
any, pledged for the benefit of the
related Owners of Certificates; (ii)
the amount allocable to payments of
principal and interest on any
Distribution Date; and (iii) whether
all distributions will be made pro
rata to Owners of Certificates of the
class entitled thereto.
The aggregate original principal
balance of the Certificates will
equal the aggregate distributions
allocable to principal that such
Certificates will be entitled to
receive; the Certificates will have
an aggregate original principal
balance equal to or less than the
aggregate unpaid principal balance of
the related Mortgage Assets (plus
amounts held in a Pre-Funding
Account, if any) as of the first day
of the month of creation of the
Trust; and the Certificates will bear
interest in the aggregate at a rate
(the "Pass-Through Rate") equal to
the interest rate borne by the
related Mortgage Assets net of
servicing fees and any other
specified amounts.
Pre-Funding Account................... A Trust may enter into an agreement
(each, a "Pre-Funding Agreement")
with the Depositor whereby the
Depositor will agree to transfer
additional Mortgage Assets to such
Trust following the date on which
such Trust is established and the
related Certificates are issued. Any
Pre-Funding Agreement will require
that any Mortgage Loans so
transferred conform to the
requirements specified in such
Pre-Funding Agreement. If a
Pre-Funding Agreement is to be
utilized, the related Trustee will be
required to deposit in a segregated
account (each, a "Pre-Funding
Account") all or a portion of the
proceeds received by the Trustee in
connection with the sale of one or
more classes of Certificates of the
related series; subsequently, the
additional Mortgage Assets will be
transferred to the related Trust in
exchange for money released to the
Depositor from the related
Pre-Funding Account. Each Pre-Funding
Agreement will set a specified period
during which any such transfers must
occur. If all moneys originally
deposited to such Pre-Funding Account
are not used by the end of such
specified period, then any remaining
moneys will be applied as a mandatory
prepayment of a class or classes of
Certificates as specified in the
related Prospectus Supplement. The
specified period for the acquisition
by a Trust of additional Mortgage
Loans will generally not exceed three
months from the date such Trust is
established.
Optional Termination.................. The Servicer, the Seller, the
Depositor, or, if specified in the
related Prospectus Supplement, the
Owners of a related class of
Certificates or a credit enhancer may
at their respective options effect
early retirement of a series of
Certificates through the purchase of
the Mortgage Assets in the related
Trust. See "Administration -
Termination" herein.
3
<PAGE>
Mandatory Termination................. The Trustee, the Servicer or certain
other entities specified in the
related Prospectus Supplement may be
required to effect early retirement
of a series of Certificates by
soliciting competitive bids for the
purchase of the assets of the related
Trust or otherwise. See
"Administration - Termination"
herein.
Advances.............................. The Servicer of the Mortgage Loans
and Contracts will be obligated (but
only to the extent set forth in the
related Prospectus Supplement) to
advance delinquent installments of
principal and/or interest (less
applicable servicing fees) on the
Mortgage Loans and Contracts in a
Trust. Any such obligation to make
advances may be limited to amounts
due to the Owners of Certificates of
the related series, to amounts deemed
to be recoverable from late payments
or liquidation proceeds, to specified
periods or to any combination
thereof, in each case as specified in
the related Prospectus Supplement.
Any such advance will be recoverable
as specified in the related
Prospectus Supplement. See "Servicing
of Mortgage Loans and Contracts"
herein.
Credit Enhancement.................... If specified in the related
Prospectus Supplement, a series of
Certificates, or certain classes
within such series, may have the
benefit of one or more types of
credit enhancement ("Credit
Enhancement"), including, but not
limited to, overcollateralization,
cross support, mortgage pool
insurance, special hazard insurance,
a bankruptcy bond, reserve funds,
other insurance, guaranties and
similar instruments and arrangements.
Credit Enhancement also may be
provided in the form of subordination
of one or more classes of
Certificates in a series under which
losses are first allocated to any
Subordinated Certificates up to a
specified limit. The protection
against losses afforded by any such
Credit Enhancement will be limited as
described in the related Prospectus
Supplement. See "Credit Enhancement"
herein.
Book Entry Registration............... Certificates of one or more classes
of a series may be issued in book
entry form ("Book Entry
Certificates") in the name of a
clearing agency (a "Clearing Agency")
registered with the Securities and
Exchange Commission, or its nominee.
Transfers and pledges of Book Entry
Certificates may be made only through
entries on the books of the Clearing
Agency in the name of brokers,
dealers, banks and other
organizations eligible to maintain
accounts with the Clearing Agency
("Clearing Agency Participants") or
their nominees. Transfers and pledges
by purchasers and other beneficial
owners of Book Entry Certificates
("Beneficial Owners") other than
Clearing Agency Participants may be
effected only through Clearing Agency
Participants. All references to the
Owners of Certificates shall mean
Beneficial Owners to the extent
Beneficial Owners may exercise their
rights through a Clearing Agency.
Except as otherwise specified in this
Prospectus or a related Prospectus
Supplement, the term "Owners" shall
be deemed to include Beneficial
Owners. See "Risk Factors - Book
Entry Registration" and "Description
of the Certificates - Book Entry
Registration" herein.
Certain Federal Income Tax
Consequences..................... Federal income tax consequences will
depend on, among other factors,
whether one or more elections are
made to treat a Trust or specified
portions thereof as a "real estate
mortgage investment conduit"
("REMIC") under the Internal Revenue
Code of 1986, as amended (the
"Code"), or, if
4
<PAGE>
no REMIC election is made, whether
the Certificates are considered to be
Standard Certificates, Stripped
Certificates or Partnership
Interests. The related Prospectus
Supplement for each series of
Certificates will specify whether one
or more REMIC elections will be made.
See "Certain Federal Income Tax
Consequences" herein and in the
related Prospectus Supplement.
ERISA Considerations.................. A fiduciary of any employee benefit
plan subject to the Employee
Retirement Income Security Act of
1974, as amended ("ERISA"), or the
Code should carefully review with its
own legal advisors whether the
purchase or holding of Certificates
could give rise to a transaction
prohibited or otherwise impermissible
under ERISA or the Code. Certain
classes of Certificates may not be
transferred unless the Trustee and
the Depositor are furnished with a
letter of representation or an
opinion of counsel to the effect that
such transfer will not result in a
violation of the prohibited
transaction provisions of ERISA and
the Code and will not subject the
Trustee, the Depositor or the
Servicer to additional obligations.
See "Description of the Certificates
- General" herein and "ERISA
Considerations" herein and in the
related Prospectus Supplement.
Legal Investment Matters.............. Certificates that constitute
"mortgage related securities" under
the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA")
will be so described in the related
Prospectus Supplement. Certificates
that are not so qualified may not be
legal investments for certain types
of institutional investors, subject,
in any case, to any other regulations
which may govern investments by such
institutional investors. See "Legal
Investment Matters" herein and in the
related Prospectus Supplement.
Use of Proceeds....................... Substantially all the net proceeds
from the sale of a series of
Certificates will be applied to the
simultaneous purchase of the Mortgage
Assets included in the related Trust
(or to reimburse the amounts
previously used to effect such
purchase), the costs of carrying the
Mortgage Assets until sale of the
Certificates and to pay other
expenses. See "Use of Proceeds"
herein.
Rating................................ Each class of Certificates offered by
a Prospectus Supplement will be rated
in one of the four highest rating
categories of a nationally recognized
statistical rating agency; provided,
however, that one or more classes of
Subordinated Certificates and
Residual Certificates, which will not
be so offered, need not be so rated.
Risk Factors.......................... Investment in the Certificates will
be subject to one or more risk
factors, including declines in the
value of Mortgaged Properties,
prepayment of Mortgage Loans, higher
risks of defaults on particular types
of Mortgage Loans, limitations on
security for the Mortgage Loans,
limitations on credit enhancement and
various other factors. See "Risk
Factors" herein and in the related
Prospectus Supplement.
5
<PAGE>
RISK FACTORS
Prospective investors should consider, among other things, the
following risk factors in connection with the purchase of the Certificates:
General. If the residential real estate market in general or a
regional or local area where Mortgage Assets for a Trust are concentrated
should experience an overall decline in property values, or a significant
downturn in economic conditions, rates of delinquencies, foreclosures and
losses could be higher than those now generally experienced in the mortgage
lending industry. See "The Trusts - Mortgage Loans" herein.
Limited Obligations. The Certificates will not represent an interest
in or obligation of the Depositor. The Certificates of each series will not be
insured or guaranteed by any government agency or instrumentality, the
Depositor, any Servicer or the Seller.
Prepayment Considerations. The prepayment experience on Mortgage
Loans or Contracts constituting or underlying the Mortgage Assets will affect
the average life of each class of Certificates relating to a Trust.
Prepayments may be influenced by a variety of economic, geographic, social and
other factors, including changes in interest rate levels. In general, if
mortgage interest rates fall, the rate of prepayment would be expected to
increase. Conversely, if mortgage interest rates rise, the rate of prepayment
would be expected to decrease. Other factors affecting prepayment of mortgage
loans include changes in housing needs, job transfers, unemployment and
servicing decisions. See "Prepayment and Yield Considerations" in the related
Prospectus Supplement.
Risk of Higher Default Rates for Mortgage Loans with Balloon
Payments. A portion of the aggregate principal balance of the Mortgage Loans
at any time may be "balloon loans" that provide for the payment of the
unamortized principal balance of such Mortgage Loan in a single payment at
maturity ("Balloon Loans"). Such Balloon Loans provide for equal monthly
payments, consisting of principal and interest, generally based on a 30-year
amortization schedule, and a single payment of the remaining balance of the
Balloon Loan generally 5, 7, 10, or 15 years after origination. Amortization
of a Balloon Loan based on a scheduled period that is longer than the term of
the loan results in a remaining principal balance at maturity that is
substantially larger than the regular scheduled payments. The Depositor does
not have any information regarding the default history or prepayment history
of payments on Balloon Loans. Because borrowers of Balloon Loans are required
to make substantial single payments upon maturity, it is possible that the
default risk associated with the Balloon Loans is greater than that associated
with fully-amortizing Mortgage Loans.
Security Interests and Other Aspects of the Contracts. Contracts may
be secured by a security interest in a Manufactured Home. Perfection of
security interests in the Manufactured Homes and enforcement of rights to
realize upon the value of the Manufactured Homes as collateral for the
Contracts are subject to a number of Federal and state laws, including the
Uniform Commercial Code as adopted in each state and each state's certificate
of title statutes. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. Because of the expense and
administrative inconvenience involved, no party will be required to amend any
certificates of title to change the lienholder specified therein to the
Trustee and no party will be required to deliver any certificate of title to
the Trustee or note thereon the Trustee's interest. Consequently, in some
states, in the absence of such an amendment, the assignment to the Trustee of
the security interest in the Manufactured Home may not be effective or such
security interest may not be perfected and, in the absence of such notation or
delivery to the Trustee, the assignment of the security interest in the
Manufactured Home may not be effective against creditors of the previous owner
of the related Contract or a trustee in bankruptcy of such previous owner. In
addition, numerous Federal and state consumer protection laws impose
requirements on lending under conditional sales contracts and installment loan
agreements such as the Contracts, and the failure by the lender or seller of
goods to comply with such requirements could give rise to liabilities of
assignees for amounts due under such agreements and claims by such assignees
may be subject to set-off as a result of such lender's or seller's
noncompliance. These laws would apply to the Trustee as assignee of the
Contracts. Each Seller of Contracts will warrant that each Contract sold by it
complies with all requirements of law and will make certain warranties
relating to the validity, subsistence, perfection and priority of the security
interest in each Manufactured Home securing a Contract. A breach of any
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such warranty that materially adversely affects any Contract would create an
obligation of the Seller to repurchase such Contract unless such breach is
cured. If any related Credit Enhancement is exhausted and recovery of amounts
due on the Contracts is dependent on repossession and resale of Manufactured
Homes securing Contracts that are in default, certain other factors may limit
the ability of the Trust to realize upon the Manufactured Homes or may limit
the amount realized to less than the amount due. See "Certain Legal Aspects of
the Mortgage Assets - The Contracts" herein.
Limited Liquidity. There will be no market for the Certificates of
any series prior to the issuance thereof, and there can be no assurance that a
secondary market will develop or, if it does develop, that it will provide
liquidity of investment or will continue for the life of the Certificates of
such series. The market value of the Certificates will fluctuate with changes
in prevailing rates of interest. Consequently, the sale of Certificates in any
market that may develop may be at a discount from the Certificates' par value
or purchase price. Owners of Certificates generally have no right to request
redemption of Certificates, and the Certificates are subject to redemption
only under the limited circumstances described in the related Prospectus
Supplement. In addition, the Certificates will not be listed on any securities
exchange.
Limited Assets. Owners of Certificates of each series must rely upon
distributions on the related Mortgage Assets, together with the other specific
assets pledged for the benefit of such series (which assets may be subject to
release from such pledge prior to payment in full of the Certificates), for
the payment of principal of, and interest on, that series of Certificates. If
the assets comprising the Trust are insufficient to make payments on such
Certificates, no other assets of the Depositor will be available for payment
of the deficiency. Because payments of principal will be applied to classes of
outstanding Certificates of a series in the priority specified in the related
Prospectus Supplement, a deficiency may have a disproportionately greater
effect on the Certificates of classes having lower priority in payment. In
addition, due to the priority of payments and the allocation of losses,
defaults experienced on the assets comprising a Trust may have a
disproportionate effect on a specified class or classes within such series.
Certain of the Mortgage Loans included in a Trust, particularly those
secured by Multifamily Properties, may not be fully amortizing (or may not
amortize at all) over their terms to maturity and, thus, will require
substantial payments of principal and interest (that is, balloon payments) at
their stated maturity. Mortgage Loans of this type involve a greater degree of
risk than self-amortizing loans because the ability of a Mortgagor to make a
balloon payment typically will depend upon its ability either to fully
refinance the loan or to sell the related Mortgaged Property at a price
sufficient to permit the Mortgagor to make the balloon payment. The ability of
a Mortgagor to accomplish either of these goals will be affected by a number
of factors, including the value of the related Mortgaged Property, the level
of available mortgage rates at the time of sale or refinancing, the
Mortgagor's equity in the related Mortgaged Property, prevailing general
economic conditions, the availability of credit for loans secured by
comparable real properties and, in the case of Multifamily Properties, the
financial condition and operating history of the Mortgagor and the related
Mortgaged Property, tax laws and rent control laws.
It is anticipated that some or all of the Mortgage Loans included in
any Trust, particularly Mortgage Loans secured by Multifamily Properties, will
be nonrecourse loans or loans for which recourse may be restricted or
unenforceable. As to those Mortgage Loans, recourse in the event of Mortgagor
default will be limited to the specific real property and other assets, if
any, that were pledged to secure the Mortgage Loan. However, even with respect
to those Mortgage Loans that provide for recourse against the Mortgagor and
its assets generally, there can be no assurance that enforcement of such
recourse provisions will be practicable, or that the other assets of the
Mortgagor will be sufficient to permit a recovery in respect of a defaulted
Mortgage Loan in excess of the liquidation value of the related Mortgaged
Property.
Limitations, Reduction and Substitution of Credit Enhancement. Credit
Enhancement may be provided in one or more of the forms described in the
related Prospectus Supplement, including, but not limited to, prioritization
as to payments of one or more classes of such series, a Mortgage Pool
Insurance Policy, a Special Hazard Insurance Policy, a bankruptcy bond, one or
more Reserve Funds, other insurance, guaranties and similar instruments and
agreements, or any combination thereof. See "Credit Enhancement" herein.
Regardless of the Credit Enhancement provided, the amount of coverage may be
limited in amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula. Furthermore, such Credit Enhancement
may provide only very limited coverage as to certain types of losses and may
provide no coverage as to certain other types of losses. The Trustee
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may be permitted to reduce, terminate or substitute all or a portion of the
Credit Enhancement for any series of Certificates, if the applicable rating
agencies indicate that the then-current rating thereof will not be adversely
affected.
Original Issue Discount. All the Compound Interest Certificates and
Stripped Certificates that are entitled only to interest distributions will
be, and certain of the other Certificates may be, issued with original issue
discount for federal income tax purposes. An Owner of a Certificate issued
with original issue discount will be required to include original issue
discount in ordinary gross income for federal income tax purposes as it
accrues, in advance of receipt of the cash attributable to such income.
Accrued but unpaid interest on such Certificates generally will be treated as
original issue discount for this purpose. See "Certain Federal Income Tax
Consequences - Federal Income Tax Consequences for REMIC Certificates," "-
Taxation of Regular Certificates - Variable Rate Regular Certificates,"
"Certain Federal Income Tax Consequences - Federal Income Tax Consequences for
Certificates as to Which No REMIC Election Is Made - Standard Certificates,"
and "Certain Federal Income Tax Consequences - Premium and Discount" and "-
Stripped Certificates" herein.
Book Entry Registration. Because transfers and pledges of Book Entry
Certificates may be effected only through book entries at a Clearing Agency
through Clearing Agency Participants, the liquidity of the secondary market
for Book Entry Certificates may be reduced to the extent that some investors
are unwilling to hold Certificates in book entry form in the name of Clearing
Agency Participants and the ability to pledge Book Entry Certificates may be
limited due to lack of a physical certificate. Beneficial Owners of Book Entry
Certificates may, in certain cases, experience delay in the receipt of
payments of principal and interest because such payments will be forwarded by
the Trustee to the Clearing Agency who will then forward payment to the
Clearing Agency Participants who will thereafter forward payment to Beneficial
Owners. In the event of the insolvency of the Clearing Agency or of a Clearing
Agency Participant in whose name Certificates are recorded, the ability of
Beneficial Owners to obtain timely payment and (if the limits of applicable
insurance coverage by the Securities Investor Protection Corporation are
exceeded, or if such coverage is otherwise unavailable) ultimate payment of
principal and interest on Book Entry Certificates may be impaired.
Certain Matters Relating to Insolvency. The Sellers of the Mortgage
Assets to the Depositor and the Depositor intend that the transfers of such
Mortgage Assets to the Depositor, and in turn to the applicable Trust,
constitute sales rather than pledges to secure indebtedness for insolvency
purposes. If, however, a seller of Mortgage Assets were to become a debtor
under the federal bankruptcy code, it is possible that a creditor,
trustee-in-bankruptcy or receiver of such seller may argue that the sale
thereof by such Seller is a pledge rather than a sale. This position, if
argued or accepted by a court, could result in a delay in or reduction of
distributions on the related Certificates.
Junior Lien Mortgage Loans. Because Mortgage Loans secured by junior
(i.e., second, third, etc.) liens are subordinate to the rights of the
beneficiaries under the related senior deeds of trust or senior mortgages, a
decline in the residential real estate market would adversely affect the
position of the related Trust as a junior beneficiary or junior mortgagee
before having such an effect on the position of the related senior
beneficiaries or senior mortgagees. A rise in interest rates over a period of
time, the general condition of a Mortgaged Property and other factors may also
have the effect of reducing the value of the Mortgaged Property from the value
at the time the junior lien Mortgage Loan was originated and, as a result, may
reduce the likelihood that, in the event of a default by the borrower,
liquidation or other proceeds will be sufficient to satisfy the junior lien
Mortgage Loan after satisfaction of any senior liens and the payment of any
liquidation expenses.
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 a Servicer took the same steps
in realizing upon defaulted Mortgage Loans having small remaining principal
balances as in the case of defaulted Mortgage Loans having larger principal
balances, the amount realized after expenses of liquidation would be smaller
as a percentage of the outstanding principal balance of the smaller Mortgage
Loans. To the extent the average outstanding principal balances of the
Mortgage Loans in a Trust are relatively small, realizations net of
liquidation expenses may also be relatively small as a percentage of the
principal amount of the Mortgage Loans.
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Limitations on Interest Payments and Foreclosures. Generally, under
the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended
(the "Relief Act"), or similar state legislation, a Mortgagor who enters
military service after the origination of the related Mortgage Loan (including
a Mortgagor who is a member of the National Guard or is in reserve status at
the time of the origination of the Mortgage Loan and is later called to active
duty) may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such Mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. It is possible that
such action could have an effect, for an indeterminate period of time, on the
ability of the related Servicer to collect full amounts of interest on certain
of the Mortgage Loans. In addition, the Relief Act imposes limitations that
would impair the ability of the related 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 Ratings. The rating of Certificates credit enhanced through
external credit enhancement such as a letter of credit, financial guaranty
insurance policy or mortgage pool insurance will depend primarily on the
creditworthiness of the issuer of such external credit enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer below the rating initially given to the
related Certificates would likely result in a reduction in the rating of the
Certificates. See "Ratings" in the Prospectus Supplement.
Other Legal Considerations. Applicable federal and state laws
generally regulate interest rates and other charges, require certain
disclosures, prohibit unfair and deceptive practices, regulate debt
collection, and require licensing of the originators of the mortgage loans and
contracts. Depending on the provisions of the applicable law and the specified
facts and circumstances involved, violations of those laws, policies and
principles may limit the ability to collect all or part of the principal of or
interest on the Mortgage Loans and Contracts and may entitle the borrower to a
refund of amounts previously paid. See "Certain Legal Aspects of the Mortgage
Assets" herein.
DESCRIPTION OF THE CERTIFICATES
Each Trust will be created pursuant to an Agreement entered into
among the Depositor, the Trustee, the Master Servicer, if any, and the
Servicer. The provisions of each Agreement will vary depending upon the nature
of the Certificates to be issued thereunder and the nature of the related
Trust. Certificates which represent beneficial interests in the Trust will be
issued pursuant to the Agreement similar to the form filed as an Exhibit to
the Registration Statement of which this Prospectus is a part. The following
summaries and the summaries set forth under "Administration" describe certain
provisions relating to each series of Certificates. The Prospectus Supplement
for a series of Certificates will describe the specific provisions relating to
such series. The Depositor will provide Owners of Certificates, without
charge, on written request a copy of the Agreement for the related series.
Requests should be addressed to ContiSecurities Asset Funding Corp., 277 Park
Avenue, 38th Floor, New York, New York 10172. The Agreement relating to a
series of Certificates will be filed with the Securities and Exchange
Commission within 15 days after the date of issuance of such series of
Certificates (the "Delivery Date").
The Certificates of a series will be entitled to payment only from
the assets of the Trust and any other assets pledged for the benefit of the
Certificates and will not be entitled to payments in respect of the assets
included in any other trust fund established by the Depositor. The
Certificates will not represent obligations of the Depositor, the Trustee, the
Master Servicer, if any, any Servicer or any affiliate thereof and will not be
guaranteed by any governmental agency. See "The Trusts" herein.
The Mortgage Assets relating to a series of Certificates, other than
Title I Loans and GNMA MBS, will not be insured or guaranteed by any
governmental entity and, to the extent that delinquent payments on or losses
in respect of defaulted Mortgage Assets, are not advanced or paid from any
applicable Credit Enhancement, such delinquencies may result in delays in the
distribution of payments on, or losses allocated to one or more classes of
Certificates of such series.
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General
The Certificates of each series will be issued either in book entry
form or in fully registered form. The minimum original denomination of each
class of Certificates will be specified in the related Prospectus Supplement.
The original "Certificate Principal Balance" of each Certificate will equal
the aggregate distributions or payments allocable to principal to which such
Certificate is entitled and distributions allocable to interest on each
Certificate 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.
Except as described below under "Book Entry Registration" with
respect to Book Entry Certificates, the Certificates of each series will be
transferable and exchangeable on a "Certificate Register" to be maintained at
the corporate trust office or such other office or agency maintained for such
purposes by the Trustee. The Trustee will be appointed initially as the
"Certificate Registrar" and no service charge will be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or other governmental charge may be required.
Under current law the purchase and holding of certain classes of
Certificates may result in "prohibited transactions" within the meaning of
ERISA and the Code. See "ERISA Considerations" herein and in the related
Prospectus Supplement. Transfer of Certificates of such a class will not be
registered unless the transferee (i) executes a representation letter stating
that it is not, and is not purchasing on behalf of, any such plan, account or
arrangement or (ii) provides an opinion of counsel satisfactory to the Trustee
and the Depositor that the purchase of Certificates of such a class by or on
behalf of such plan, account or arrangement is permissible under applicable
law and will not subject the Trustee, the Servicer or the Depositor to any
obligation or liability in addition to those undertaken in the Agreement.
As to each series, one or more elections may be made to treat the
related Trust or designated portions thereof as a REMIC for federal income tax
purposes. The related Prospectus Supplement will specify whether a REMIC
election is to be made. Alternatively, the Agreement for a series may provide
that a REMIC election may be made at the discretion of the Depositor or the
Servicer and may only be made if certain conditions are satisfied. See
"Certain Federal Income Tax Considerations" herein. As to any such series, the
terms and provisions applicable to the making of a REMIC election, as well as
any material federal income tax consequences to Owners of Certificates not
otherwise described herein, will be set forth in the related Prospectus
Supplement. If such an election is made with respect to a series, one of the
classes will be designated as evidencing the "residual interests" in the
related REMIC, as defined in the Code. All other classes of Certificates in
such a series will constitute "regular interests" in the related REMIC, as
defined in the Code. As to each series with respect to which a REMIC election
is to be made, the Servicer, the Trustee, an Owner of Residual Certificates or
another person as specified in the related Prospectus Supplement will be
obligated to take all actions required in order to comply with applicable laws
and regulations and will be obligated to pay any prohibited transaction taxes.
The person so specified will be entitled to reimbursement for any such
payment.
Classes of Certificates
Each series of Certificates will be issued in one or more classes
which will evidence the beneficial ownership in the assets of the Trust that
are allocable to (i) principal of such class of Certificates and (ii) interest
on such Certificates. If specified in the Prospectus Supplement, one or more
classes of a series of Certificates may evidence beneficial ownership
interests in separate groups of assets included in the related Trust.
The Certificates will have an aggregate original Certificate
Principal Balance equal to the aggregate unpaid principal balance of the
Mortgage Assets (plus, amounts held in a Pre-Funding Account, if any) as of
the time and day prior to creation of the Trust specified in the related
Prospectus Supplement (the "Cut-Off Date") after deducting payments of
principal due before the Cut-Off Date and will bear interest at rates which,
on a weighted basis, will be equal to the Pass-Through Rate. The Pass-Through
Rate will equal the weighted average rate of interest borne by
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the related Mortgage Assets, net of the aggregate servicing fees, amounts
allocated to the residual interests and any other amounts as are specified in
the Prospectus Supplement. The original Certificate Principal Balance (or
Notional Principal Balance) of the Certificates of a series and the interest
rate on the classes of such Certificates will be determined in the manner
specified in the Prospectus Supplement.
Each class of Certificates that is entitled to distributions
allocable to interest will bear interest at a fixed rate or a rate that is
subject to change from time to time (a) in accordance with a schedule, (b) by
reference to an index, or (c) otherwise (each, a "Certificate Interest Rate").
One or more classes of Certificates may provide for interest that accrues but
is not currently payable ("Compound Interest Certificates"). With respect to
any class of Compound Interest Certificates, any interest that has accrued but
is not paid on a given Distribution Date will be added to the aggregate
Certificate Principal Balance of such class of Certificates on that
Distribution Date.
A series of Certificates may include one or more classes entitled
only to distributions or payments (i) allocable to interest, (ii) allocable to
principal (and allocable as between scheduled payments of principal and
Principal Prepayments, as defined below), or (iii) allocable to both principal
(and allocable as between scheduled payments of principal and Principal
Prepayments) and interest. A series of Certificates may consist of one or more
classes as to which distributions or payments will be allocated (i) on the
basis of collections from designated portions of the assets of the Trust, (ii)
in accordance with a schedule or formula, (iii) in relation to the occurrence
of events, or (iv) otherwise. The timing and amounts of such distributions or
payments may vary among classes, over time or otherwise.
A series of Certificates may include one or more Classes of Scheduled
Amortization Certificates and Companion Certificates. "Scheduled Amortization
Certificates" are Certificates with respect to which payments of principal are
to be made in specified amounts on specified Distribution Dates, to the extent
of funds available on such Distribution Date. "Companion Certificates" are
Certificates which receive payments of all or a portion of any funds available
on a given Distribution Date which are in excess of amounts required to be
applied to payments on Scheduled Amortization Certificates on such
Distribution Date. Because of the manner of application of payments of
principal to Companion Certificates, the weighted average lives of Companion
Certificates of a series may be expected to be more sensitive to the actual
rate of prepayments on the Mortgage Assets in the related Trust than will the
Scheduled Amortization Certificates of such series.
One or more series of Certificates may constitute series of "Special
Allocation Certificates", which may include Senior Certificates, Subordinated
Certificates, Priority Certificates and Non-Priority Certificates. As
specified in the related Prospectus Supplement for a series of Special
Allocation Certificates, the timing and/or priority of payments of principal
and/or interest may favor one or more classes of Certificates over one or more
other classes of Certificates. Such timing and/or priority may be modified or
reordered upon the occurrence of one or more specified events. Losses on Trust
assets for such series may be disproportionately borne by one or more classes
of such series, and the proceeds and distributions from such assets may be
applied to the payment in full of one or more classes within such series
before the balance, if any, of such proceeds are applied to one or more other
classes within such series. For example, Special Allocation Certificates in a
series may be comprised of one or more classes of Senior Certificates having a
priority in right to distributions of principal and interest over one or more
classes of Subordinated Certificates, as a form of Credit Enhancement. See
"Credit Enhancement - Subordination" herein. Typically, the Subordinated
Certificates will carry a rating by the rating agencies lower than that of the
Senior Certificates. In addition, one or more classes of Certificates
("Priority Certificates") may be entitled to a priority of distributions of
principal or interest from assets in the Trust over another class of
Certificates ("Non-Priority Certificates"), but only after the exhaustion of
other Credit Enhancement applicable to such series. The Priority Certificates
and Non-Priority Certificates nonetheless may be within the same rating
category.
Distributions of Principal and Interest
General. Distributions of principal and interest will be made to the
extent of funds available therefor, on the dates specified in the Prospectus
Supplement (each, a "Distribution Date") to the persons in whose names the
Certificates are registered (the "Owners") at the close of business on the
dates specified in the Prospectus Supplement (each, a "Record Date"). With
respect to Certificates other than Book Entry Certificates, distributions
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will be made by check or money order mailed to the person entitled thereto at
the address appearing in the Certificate Register or, if specified in the
Prospectus Supplement, in the case of Certificates that are of a certain
minimum denomination as specified in the Prospectus Supplement, upon written
request by the Owner of a Certificate, by wire transfer or by such other means
as are agreed upon with the person entitled thereto; provided, however, that
the final distribution in retirement of the Certificates (other than Book
Entry Certificates) will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee specified in the notice of
such final distribution. With respect to Book Entry Certificates, such
payments will be made as described below under "Book Entry Registration".
Distributions will be made out of, and only to the extent of, funds
in a separate account established and maintained for the benefit of the
Certificates of the related series (the "Certificate Account" with respect to
such series), including any funds transferred from any related Reserve Fund.
Amounts may be invested in the Eligible Investments specified herein and in
the Prospectus Supplement, and all income or other gain from such investments
will be deposited in the related Certificate Account and may be available to
make payments on the Certificates of the applicable series on the next
succeeding Distribution Date or pay after amounts owed by the Trust.
Distributions of Interest. Interest will accrue on the aggregate
Certificate Principal Balance (or, in the case of Certificates entitled only
to distributions allocable to interest, the aggregate Notional Principal
Balance (as defined below)) of each class of Certificates entitled to interest
from the date, at the applicable Certificate Interest Rate and for the periods
(each, an "Interest Accrual Period") specified in the Prospectus Supplement.
The aggregate Certificate Principal Balance of any class of Certificates
entitled to distributions of principal will be the aggregate original
Certificate Principal Balance of such class of Certificates, reduced by all
distributions allocable to principal, and, in the case of Compound Interest
Certificates, increased by all interest accrued but not then distributable on
such Compound Interest Certificates. With respect to a class of Certificates
entitled only to distributions allocable to interest, such interest will
accrue on a notional principal balance (the "Notional Principal Balance") of
such class, computed solely for purposes of determining the amount of interest
accrued and payable on such class of Certificates.
To the extent funds are available therefor, interest accrued during
each Interest Accrual Period on each class of Certificates entitled to
interest (other than a class of Compound Interest Certificates) will be
distributable on the Distribution Dates specified in the Prospectus Supplement
until the aggregate Certificate Principal Balance of the Certificates of such
class has been distributed in full or, in the case 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. Distributions of interest on
each class of Compound Interest Certificates will commence only after the
occurrence of the events specified in the Prospectus Supplement and, prior to
such time, the aggregate Certificate Principal Balance (or Notional Principal
Balance) of such class of Compound Interest Certificates, will increase on
each Distribution Date by the amount of interest that accrued on such class of
Compound Interest Certificates 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 Compound Interest Certificates will thereafter accrue
interest on its outstanding Certificate Principal Balance (or Notional
Principal Balance) as so adjusted.
Distributions of Principal. The Prospectus Supplement will specify
the method by which the amount of principal to be distributed on the
Certificates on each Distribution Date will be calculated and the manner in
which such amount will be allocated among the classes of Certificates entitled
to distributions of principal.
One or more classes of Certificates may be entitled to receive all or
a disproportionate percentage of the payments of principal which are received
on the related Mortgage Assets 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"). Any such allocation may have the
effect of accelerating the amortization of such Certificates relative to the
interests evidenced by the other Certificates.
Unscheduled Distributions. The Certificates of a series may be
subject to receipt of distributions before the next scheduled Distribution
Date under the circumstances and in the manner described below and in the
related
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Prospectus Supplement. If applicable, such unscheduled distributions will be
made on the Certificates of a series on the date and in the amount specified
in the related Prospectus Supplement if, due to substantial payments of
principal (including Principal Prepayments) on the related Mortgage Assets,
low rates then available for reinvestment of such payments or both, it is
determined, based on specified assumptions, that the amount anticipated to be
on deposit in the Certificate Account for such series on the next related
Distribution Date, together with, if applicable, any amounts available to be
withdrawn from any related Reserve Fund or from any other Credit Enhancement
provided for such series, may be insufficient to make required distributions
on the Certificates on such Distribution Date. The amount of any such
unscheduled distribution that is allocable to principal will not exceed the
amount that would otherwise have been required to be distributed as principal
on the Certificates on the next Distribution Date and will include interest at
the applicable Certificate Interest Rate (if any) on the amount of the
unscheduled distribution allocable to principal for the period and to the date
specified in the Prospectus Supplement.
All distributions allocable to principal in any unscheduled
distribution will be made in the same priority and manner as distributions of
principal on the Certificates would have been made on the next Distribution
Date except as otherwise stated in the related Prospectus Supplement, and,
with respect to Certificates of the same class, unscheduled distributions of
principal will be made on a pro rata basis. Notice of any unscheduled
distribution will be given by the Trustee prior to the date of such
distribution.
Book Entry Registration
Certificates may be issued as Book Entry Certificates and held in the
name of a Clearing Agency registered with the Securities and Exchange
Commission or its nominee. Transfers and pledges of Book Entry Certificates
may be made only through entries on the books of the Clearing Agency in the
name of Clearing Agency Participants or their nominees. Clearing Agency
Participants may also be Beneficial Owners of Book Entry Certificates.
Purchasers and other Beneficial Owners may not hold Book Entry
Certificates directly but may hold, transfer or pledge their ownership
interest in the Certificates only through Clearing Agency Participants.
Furthermore, Beneficial Owners will receive all payments of principal and
interest with respect to the Certificates and, if applicable, may request
redemption of Certificates, only through the Clearing Agency and the Clearing
Agency Participants. Beneficial Owners will not be registered Owners of
Certificates or be entitled to receive definitive certificates representing
their ownership interest in the Certificates except under the limited
circumstances, if any, described in the related Prospectus Supplement. See
"Risk Factors - Book Entry Registration" herein.
If Certificates of a series are issued as Book Entry Certificates,
the Clearing Agency will be required to make book entry transfers among
Clearing Agency Participants, to receive and transmit payments of principal
and interest with respect to the Certificates of such series, and to receive
and transmit requests for redemption with respect to such Certificates.
Clearing Agency Participants with whom Beneficial Owners have accounts with
respect to such Book Entry Certificates will be similarly required to make
book entry transfers and receive and transmit payments and redemption requests
on behalf of their respective Beneficial Owners. Accordingly, although
Beneficial Owners will not be registered Owners of Certificates and will not
possess physical certificates, a method will be provided whereby Beneficial
Owners may receive payments, transfer their interests, and submit redemption
requests.
List of Owners of Certificates
Upon written request of a specified number or percentage interests of
Owners of Certificates of record of a series of Certificates for purposes of
communicating with other Owners of Certificates with respect to their rights
as Owners of Certificates, the Trustee will afford such Owners access during
business hours to the most recent list of Owners of Certificates of that
series held by the Trustee. With respect to Book Entry Certificates, the only
named Owner on the Certificate Register will be the Clearing Agency.
The Agreement will not provide for the holding of any annual or other
meetings of Owners of Certificates.
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THE TRUSTS
The Trust for a series of Certificates will consist of: (i) the
Mortgage Assets (subject, if specified in the Prospectus Supplement, to
certain exclusions) received on and after the related Cut-Off Date; (ii) all
payments (subject, if specified in the Prospectus Supplement, to certain
exclusions) in respect of such Mortgage Assets, which may be adjusted, to the
extent specified in the related Prospectus Supplement, in the case of interest
payments on Mortgage Assets, to the Pass-Through Rate; (iii) if specified in
the Prospectus Supplement, reinvestment income on such payments; (iv) with
respect to a Trust that includes Mortgage Loans, or Contracts, all property
acquired by foreclosure or deed in lieu of foreclosure with respect to any
such Mortgage Loan or Contract; (v) certain rights of the Trustee, the
Depositor and the Servicer under any policies required to be maintained in
respect of the related Mortgage Assets; (vi) certain rights of the Depositor
or one of its affiliates under any Mortgage Loan purchase agreement, including
in respect of any representations and warranties therein; and (vii) if so
specified in the Prospectus Supplement, one or more forms of Credit
Enhancement.
The Certificates of each series will be entitled to payment only from
the assets of the related Trust and any other assets pledged therefor and will
not be entitled to payments in respect of the assets of any other trust
established by the Depositor.
Mortgage Assets may be acquired by the Depositor from affiliated or
unaffiliated originators. The following is a brief description of the Mortgage
Assets expected to be included in the Trusts. If specific information
respecting the Mortgage Assets is not known at the time the related series of
Certificates initially are offered, more general information of the nature
described below will be provided in the related Prospectus Supplement, and
specific information will be set forth in a report on Form 8-K to be filed
with the Securities and Exchange Commission within fifteen days after the
initial issuance of such Certificates. A copy of the Agreement with respect to
each series of Certificates will be attached to the Form 8-K and will be
available for inspection at the corporate trust office of the Trustee
specified in the related Prospectus Supplement. A schedule of the Mortgage
Assets relating to each series of Certificates, will be attached to the
related Agreement delivered to the Trustee upon delivery of such Certificates.
Mortgage Loans
The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages or deeds of trust (the "Mortgages")
creating liens on residential properties (the "Mortgaged Properties"). Such
Mortgage Loans will be within the broad classifications of single family
mortgage loans, defined generally as loans on residences containing
one-to-four dwelling units or multifamily loans. If specified in the
Prospectus Supplement, the Mortgage Loans may include cooperative apartment
loans ("Cooperative Loans") secured by security interests in shares issued by
Cooperatives and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in such
Cooperatives' buildings, or the Mortgage Loans may be secured by junior liens
on the related mortgaged properties, including Title I Loans and other types
of home improvement retail installment contracts. The Mortgaged Properties
securing the Mortgage Loans may include investment properties and vacation and
second homes. The Mortgaged Property for such loans may also consist of
residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden apartment
buildings or projects ("Multifamily Properties"). Each Mortgage Loan will be
selected by the Depositor for inclusion in the Trust from among those acquired
by the Depositor or originated or acquired by one or more affiliated or
unaffiliated originators, including newly originated loans. Mortgaged
Properties may be located in any one of the 50 states, the District of
Columbia or the Commonwealth of Puerto Rico.
The Mortgage Loans will be "conventional" mortgage loans, that is
they will not be insured or guaranteed by any governmental agency, the
principal and interest on the Mortgage Loans included in the Trust for a
series of Certificates will be payable either on the first day of each month
or on different scheduled days throughout each month, and the interest will be
calculated either on a simple-interest or accrual method as described in the
related Prospectus Supplement. When a full principal amount is paid on a
Mortgage Loan during a month, the mortgagor is generally charged interest only
on the days of the month actually elapsed up to the date of such prepayment,
at a daily interest rate that is applied to the principal amount of the
Mortgage Loan so prepaid.
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The payment terms of the Mortgage Loans to be included in a Trust for
a series will be described in the related Prospectus Supplement and may
include any of the following features or combinations thereof or other
features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to an index, a rate that is
fixed for a period of time or under certain circumstances and
followed by an adjustable rate, a rate that otherwise varies from
time to time, or a rate that is convertible from an adjustable rate
to a fixed rate. Changes to an adjustable rate may be subject to
periodic limitations, maximum rates, minimum rates or a combination
of such limitations. Accrued interest may be deferred and added to
the principal of a Mortgage Loan for such periods and under such
circumstances as may be specified in the related Prospectus
Supplement. Mortgage Loans may provide for the payment of interest at
a rate lower than the specified mortgage rate for a period of time or
for the life of the Mortgage Loan with the amount of any difference
contributed from funds supplied by the seller of the Mortgaged
Property or another source.
(b) Principal may be payable on a level debt service basis
to fully amortize the Mortgage Loan over its term, may be calculated
on the basis of an amortization schedule that is longer than the
original term to maturity or on an interest rate that is different
from the interest rate on the Mortgage Loan or may not be amortized
during all or a portion of the original term. Payment of all or a
substantial portion of the principal may be due on maturity.
Principal may include interest that has been deferred and added to
the principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed
for the life of the Mortgage Loan, may increase over a specified
period of time or may change from period to period. Mortgage Loans
may include limits on periodic increases or decreases in the amount
of monthly payments and may include maximum or minimum amounts of
monthly payments.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the Mortgage Loan 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 Servicer, or as may be required by any applicable
government program.
(e) Another type of mortgage loan described in the
Prospectus Supplement.
With respect to a series for which the related Trust includes
Mortgage Loans, the related Prospectus Supplement may specify, among other
things, information regarding the interest rates (the "Mortgage Rates"), the
average Principal Balance and the aggregate Principal Balance, the years of
origination and original principal balances and the original loan-to-value
ratios. The "Principal Balance" of any Mortgage Loan will be the unpaid
principal balance of such Mortgage Loan as of the Cut-Off Date, after
deducting any principal payments due before the Cut-Off Date, reduced by all
principal payments, including principal payments advanced pursuant to the
related Agreement, previously distributed with respect to such Mortgage Loan
and reported as allocable to principal.
The "Loan-to-Value Ratio" of any Mortgage Loan will be determined by
dividing the amount of the Mortgage Loan by the Original Value (defined below)
of the related Mortgaged Property. The "principal amount" of the Mortgage
Loan, for purposes of computation of the Loan-to-Value Ratio of any Mortgage
Loan, will include any part of an origination fee that has been financed. In
some instances, it may also include amounts which the seller or some other
party to the transaction has paid to the mortgagee, such as minor reductions
in the purchase price made at the closing. The "Original Value" of a Mortgage
Loan is (a) in the case of any purchase money Mortgage Loan, the
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lesser of (i) the value of the mortgaged property, based on an appraisal
thereof and (ii) the selling price, and (b) otherwise the value of the
mortgaged property, based on an appraisal thereof.
There can be no assurance that the Original Value will reflect actual
real estate values during the term of a Mortgage Loan. If the residential real
estate market should experience an overall decline in property values such
that the outstanding principal balances of the Mortgage Loans become equal to
or greater than the values of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be significantly higher than
those now generally experienced in the mortgage lending industry. In addition,
adverse economic conditions (which may or may not affect real estate values)
may affect the timely and ultimate payment by mortgagors of scheduled payments
of principal and interest on the Mortgage Loans and, accordingly, the actual
rates of delinquencies, foreclosures and losses with respect to the Mortgage
Loans.
Multifamily Loans will consist of Multifamily Loans consisting of
either Conventional Multifamily Loans or FHA-Insured Multifamily Loans secured
by mortgages or deeds of trust or other similar security instruments creating
a lien on rental apartment buildings or projects containing five or more
units, including, but not limited to, high-rise, mid-rise and garden
apartments or secured by apartment buildings owned by cooperative housing
corporations. The Multifamily Properties may include mixed commercial and
residential structures. Unless otherwise specified in the related Prospectus
Supplement, each Mortgage Loan will create a first priority mortgage lien on a
Mortgaged Property. A Multifamily Loan may create a lien on a borrower's
leasehold estate in a property; however, unless otherwise specified in the
related Prospectus Supplement, the term of any such leasehold will exceed the
term of the Mortgage Loan by at least two years. The Depositor expects that
Mortgage Loans will have been originated by mortgagees in the ordinary course
of their real estate lending activities. Each Multifamily Loan will bear
interest at an annual fixed rate or adjustable rate of interest specified in
the Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all
of the Multifamily Loans will have had original terms to maturity of not more
than 40 years and will provide for scheduled payments of principal, interest
or both, to be made on specified dates ("Due Dates") that occur monthly,
quarterly or semi-annually. A Multifamily Loan (i) may provide for accrual of
interest thereon at an interest rate (a "Mortgage Loan Rate") that is fixed
over its term of that adjusts from time to time, or that may be converted at
the borrower's election from an adjustable to a fixed Mortgage Loan Rate, or
from a fixed to an adjustable Mortgage Loan Rate, (ii) may provide for level
payments to maturity or for payments that adjust from time to time to
accommodate changes in the Mortgage Loan Rate or to reflect the occurrence of
certain events, and may permit negative amortization, (iii) may be fully
amortizing over its term to maturity, or may provide for little or no
amortization over its term and thus require a balloon payment on its stated
maturity date, and (iv) may contain a prohibition on prepayment (the period of
such prohibition, a "Lock-out Period" and its date of expiration, a "Lock-out
Expiration Date") or require payment of a premium or a yield maintenance
penalty (a "Prepayment Premium") in connection with a prepayment, in each case
as described in the related Prospectus Supplement. A Multifamily Loan may also
contain a provision that entitles the lender to a share of profits realized
from the operation or disposition of the Mortgaged Property (an "Equity
Participation"), as described in the related Prospectus Supplement. If holders
of any class or classes of Certificates of a series will be entitled to all or
a portion of an Equity Participation, the related Prospectus Supplement will
describe the Equity Participation and the method or methods by which
distributions in respect thereof will be made to such holders.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important measure of the risk of
default on such loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Multifamily Loan at any
given time is the ratio of (i) the Net Operating Income of the related
Mortgaged Property for a twelve-month period to (ii) the annualized scheduled
payments on the Multifamily Loan and on any other loan that is secured by a
lien on the Mortgaged Property prior to the lien of the related Mortgage.
Unless otherwise defined in the related Prospectus Supplement, "Net Operating
Income" means, for any given period, the total operating revenues derived from
a Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than
(i) non-cash items such as depreciation and amortization, (ii) capital
expenditures and (iii) debt service on loans (including the related
Multifamily Loan) secured by liens on the Mortgaged Property. The Net
Operating Income of a Mortgage Property will fluctuate over time and may or
may not be sufficient to cover debt service on the related Multifamily Loan at
any given time. As the primary source of the operating revenues of a non-owner
occupied
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income-producing property, rental income (and maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy.
Increases in operating expenses due to the general economic climate
or economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the risk of default on a Multifamily Loan. As
may be further described in the related Prospectus Supplement, in some cases
leases of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will
result in stable Net Operating Income to the borrower/landlord only to the
extent that the lessee is able to absorb operating expense increases while
continuing to make rent payments.
Contracts
Each pool of Contracts included in the Trust with respect to a series
of Certificates (the "Contract Pool") will consist of manufactured housing
conditional sales contracts and installment loan agreements or participation
interests therein (collectively, "Contracts"). The Contracts may be
conventional manufactured housing contracts or contracts insured by the FHA,
including Title I Contracts, or partially guaranteed by the VA. Each Contract
is secured by a Manufactured Home. The Prospectus Supplement will specify
whether the Contracts will be fully amortizing or have a balloon payment and
whether they will bear interest at a fixed or variable rate.
The Manufactured Homes securing the Contracts consist of manufactured
homes within the meaning of 42 United States Code, Section 5402(6), which
defines a "Manufactured Home" as "a structure, transportable in one or more
sections, which in the traveling mode, is eight body feet or more in width or
forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without permanent foundation when
connected to the required utilities, and includes the plumbing, heating,
air-conditioning, and electrical systems contained therein; except that such
term shall include any structure which meets all the requirements of this
paragraph except the size requirements and with respect to which the
manufacturer voluntarily files a certification required by the Secretary of
Housing and Urban Development and complies with the standards established
under [this] chapter." Moreover, if an election is made to treat the Trust as
a REMIC as described in "Certain Federal Income Tax Consequences - Federal
Income Tax Consequences for REMIC Certificates" herein, Manufactured Homes
will have a minimum of 400 square feet of living space and a minimum width in
excess of 102 inches.
For purposes of calculating the loan-to- value ratio of a Contract
relating to a new Manufactured Home, the "Collateral Value" is no greater than
the sum of a fixed percentage of the list price of the unit actually billed by
the manufacturer to the dealer (exclusive of freight to the dealer site)
including "accessories" identified in the invoice (the "Manufacturer's Invoice
Price"), plus the actual cost of any accessories purchased from the dealer, a
delivery and set-up allowance, depending on the size of the unit and the cost
of state and local taxes, filing fees and up to three years prepaid hazard
insurance premiums. The Collateral Value of a used Manufactured Home is the
least of the sales price, the appraised value, and the National Automobile
Dealer's Association book value plus prepaid taxes and hazard insurance
premiums. The appraised value of a Manufactured Home is based upon the age and
condition of the manufactured housing unit and the quality and condition of
the mobile home park in which it is situated, if applicable.
The related Prospectus Supplement may specify for the Contracts
contained in the related Contract Pool, among other things, the date of
origination of the Contracts; the annual percentage rates on the Contracts;
the loan-to-value ratios; the minimum and maximum outstanding principal
balance as of the Cut-Off Date and the average outstanding principal balance;
the outstanding principal balances of the Contracts included in the Contract
Pool; the original maturities of the Contracts; and the last maturity date of
any Contract.
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Mortgage-Backed Securities
"Mortgage-Backed Securities" (or "MBS") may include (i) private (that
is, not guaranteed or insured by the United States or any agency or
instrumentality thereof) mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities or (ii) certificates insured
or guaranteed by FHLMC or FNMA or GNMA.
Any MBS will have been issued pursuant to a participation and
servicing agreement, a pooling and servicing agreement, an indenture or
similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying mortgage loans will have
entered into the MBS Agreement with a trustee or a custodian under the MBS
Agreement (the "MBS Trustee"), if any, or with the original purchaser or
purchasers of the MBS.
The MBS may have been issued in one or more classes with
characteristics similar to the classes of Certificates described herein.
Distributions in respect of the MBS will be made by the MBS Servicer or the
MBS Trustee on the dates specified in the related Prospectus Supplement. The
MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Reserve funds, subordination, cross-support or other credit
enhancement similar to that described for the Certificates under "Credit
Enhancement" may have been provided with respect to the MBS. The type,
characteristics and amount of such credit enhancement, if any, will be a
function of the characteristics of the underlying mortgage loans and other
factors and generally will have been established on the basis of the
requirements of any rating agency that may have assigned a rating to the MBS,
or by the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount and type of the MBS to be
included in the Trust, (ii) the original and remaining term to stated maturity
of the MBS, if applicable, (iii) the pass-through or bond rate of the MBS or
the formula for determining such rates, (iv) the payment characteristics of
the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee, as applicable, (vi)
a description of the credit support, if any, (vii) the circumstances under
which the stated underlying mortgage loans, or the MBS themselves may be
purchased prior to their maturity, (viii) the terms on which mortgage loans
may be substituted for those originally underlying the MBS, (ix) the servicing
fees payable under the MBS Agreement, (x) to the extent available to the
Depositor, information in respect of the underlying mortgage loans, and (xi)
the characteristics of any cash flow agreements that relate to the MBS.
Other Mortgage Securities
Other Mortgage Securities include other securities that directly or
indirectly represent an ownership interest in, or are secured by and payable
from, mortgage loans on real property or mortgage-backed securities, including
residual interests in issuances of collateralized mortgage obligations or
mortgage pass-through certificates. Any Other Mortgage Securities that are
privately placed securities will not be included in a Trust until such time as
such privately placed securities would be freely transferable pursuant to Rule
144A of the Securities Act of 1933, as amended. Further (i) such privately
placed securities will have been acquired in the secondary market and not
pursuant to an initial offering thereof and (ii) the underlying issuer of such
securities will not be affiliated with the Depositor and will not have an
interest in the Trust. The Prospectus Supplement for a series of Certificates
will describe any Other Mortgage Securities to be included in the Trust for
such series.
CREDIT ENHANCEMENT
General. Various forms of Credit Enhancement may be provided with
respect to one or more classes of a series of Certificates or with respect to
the assets in the related Trust. Credit Enhancement may be in the form of the
subordination of one or more classes of the Certificates of such series, the
establishment of one or more Reserve
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Funds, the use of a cross-support feature, use of a Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy, bankruptcy bond, or another form of
Credit Enhancement described in the related Prospectus Supplement, or any
combination of the foregoing. Credit Enhancement may not provide protection
against all risks of loss and may not guarantee repayment of the entire
principal balance of the Certificates and interest thereon. If losses occur
which exceed the amount covered by Credit Enhancement or which are not covered
by the Credit Enhancement, Owners of Certificates will bear their allocable
share of deficiencies.
Financial Guaranty Insurance Policies. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond
("Financial Guaranty Insurance Policy") may be obtained and maintained for
each class or series of Certificates. The issuer of any Financial Guaranty
Insurance Policy (a "Financial Guaranty Insurer") will be described in the
related Prospectus Supplement. Such description will include financial
information on the Financial Guaranty Insurer. In addition, the audited
financial statements of a Financial Guaranty Insurer and an auditors consent
to use such financial statements will be filed with the Securities and
Exchange Commission on Form 8-K or will be incorporated by reference to
financial statements already on file with the Securities and Exchange
Commission.
Unless otherwise specified in the related Prospectus Supplement, a
Financial Guaranty Insurance Policy will unconditionally and irrevocably
guarantee to Certificateholders that an amount equal to each full and
completed insured payment will be received by an agent of the Trustee (an
"Insurance Paying Agent") on behalf of Certificateholders, for distribution by
the Trustee to each Certificateholder. The "insured payment" will be defined
in the related Prospectus Supplement, and will generally equal the full amount
of the distributions of principal and interest to which Certificateholders are
entitled under the related Agreement plus any other amounts specified therein
or in the related Prospectus Supplement (the "Insured Payment").
Financial Guaranty Insurance Policies may apply only to certain
specified classes, or may apply at the Mortgage Asset level and only to
specified Mortgage Assets.
The specific terms of any Financial Guaranty Insurance Policy will be
as set forth in the related Prospectus Supplement. Financial Guaranty
Insurance Policies may have limitations, including (but not limited to)
limitations on the insurer's obligation to guarantee the obligations of the
Seller or Depositor to repurchase or substitute for any Mortgage Loans,
Financial Guaranty Insurance Policies will not guarantee any specified rate of
prepayments and/or to provide funds to redeem Certificates on any specified
date.
Subject to the terms of the related Agreement, the Financial Guaranty
Insurer may be subrogated to the rights of Certificateholder to receive
payments under the Certificates to the extent of any payment by such Financial
Guaranty Insurer under the related Financial Guaranty Insurance Policy.
Subordination. Distributions in respect of scheduled principal,
interest or any combination thereof otherwise payable to one or more classes
of Certificates of a series (the "Subordinated Certificates") may be paid to
one or more other classes of such series (the "Senior Certificates") under the
circumstances and to the extent provided in the Prospectus Supplement. If
specified in the Prospectus Supplement, delays in receipt of scheduled
payments on the Mortgage Assets and losses on defaulted Mortgage Assets will
be borne first by the various classes of Subordinated Certificates and
thereafter by the various classes of Senior Certificates, in each case under
the circumstances and subject to the limitations specified in the Prospectus
Supplement. The aggregate distributions in respect of delinquent payments on
the Mortgage Assets over the lives of the Certificates or at any time, the
aggregate losses in respect of defaulted Mortgage Assets which must be borne
by the Subordinated Certificates by virtue of subordination and the amount of
the distributions otherwise distributable to the Subordinated Certificates
that will be distributable to Owners of Senior Certificates on any
Distribution Date may be limited as specified in the Prospectus Supplement. If
aggregate distributions in respect of delinquent payments on the Mortgage
Assets or aggregate losses in respect of such Mortgage Assets were to exceed
the total amounts payable and available for distribution to Owners of
Subordinated Certificates or, if applicable, were to exceed the specified
maximum amount, Owners of Senior Certificates could experience losses on the
Certificates.
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In addition to or in lieu of the foregoing, all or any portion of
distributions otherwise payable to Subordinated Certificates on any
Distribution Date may instead be deposited into one or more Reserve Funds (as
defined below) established by the Trustee. If so specified in the Prospectus
Supplement, such deposits may be made on each Distribution Date, on each
Distribution Date for specified periods, or on each Distribution Date until
the balance in the Reserve Fund has reached a specified amount and, following
payments from the Reserve Fund to Owners of Senior Certificates or otherwise,
thereafter to the extent necessary to restore the balance in the Reserve Fund
to required levels, in each case as specified in the Prospectus Supplement. If
so specified in the Prospectus Supplement, amounts on deposit in the Reserve
Fund may be released to the Depositor or the Owners of any class of
Certificates at the times and under the circumstances specified in the
Prospectus Supplement.
If specified in the Prospectus Supplement, various classes of
Subordinate Certificates and Subordinated Certificates may themselves be
subordinate in their right to receive certain distributions to other classes
of Senior and Subordinated Certificates, respectively, through a cross-support
mechanism or otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes
(i) in the order of their scheduled final distribution dates, (ii) in
accordance with a schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise, in each case as specified in the Prospectus
Supplement. As between classes of Subordinated Certificates, payments with
respect to Senior Certificates on account of delinquencies or losses and
payments to any Reserve Fund will be allocated as specified in the Prospectus
Supplement.
Overcollateralization. If specified in the Prospectus Supplement,
subordination provisions of a Trust may be used to accelerate to a limited
extent the amortization of one or more classes of Certificates relative to the
amortization of the related Mortgage Loans. The accelerated amortization is
achieved by the application of certain excess interest to the payment of
principal of one or more classes of Certificates. This acceleration feature
creates, with respect to the Mortgage Loans or groups thereof,
overcollateralization which results from the excess of the aggregate principal
balance of the related Mortgage Loans, or a group thereof, over the principal
balance of the related class of Certificates. Such acceleration may continue
for the life of the related Certificates, or may be limited. In the case of
limited acceleration, once the required level of overcollateralization is
reached, and subject to certain provisions specified in the related Prospectus
Supplement, such limited acceleration feature may cease, unless necessary to
maintain the required level of overcollateralization.
Cross-Support. If specified in the related Prospectus Supplement, the
beneficial ownership of separate groups of assets included in the Trust for a
series may be evidenced by separate classes of related series of Certificates.
In such case, Credit Enhancement may be provided by a cross-support feature
which may require that distributions be made with respect to Certificates
evidencing beneficial ownership of one or more asset groups prior to
distributions to Subordinated Certificates evidencing a beneficial ownership
interest in other asset groups within the same Trust. The Prospectus
Supplement for a series which includes a cross-support feature will describe
the manner and conditions for applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by
one or more forms of Credit Enhancement may apply concurrently to two or more
separate Trusts for a separate series of Certificates. If applicable, the
Prospectus Supplement will identify the Trusts to which such credit support
relates and the manner of determining the amount of the coverage provided
thereby and of the application of such coverage to the identified Trusts.
Pool Insurance. If specified in the related Prospectus Supplement,
one or more mortgage pool insurance policies (each, a "Mortgage Pool Insurance
Policy") will be obtained.
Any such Mortgage Pool Insurance Policy will, subject to the
limitations described below and in the Prospectus Supplement, cover loss by
reason of default in payments on such Mortgage Loans up to the amounts
specified in the Prospectus Supplement or report on Form 8-K and for the
periods specified in the Prospectus Supplement. The Trustee under the related
Agreement will agree to use its best reasonable efforts to cause to be
maintained in effect any such Mortgage Pool Insurance Policy and to supervise
the filing of claims thereunder to the
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issuer of such Mortgage Pool Insurance Policy (the "Pool Insurer") for the
period of time specified in the related Prospectus Supplement. A Mortgage Pool
Insurance Policy, however, is not a blanket policy against loss, because
claims thereunder may only be made respecting particular defaulted Mortgage
Loans and only upon satisfaction of certain conditions precedent set forth in
such policy as described in the related Prospectus Supplement. The Mortgage
Pool Insurance Policies, if any, will not cover loss due to a failure to pay
or denial of a claim under a primary mortgage insurance policy, irrespective
of the reason therefor. The related Prospectus Supplement will describe the
terms of any applicable Mortgage Pool Insurance Policy and will set forth
certain information with respect to the related Pool Insurer.
In general, a Mortgage Pool Insurance Policy may 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 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, a failure of coverage attributable to one of the
foregoing events might result in a breach of a representation of the Seller
and in such event might give rise to an obligation on the part of the Seller
to purchase the defaulted Mortgage Loan if the breach materially and adversely
affects the interests of the Owners of the Certificates and cannot be cured by
the Seller.
The original amount of coverage under any Mortgage Pool Insurance
Policy will be reduced over the life of such Certificates by the aggregate
dollar amount of claims paid less the aggregate of the net amounts realized by
the Pool Insurer upon disposition of all foreclosed properties. The amount of
claims paid will generally include certain expenses incurred with respect to
the applicable Mortgage Loans as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim. See "Certain Legal Aspects
of the Mortgage Assets - Foreclosure" herein. Accordingly, if aggregate net
claims paid under any Mortgage Pool Insurance Policy reach the original policy
limit, coverage under that Mortgage Pool Insurance Policy will be exhausted
and any further losses will be borne by one or more classes of Certificates
unless otherwise covered by another form of Credit Enhancement, as specified
in the Prospectus Supplement.
Since any Mortgage Pool Insurance Policy may require that the
Mortgaged Property subject to a defaulted Mortgage Loan be restored to its
original condition prior to claiming against the Pool Insurer, such policy may
not provide coverage against hazard losses. As set forth under "Servicing of
Mortgage Loans and Contracts C Standard Hazard Insurance", the hazard policies
concerning the Mortgage Loans typically exclude from coverage physical damage
resulting from a number of causes and even when the damage is covered, may
afford recoveries which are significantly less than the full replacement cost
of such losses. Even if special hazard insurance is applicable as specified in
the Prospectus Supplement, no coverage in respect of special hazard losses
will cover all risks, and the amount of any such coverage will be limited. See
"Special Hazard Insurance" below. As a result, certain hazard risks will not
be insured against and will therefore be borne by Owners of the Certificates,
unless otherwise covered by another form of Credit Enhancement, as specified
in the Prospectus Supplement.
The terms of any Mortgage Pool Insurance Policy relating to a
Contract Pool will be described in the related Prospectus Supplement.
Special Hazard Insurance. If specified in the related Prospectus
Supplement, one or more special hazard insurance policies (each, a "Special
Hazard Insurance Policy") will be obtained.
Any such Special Hazard Insurance Policy will, subject to limitations
described below and in the Prospectus Supplement, cover (i) loss by reason of
damage to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related water damage)
not covered by the standard form of hazard insurance policy for the respective
states in which the Mortgaged Properties are located or under flood insurance
policies, if any, covering the Mortgaged Properties, and (ii) loss caused by
reason of the application of the coinsurance clause contained in hazard
insurance policies. See "Servicing of Mortgage Loans and Contracts C Standard
Hazard Insurance." Any Special Hazard Insurance Policy may not cover losses
occasioned by war, civil insurrection, certain governmental actions, 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 are"-,
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chemical contamination and certain other risks. Aggregate claims under each
Special Hazard Insurance Policy will be limited as described in the related
Prospectus Supplement. Any Special Hazard Insurance Policy may also provide
that no claim may be paid unless hazard and, if applicable, flood insurance on
the Mortgaged Property has been kept in force and other protection and
preservation expenses have been paid.
Subject to the foregoing limitations, any Special Hazard Insurance
Policy generally will provide that, where there has been damage to property
securing a foreclosed Mortgage Loan (title to which has been acquired by the
insured) and to the extent such damage is not covered by the hazard insurance
policy or flood insurance policy, if any, maintained with respect to such
Mortgage Loan, the issuer of the Special Hazard Insurance Policy (the "Special
Hazard Insurer") will pay the lesser of (i) the cost of repair or replacement
of such property or (ii) upon transfer of the property to the special hazard
insurer, the unpaid principal balance of such Mortgage Loan at the time of
acquisition of such property by foreclosure or deed in lieu of foreclosure,
plus accrued interest to the date of claim settlement and certain expenses
incurred with respect to such property. If the unpaid principal balance plus
accrued interest and certain expenses is paid by the Special Hazard Insurer,
the amount of further coverage under the related Special Hazard Insurance
Policy will be reduced by such amount less any net proceeds from the sale of
the property. Any amount paid as the cost of repair or replacement of the
property will also reduce coverage by such amount. Restoration of the property
with the proceeds described under (i) above will satisfy the condition under
any applicable Mortgage Pool Insurance Policy that the property be restored
before a claim under such Mortgage Pool Insurance Policy may be validly
presented with respect to the defaulted Mortgage Loan secured by such
property. The payment described under (ii) above will render unnecessary
presentation of a claim in respect of such Mortgage Loan under any related
Mortgage Pool Insurance Policy. Therefore, so long as a Mortgage Pool
Insurance Policy remains in effect, the payment by the Special Hazard Insurer
under a Special Hazard Insurance Policy of the cost of repair or replacement
or the unpaid principal balance of the Mortgage Loan plus accrued interest and
certain expenses will not affect the total insurance proceeds but will affect
the relative amounts of coverage remaining under any related Special Hazard
Insurance Policy and any related Mortgage Pool Insurance Policy.
The terms of any Special Hazard Insurance Policy relating to a
Contract Pool will be described in the related Prospectus Supplement.
Bankruptcy Bond. In the event of a bankruptcy of a borrower, the
bankruptcy court may establish the value of the property securing the related
Mortgage Loan at an amount less than the then outstanding principal balance of
such Mortgage Loan. The amount of the secured debt could be reduced to such
value and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the property by the bankruptcy court. In
addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction in monthly
payments required to be made by the borrower. See "Certain Legal Aspects of
the Mortgage Assets" herein. If so provided in the related Prospectus
Supplement, the Depositor will obtain a bankruptcy bond or similar insurance
contract (the "bankruptcy bond") for proceedings with respect to borrowers
under the Bankruptcy Code. The bankruptcy bond will cover certain losses
resulting from a reduction by a bankruptcy court of scheduled payments of
principal of 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 bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement. Such amount will be reduced by
payments made under such bankruptcy bond in respect of the related Mortgage
Loans and will not be restored.
If specified in the related Prospectus Supplement, other forms of
Credit Enhancement may be provided to cover such bankruptcy-related losses.
Any bankruptcy bond or other form of Credit Enhancement provided to cover
bankruptcy-related losses will be described in the related Prospectus
Supplement.
Reserve Funds. If specified in the Prospectus Supplement, cash, U.S.
Treasury securities, instruments evidencing ownership of principal or interest
payments thereon, letters of credit, surety bonds, demand notes, certificates
of deposit or a combination thereof in the aggregate amount specified in the
Prospectus Supplement will
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be deposited by the Depositor on the Delivery Date in one or more accounts
(each, a "Reserve Fund") established and maintained with the Trustee. Such
cash and the principal and interest payments on such other investments will be
used to enhance the likelihood of timely payment of principal of, and interest
on, or, if so specified in the Prospectus Supplement, to provide additional
protection against losses in respect of, the assets in the related Trust, to
pay the expenses of the Trust or for such other purposes specified in the
Prospectus Supplement. Whether or not the Depositor has any obligation to make
such a deposit, certain amounts to which the Owners of Subordinated
Certificates, if any, would otherwise be entitled may instead be deposited
into the Reserve Fund from time to time and in the amounts as specified in the
Prospectus Supplement. Any cash in any Reserve Fund and the proceeds of any
other instrument upon maturity will be invested in Eligible Investments. If a
letter of credit is deposited with the Trustee, such letter of credit will be
irrevocable. Any instrument deposited therein will name the Trustee as a
beneficiary and will be issued by an entity acceptable to each rating agency
that rates the Certificates. Additional information with respect to such
instruments deposited in the Reserve Funds may be set forth in the Prospectus
Supplement.
Any amounts so deposited and payments on instruments so deposited
will be available for withdrawal from the Reserve Fund for distribution with
respect to the Certificates for the purposes, in the manner and at the times
specified in the Prospectus Supplement.
Other Insurance, Guaranties and Similar Instruments or Agreements. If
specified in the Prospectus Supplement, the related Trust may also include
insurance, guaranties, surety bonds, letters of credit, guaranteed investment
contracts or similar arrangements for the purpose of (i) maintaining timely
payments or providing additional protection against losses on the assets
included in such Trust, (ii) paying administrative expenses, (iii)
establishing a minimum reinvestment rate on the payments made in respect of
such assets or principal payment rate on such assets, (iv) guaranteeing timely
payment of principal and interest under the Certificates, or for such other
purpose as is specified in such Prospectus Supplement. Such arrangements may
include agreements under which Owners of Certificates are entitled to receive
amounts deposited in various accounts held by the Trustee upon the terms
specified in the Prospectus Supplement. Such arrangements may be in lieu of
any obligation of the Servicers or the Seller to advance delinquent
installments in respect of the Mortgage Loans. See "Servicing of Mortgage Loans
and Contracts - Advances" herein.
SERVICING OF MORTGAGE LOANS AND CONTRACTS
With respect to each series of Certificates, the related Mortgage
Loans and Contracts will be serviced by a sole servicer or by a master
servicer with various sub-servicers pursuant to, or as provided for in, the
Agreement. The Prospectus Supplement for each series will specify the servicer
and the master servicer, if any, for such series.
The related Prospectus Supplement will specify whether the Servicer
is a FNMA- or FHLMC-approved servicer of conventional mortgage loans. In
addition, the Depositor will require adequate servicing experience, where
appropriate, and financial stability, generally including a net worth
requirement (to be specified in the Agreement) as well as satisfaction of
certain other criteria.
Each Servicer will be required to perform the customary functions of
a mortgage loan servicer, including collection of payments from borrowers (the
"Mortgagors") and remittance of such collections to the Trustee, maintenance
of applicable standard hazard insurance or primary mortgage insurance
policies, attempting to cure delinquencies, supervising foreclosures,
management of Mortgaged Properties under certain circumstances, and
maintaining accounting records relating to the Mortgage Loans and Contracts,
as applicable, and, if specified in the related Prospectus Supplement,
maintenance of escrow or impoundment accounts of Mortgagors for payment of
taxes, insurance, and other items required to be paid by the Mortgagor
pursuant to the Mortgage Loan or Contract. Each Servicer will also be
obligated to make advances in respect of delinquent installments on Mortgage
Loans and Contracts, as applicable, as described more fully under "- Payments
on Mortgage Loans" and "- Advances" below and in respect of certain taxes and
insurance premiums not paid on a timely basis by Mortgagors.
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Each Servicer will be entitled to a monthly servicing fee as
specified in the related Prospectus Supplement. Each Servicer will also
generally be entitled to collect and retain, as part of its servicing
compensation, late payment charges and assumption underwriting fees. Each
Servicer will be reimbursed from proceeds of one or more of the insurance
policies described herein ("Insurance Proceeds") or from proceeds received in
connection with the liquidation of defaulted Mortgage Loans ("Liquidation
Proceeds") for certain expenditures pursuant to the Agreement. See "-
Advances" and "- Servicing Compensation and Payment of Expenses" below.
Each Servicer will be required to service each Mortgage Loan and
Contract, as applicable, pursuant to the terms of the Agreement for the entire
term of such Mortgage Loan and Contract, as applicable, unless such Agreement
is earlier terminated. Upon termination, a replacement for the Servicer will
be appointed.
Payments on Mortgage Loans
Each Servicer will establish and maintain a separate account (each, a
"Custodial Account"). Subject to the following paragraph, each Custodial
Account must be an account the deposits in which are fully insured by either
the Federal Deposit Insurance Corporation ("FDIC") or the National Credit
Union Administration ("NCUA") or are, to the extent such deposits are in
excess of the coverage provided by such insurance, continuously secured by
certain obligations issued or guaranteed by the United States of America. If
at any time the amount on deposit in such Custodial Account shall exceed the
amount so insured or secured, the applicable Servicer must remit to the
Trustee the amount on deposit in such Custodial Account which exceeds the
amount so insured or secured, less any amount such Servicer may retain for its
own account pursuant to its Servicing Agreement.
Notwithstanding the foregoing, the deposits in a Servicer's Custodial
Account will not be required to be fully insured or secured as described
above, and such Servicer will not be required to remit amounts on deposit
therein in excess of the amount so insured or secured, so long as such
Servicer meets certain requirements established by the rating agencies
requested to rate the Certificates.
Each Servicer is required to deposit into its Custodial Account on a
daily basis all amounts in respect of each Mortgage Loan received by such
Servicer, with interest adjusted to a rate (the "Remittance Rate") equal to
the related Mortgage Rate less the Servicer's servicing fee rate. On the day
of each month specified in the related Prospectus Supplement (the "Remittance
Date"), each Servicer of the Mortgage Loans will remit to the Trustee all
funds held in its Custodial Account with respect to each Mortgage Loan;
provided, however, that Principal Prepayments may be remitted on the
Remittance Date in the month following the month of such prepayment. Each
Servicer will be required pursuant to the terms of the Agreement and as
specified in the related Prospectus Supplement, to remit with each Principal
Prepayment interest thereon at the Remittance Rate through the last day of the
month in which such Principal Prepayment is made. Each Servicer may also be
required to advance its own funds as described below.
Advances
With respect to a delinquent Mortgage Loan or Contract, the related
Servicer may be obligated (but only to the extent set forth in the related
Prospectus Supplement) to advance its own funds or funds from its Custodial
Account equal to the aggregate amount of payments of principal and interest
(adjusted to the applicable Remittance Rate) which were due on a due date and
which are delinquent as of the close of business on the business day preceding
the Remittance Date ("Monthly Advance"). Generally, such advances will be
required to be made by the Servicer unless the Servicer determines that such
advances ultimately would not be recoverable under any applicable insurance
policy, from the proceeds of liquidation of the related Mortgaged Properties,
or from any other source (any amount not so reimbursable being referred to
herein as a "Nonrecoverable Advance"). Such advance obligation generally will
continue through the month following the month of final liquidation of such
Mortgage Loan or Contract. Any Servicer funds thus advanced will be
reimbursable to such Servicer out of recoveries on the Mortgage Loans or
Contracts with respect to which such amounts were advanced. Each Servicer will
also be obligated to make advances with respect to certain taxes and insurance
premiums not paid by Mortgagors on a timely basis. Funds so advanced are
reimbursable to the Servicers out of recoveries on the related Mortgage Loans
or Contracts. Each Servicer's right of reimbursement for any advance will be
prior to the rights of the Trust to receive any related
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Insurance Proceeds or Liquidation Proceeds. Failure by a Servicer to make a
required Monthly Advance will be grounds for termination under the related
Agreement.
Collection and Other Servicing Procedures
Each Servicer will service the Mortgage Loans and Contracts pursuant
to guidelines established in the related Agreement.
Mortgage Loans. The Servicer will be responsible for making
reasonable efforts to collect all payments called for under the Mortgage
Loans. The Servicer will be obligated to follow such normal practices and
procedures as it deems necessary or advisable to realize upon a defaulted
Mortgage Loan. In this regard, the Servicer may (directly or through a local
assignee) sell the property at a foreclosure or trustee's sale, negotiate with
the Mortgagor for a deed in lieu of foreclosure or, in the event a deficiency
judgment is available against the Mortgagor or other person (see "Certain
Legal Aspects of the Mortgage Assets C Foreclosure - Anti-Deficiency
Legislation and Other Limitations on Lenders" for a description of the limited
availability of deficiency judgments), foreclose against such property and
proceed for the deficiency against the appropriate person. The amount of the
ultimate net recovery (including the proceeds of any Mortgage Pool Insurance
Policy or other applicable Credit Enhancement), after reimbursement to the
Servicer of its expenses incurred in connection with the liquidation of any
such defaulted Mortgage Loan and prior unreimbursed advances of principal and
interest with respect thereto will be deposited in the Certificate Account
when realized and will be distributed to Owners of Certificates on the next
Distribution Date following the month of receipt.
With respect to Cooperative Loans, any prospective purchaser will
generally have to obtain the approval of the board of directors of the
relevant Cooperative before purchasing the shares and acquiring rights under
the related proprietary lease or occupancy agreement. See "Certain Legal
Aspects of the Mortgage Assets" herein. This approval is usually based on the
purchaser's income and net worth and numerous other factors. Although the
Cooperative's approval is unlikely to be unreasonably withheld or delayed, the
necessity of acquiring such approval could limit the number of potential
purchasers for those shares and otherwise limit the Trust's ability to sell
and realize the value of those shares.
In general, a "tenant-stockholder" (as defined in Code Section 216(b)
(2)) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Code Section 216(b)(1) is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation
representing his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Code Section 216(a) to the
corporation under Code Sections 163 and 164. In order for a corporation to
qualify under Code Section 216(b)(1) for its taxable year in which such items
are allowable as a deduction to the corporation, such Section requires, among
other things, that at least 80% of the gross income of the corporation be
derived from its tenant-stockholders. By virtue of this requirement, the
status of a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no assurance
that Cooperatives relating to the Cooperative Loans will qualify under such
Section for any particular year. In the event that such a Cooperative fails to
qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to its tenant-stockholders under Code Section 216(a) with
respect to those years. In view of the significance of the tax benefits
accorded tenant-stockholders of a corporation that qualifies as a cooperative
housing corporation, however, the likelihood that such a failure would be
permitted to continue over a period of years appears remote.
The Servicer will expend its own funds to restore property securing a
Mortgage Loan which has sustained uninsured damage only if it determines that
such restoration will increase the proceeds to the Trust of liquidation of the
Mortgage Loan after the reimbursement to the Servicer of its expenses.
If a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer will be obligated (to the extent it has knowledge of
such conveyance) to accelerate the maturity of the Mortgage Loan, unless it
reasonably believes it is unable to enforce that Mortgage Loan's "due-on-sale"
clause under the applicable law. If it reasonably believes it may be
restricted by law, for any reason, from enforcing such a "due-on-sale" clause,
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the Servicer may 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, provided such person
satisfies the criteria required to maintain the coverage provided by
applicable insurance policies (unless otherwise restricted by applicable law).
Any fee collected by the Servicer for entering into an assumption agreement
will be retained by the Servicer as additional servicing compensation. For a
description of circumstances in which the Servicer may be unable to enforce
"due-on-sale" clauses, see "Certain Legal Aspects of the Mortgage Assets -
Foreclosure - Enforceability of Certain Provisions" herein. In connection with
any such assumption, the Mortgage Rate borne by the related Mortgage Note may
not be decreased.
If specified in the related Prospectus Supplement, the Servicer will
maintain with one or more depository institutions one or more accounts into
which it will deposit all payments of taxes, insurance premiums, assessments
or comparable items received for the account of the Mortgagors. Withdrawals
from such account or accounts may be made only to effect payment of taxes,
insurance premiums, assessments or comparable items, to reimburse the Servicer
out of related collections for any cost incurred in paying taxes, insurance
premiums and assessments or otherwise preserving or protecting the value of
the Mortgages, to refund to mortgagors any amounts determined to be overages
and to pay interest to Mortgagors on balances in such account or accounts to
the extent required by law.
So long as it acts as servicer of the Mortgage Loans, the Servicer
will be required to maintain certain insurance covering errors and omissions
in the performance of its obligations as servicer and certain fidelity bond
coverage ensuring against losses through wrongdoing of its officers, employees
and agents.
In the case of Multifamily Loans, a Mortgagor's failure to make
required Mortgage Loan payments may mean that operating income is insufficient
to service the mortgage debt, or may reflect the diversion of that income from
the servicing of the mortgage debt. In addition, a Mortgagor under a
Multifamily Loan that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure
the related Mortgaged Property. In general, the Servicer will be required to
monitor any Multifamily Loan that is in default, evaluate whether the causes
of the default can be corrected over a reasonable period without significant
impairment of the value of the related Mortgaged Property, initiate corrective
action in cooperation with the Mortgagor if cure is likely, inspect the
related Mortgaged Property and take such other actions as are consistent with
the Agreement. A significant period of time may elapse before the Servicer is
able to assess the success of any such corrective action or the need for
additional in initiatives. The time within which the Servicer can make the
initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a Mortgaged Property
in lieu of foreclosure) on behalf of the Owners of the related series may vary
considerably depending on the particular Multifamily Loan, the Mortgaged
Property, the Mortgagor, the presence of an acceptable party to assume the
Multifamily Loan and the laws of the jurisdiction in which the Mortgaged
Property is located. If a Mortgagor files a bankruptcy petition, the Servicer
may not be permitted to accelerate the maturity of the related Multifamily
Loan or to foreclose on the Mortgaged Property for a considerable period of
time. See "Certain Legal Aspects of Mortgage Loans."
Contracts. Pursuant to the Agreement, the Servicer will service and
administer the Contracts assigned to the Trustee as more fully set forth
below. The Servicer, either directly or through sub-servicers subject to
general supervision by the Servicer, will perform diligently all services and
duties required to be performed under the Agreement, in the same manner as
performed by prudent lending institutions of manufactured housing installment
sales contracts of the same type as the Contracts in those jurisdictions where
the related Manufactured Homes are located. The duties to be performed by the
Servicer will include collection and remittance of principal and interest
payments, collection of insurance claims and, if necessary, repossession.
Each Agreement will provide that when any Manufactured Home securing
a Contract is about to be conveyed by the borrower, the Servicer (to the
extent it has knowledge of such prospective conveyance and prior to the time
of the consummation of such conveyance) may exercise its rights to accelerate
the maturity of such Contract under the applicable "due-on-sale" clause, if
any, unless the Servicer reasonably believes it is unable to enforce such
"due-on-sale" clause under applicable law. In such case the Servicer is
authorized to take or enter into an assumption agreement from or with the
person to whom such Manufactured Home has been or is about to be conveyed,
pursuant to which such person becomes liable under the Contract, provided such
person satisfies the criteria required to maintain the coverage provided by
applicable insurance policies (unless otherwise restricted by
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applicable law). Where authorized by the Contract, the annual percentage rate
may be increased, upon assumption, to the then-prevailing market rate but will
not be decreased.
Under each Agreement the Servicer will repossess or otherwise
comparably convert the ownership of properties securing such of the related
Contracts as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with such repossession or other conversion, the Servicer will follow such
practices and procedures as it deems necessary or advisable and as shall be
normal and usual in its general servicing activities. The Servicer, however,
will not be required to expend its own funds in connection with any
repossession or towards the restoration of any property unless it determines
(i) that such restoration or repossession will increase the proceeds of
liquidation of the related Contract to the Trust after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds or through Insurance Proceeds.
Primary Mortgage Insurance
Mortgage Loans that the Depositor acquires will generally not have
primary mortgage insurance. If obtained, the primary mortgage insurance
policies will not insure against certain losses which may be sustained in the
event of a personal bankruptcy of the mortgagor under a Mortgage Loan.
Standard Hazard Insurance
Mortgage Loans. The Servicer will be required to cause to be
maintained for each Mortgage Loan a standard hazard insurance policy. The
coverage of such policy is required to be in an amount not less than the
maximum insurable value of the improvements securing such Mortgage Loan from
time to time or the principal balance owing on such Mortgage Loan from time to
time, whichever is less. In all events, such coverage shall be in an amount
sufficient to ensure avoidance of the applicability of the co-insurance
provisions under the terms and conditions of the applicable policy. The
ability of each Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent on its being named as an additional
insured under any standard hazard insurance policy and under any flood
insurance policy referred to below, or upon the extent to which information in
this regard is furnished to such Servicer by Mortgagors. Each Agreement may
provide that the related Servicer may satisfy its obligation to cause hazard
insurance policies to be maintained by maintaining a blanket policy insuring
against hazard losses on the Mortgage Loans serviced by such Servicer.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property
by fire, lightning, explosion, smoke, wind-storm and hail, riot, strike and
civil commotion, subject to the conditions and exclusions particularized in
each policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and, therefore, will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mud flow), nuclear reactions, 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. If the property securing a Mortgage Loan is located in a
federally designated flood area, flood insurance will be required to be
maintained in such amounts as would be required by FNMA in connection with its
mortgage loan purchase program. The Depositor may also purchase special hazard
insurance against certain of the uninsured risks described above. See "Credit
Enhancement - Special Hazard Insurance".
Since the amount of hazard insurance the Servicer is required to
cause to be maintained on the improvements securing the Mortgage Loans
declines as the principal balances owing thereon decrease, if the residential
properties securing the Mortgage Loans appreciate in value over time, the
effect of coinsurance in the event of partial loss may be that hazard
insurance proceeds will be insufficient to restore fully the damaged property.
The Depositor will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
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maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's cooperative
dwelling or such Cooperative's building could significantly reduce the value
of the collateral securing such Cooperative Loan to the extent not covered by
other credit support.
Contracts. The Servicer will generally be required to cause to be
maintained with respect to each Contract one or more hazard insurance policies
which provide, at a minimum, the same coverage as a standard form fire and
extended coverage insurance policy that is customary for manufactured housing,
issued by a company authorized to issue such policies in the state in which
the Manufactured Home is located and in an amount which is not less than the
maximum insurable value of such Manufactured Home or the principal balance due
from the borrower on the related Contract, whichever is less. When a
Manufactured Home's location was, at the time of origination of the related
Contract, within a federally designated special flood hazard area, the
Servicer also shall cause such flood insurance to be maintained, which
coverage shall be at least equal to the minimum amount specified in the
preceding sentence or such lesser amount as may be available under the federal
flood insurance program.
The Servicer may maintain, in lieu of causing individual hazard
insurance policies to be maintained with respect to each Manufactured Home,
and shall maintain, to the extent that the related Contract does not require
the borrower to maintain a hazard insurance policy with respect to the related
Manufactured Home, one or more blanket insurance policies covering losses on
the borrowers' interests in the Contracts resulting from the absence or
insufficiency of individual hazard insurance policies.
The Servicer, to the extent practicable, will cause the borrowers to
pay all taxes and similar governmental charges when and as due. To the extent
that nonpayment of any taxes or charges would result in the creation of a lien
upon any Manufactured Home having a priority equal or senior to the lien of
the related Contract, the Servicer will pay any such delinquent tax or charge.
If the Servicer repossesses a Manufactured Home on behalf of the
Trustee, the Servicer will either (i) maintain at its expense hazard insurance
with respect to such Manufactured Home or (ii) indemnify the Trustee against
any damage to such Manufactured Home prior to resale or other disposition.
Title Insurance Policies
The Agreements will generally require that a title insurance policy
be in effect on each of the Mortgaged Properties and that such title insurance
policy contain no coverage exceptions, except customary exceptions generally
accepted in the mortgage banking industry.
Claims Under Primary Mortgage Insurance Policies and Standard Hazard Insurance
Policies; Other Realization Upon Defaulted Loan
Each Servicer will present claims to any primary insurer under any
related primary mortgage insurance policy and to the hazard insurer under any
related standard hazard insurance policy. All collections under any related
primary mortgage insurance policy or any related standard hazard insurance
policy (less any proceeds to be applied to the restoration or repair of the
related Mortgaged Property or to the reimbursement of Advances by the
Servicer) will be remitted to the Trustee.
If any Mortgaged Property securing a defaulted Mortgage Loan is
damaged and proceeds, if any, from the related standard hazard insurance
policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under any applicable Mortgage Pool Insurance
Policy or any related primary mortgage insurance policy, each Servicer may be
required to expend its own finds to restore the damaged property to the extent
specified in the related Prospectus Supplement, but only to the extent it
determines such expenditures are recoverable from Insurance Proceeds or
Liquidation Proceeds.
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If recovery under any applicable Mortgage Pool Insurance Policy or
any related primary mortgage insurance policy is not available, the Servicer
will nevertheless be obligated to attempt to realize upon the defaulted
Mortgage Loan. Foreclosure proceedings will be conducted by the Servicer in
accordance with the Agreement. If the proceeds of any liquidation of the
Mortgaged Property securing the defaulted Mortgage Loan are less than the
Principal Balance of the defaulted Mortgage Loan plus interest accrued
thereon, a loss will be realized on such Mortgage Loan, to the extent the
applicable Credit Enhancement is not sufficient, in the amount of such
difference plus the aggregate of expenses which are incurred by the Servicer
in connection with such proceedings and are reimbursable under the Agreement.
In such case there will be a reduction in the value of the Mortgage Loans and
Trust may be unable to recover the full amount of principal and interest due
thereon.
In addition, where a Mortgaged Property securing a defaulted Mortgage
Loan can be resold for an amount exceeding the principal balance of the
related Mortgage Loan together with accrued interest and expenses, it may be
expected that, where retention of any such amount is legally permissible, the
Pool Insurer will exercise its right under the related Mortgage Pool Insurance
Policy, if any, to purchase such Mortgaged Property and realize for itself any
excess proceeds. Any amounts remaining in the Certificate Account after such
foreclosure or liquidation and attributable to such Mortgage Loan will be
distributed to Owners of the Certificates.
Realization Upon or Sale of Defaulted Multifamily Loans
Unless otherwise specified in the related Prospectus Supplement, the
Servicer may not acquire title to any Multifamily Property securing a Mortgage
Loan or take any other action that would cause the related Trustee, for the
benefit of Owners of the related series, or any other specified person to be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or an "operator" of such Mortgaged Property within the meaning of
certain federal environmental laws, unless the Servicer has previously
determined, based on a report prepared by a person who regularly conducts
environmental audits, that either:
(i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such
actions are necessary to bring the Mortgaged Property into compliance
therewith is reasonably likely to produce a greater recovery on a
present value basis than not taking such actions; and
(ii) there are no circumstances or conditions present at the
Mortgaged Property that have resulted in any contamination for which
investigation, testing, monitoring, containment, clean-up or
remediation could be required under any applicable environmental laws
and regulations or, if such circumstances or conditions are present
for which any such action could be required, taking such actions with
respect to the Mortgaged Property is reasonably likely to produce a
greater recovery on a present value basis than not taking such
actions. See "Certain Legal Aspects of Mortgage Loans)Foreclosure
Environmental Legislation."
In addition, unless otherwise specified in the related Prospectus
Supplement, the Servicer will not be obligated to foreclose upon or otherwise
convert the ownership of any Mortgaged Property securing a single family
Mortgage Loan if it has received notice or has actual knowledge that such
property may be contaminated with or affected by hazardous wastes or hazardous
substances; however, no environmental testing will generally be required. The
Servicer will not be liable to the Owners of the related series if, based on
its belief that no such contamination or affect exists, the Servicer
forecloses on a Mortgaged Property and takes title to such Mortgaged Property,
and thereafter such Mortgaged Property is determined to be so contaminated or
affected.
Servicing Compensation and Payment of Expenses
As compensation for its servicing duties, each Servicer will be
entitled to a monthly servicing fee in the amount specified in the related
Prospectus Supplement. In addition to the primary compensation, a Servicer may
be permitted to retain all assumption underwriting fees and late payment
charges, to the extent collected from Mortgagors.
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As set forth above, each Servicer will be entitled to reimbursement
for certain expenses incurred by it in connection with the liquidation of
defaulted Mortgage Loans and Contracts and in connection with advancing
delinquent payments. No loss will be suffered on the Certificates by reason of
such expenses to the extent claims for such expenses are paid directly under
any applicable Mortgage Pool Insurance Policy, a primary mortgage insurance
policy, the special hazard insurance policy or from other forms of Credit
Enhancement. In the event, however, that the defaulted Mortgage Loans are not
covered by a Mortgage Pool Insurance Policy, primary mortgage insurance
policies, the Special Hazard Insurance Policy or another form of Credit
Enhancement, or claims are either not made or paid under such policies or
Credit Enhancement, or if coverage thereunder has ceased, such a loss will
occur to the extent that the proceeds from the liquidation of a defaulted
Mortgage Loan or Contract, after reimbursement of the Servicer's expenses, are
less than the Principal Balance of such defaulted Mortgage Loan or Contract.
Master Servicer
A Master Servicer may be specified in the related Prospectus
Supplement for the related series of Certificates. Customary servicing
functions with respect to Mortgage Loans constituting the Mortgage Pool will
be provided by the Servicer directly or through one or more Sub-Servicers
subject to supervision by the Master Servicer. If the Master Servicer is not
directly servicing the Mortgage Loans, then the Master Servicer will (i)
administer and supervise the performance by the Servicer of its servicing
responsibilities under the Agreement with the Master Servicer, (ii) maintain a
current data base with the payment histories of each Mortgagor, (iii) review
monthly servicing reports and data relating to the Mortgage Pool for
discrepancies and errors, and (iv) act as back-up Servicer during the term of
the transaction unless the Servicer is terminated or resigns in such case the
Master Servicer shall assume the obligations of the Servicer.
The Master Servicer will be a party to the Agreement for any series
for which Mortgage Loans comprise the assets of a Trust. The Master Servicer
will be required to satisfy the standard established for the qualification of
the Master Servicer in the related Agreement. The Master Servicer will be
compensated for the performance of its services and duties under each
Agreement as specified in the related Prospectus Supplement.
ADMINISTRATION
The following summary describes certain provisions which will be
common to each Agreement. The summary does not purport to be complete and is
subject to the provisions of a particular Agreement.
Assignment of Mortgage Assets
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates, the Depositor will assign the Mortgage Loans to the Trustee,
together with all principal and interest adjusted to the Remittance Rate,
subject to exclusions specified in the Prospectus Supplement, due on or with
respect to such Mortgage Loans on or after the Cut-Off Date. The Trustee will,
concurrently with such assignment, execute, countersign and deliver the
Certificates to the Depositor in exchange for the Mortgage Loans. Each
Mortgage Loan will be identified in a schedule appearing as an exhibit to the
Agreement. Such schedule may include information as to the Principal Balance
of each Mortgage Loan as of the Cut-Off Date, as well as information
respecting the Mortgage Rate, the scheduled monthly payment of principal and
interest as of the Cut-Off Date and the maturity date of each Mortgage Note.
In addition, as to each Mortgage Loan, the Depositor will deliver to
the Trustee the Mortgage Note and Mortgage, any assumption and modification
agreement, an assignment of the Mortgage in recordable form (but not
necessarily recorded), evidence of title insurance, if obtained, and, if
applicable, the certificate of private mortgage insurance. In instances where
recorded documents cannot be delivered due to delays in connection with
recording, the Depositor may deliver copies thereof and deliver the original
recorded documents promptly upon receipt.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee, the related original
Cooperative note endorsed to the order of the Trustee, the original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing
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agreement and the relevant stock certificate and related blank stock powers.
The Depositor will file in the appropriate office an assignment and a
financing statement evidencing the Trustee's security interest in each
Cooperative Loan.
Each Seller generally will represent and warrant to the Depositor
with respect to the Mortgage Loans sold by it, among other things, that (i)
the information set forth in the schedule of Mortgage Loans attached thereto
is correct in all material respects: (ii) a lender's title insurance policy or
binder for each Mortgage Loan subject to the Agreement was issued on the date
of origination thereof and each such policy or binder assurance is valid and
remains in full force and effect or a legal opinion concerning title or title
search was obtained or conducted in connection with the origination of the
Mortgage Loans; (iii) at the date of initial issuance of the Certificates, the
Seller has good title to the Mortgage Loans and the Mortgage Loans are free of
offsets, defenses or counterclaims; (iv) at the date of initial issuance of
the Certificates, each Mortgage is a valid first lien on the property securing
the Mortgage Note (subject only to (a) the lien of current real property taxes
and assessments, (b) covenants, conditions, and restrictions, rights of way,
easements and other matters of public record as of the date of the recording
of such Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally in the area wherein the property
subject to the Mortgage is located or specifically reflected in the appraisal
obtained by the Depositor and (c) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by such Mortgage) and such property is free
of material damage and is in good repair or, with respect to a junior lien
Mortgage Loan, that such Mortgage is a valid junior lien Mortgage, as the case
may be and specifying the percentage of the Mortgage Loan Pool comprised of
junior lien Mortgage Loans; (v) at the date of initial issuance of the
Certificates, no Mortgage Loan is 31 or more days delinquent (with such
exceptions as may be specified in the related Prospectus Supplement) and there
are no delinquent tax or assessment liens against the property covered by the
related Mortgage; (vi) at the date of initial issuance of the Certificates,
the portion of each Mortgage Loan, if any, which in the circumstances set
forth below under "Servicing of Mortgage Loans and Contracts - Primary
Mortgage Insurance" should be insured with a private mortgage insurer is so
insured; and (vii) each Mortgage Loan at the time it was made complied in all
material respects with applicable state and federal laws, including, with out
limitation, usury, equal credit opportunity and disclosure laws. The
Depositor's rights against the Seller in the event of a breach of its
representations will be assigned to the Trustee for the benefit of the
Certificates of such series.
Assignment of Contracts. The Depositor will cause the Contracts to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Contracts on and after the Cut-Off Date. Each Contract will be
identified in a loan schedule ("Contract Loan Schedule") appearing as an
exhibit to the related Agreement. Such Contract Loan Schedule may specify,
with respect to each Contract, among other things: the original principal
balance and the outstanding Principal Balance as of the Cut-Off Date; the
interest rate; the current scheduled payment of principal and interest; and
the maturity date.
In addition, with respect to each Contract, the Depositor will
deliver or cause to be delivered to the Trustee, the original Contract and
copies of documents and instruments related to each Contract and the security
interest in the Manufactured Home securing each Contract. To give notice of
the right, title and interest of the Trust to the Contracts, the Depositor
will cause a UCC-1 financing statement to be filed identifying the Trustee as
the secured party and identifying all Contracts as collateral. The Contracts
will not be stamped or otherwise marked to reflect their assignment from the
Depositor to the Trustee. Therefore, if a subsequent purchaser were able to
take physical possession of the Contracts without notice of such assignment,
the interest of the Trust in the Contracts could be defeated. See "Certain
Legal Aspects of the Mortgage Assets" herein.
The Depositor or the related Seller, as the case may be, may provide
limited representations and warranties to the Trustee concerning the
Contracts. Such representations and warranties may include: (i) that the
information contained in the Contract Loan Schedule provides an accurate
listing of the Contracts and that the information respecting such Contracts
set forth in such Contract Loan Schedule is true and correct in all material
respects at the date or dates respecting which such information is furnished;
(ii) that, immediately prior to the conveyance of the Contracts, the Depositor
had good title to and was sole owner of, each such Contract; and (iii) that
there has been no other sale by it of such Contract and that the Contract is
not subject to any lien, charge, security interest or other encumbrance.
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Assignment of Mortgage-Backed Securities and Other Mortgage
Securities. With respect to each series, the Depositor will cause any
Mortgage-Backed Securities and Other Mortgage Securities included in the
related Trust to be registered in the name of the Trustee (directly or through
a participant in a depository). The Trustee (or its custodian) will have
possession of any certificated Mortgage-Backed Securities and Other Mortgage
Securities. The Trustee will not be in possession of or be assignee of record
of any underlying assets for a Mortgage-Backed Security or Other Mortgage
Security. Each Mortgage-Backed Security and Other Mortgage Security will be
identified in a schedule appearing as an exhibit to the related Agreement
which may specify certain information with respect to such security,
including, as applicable, the original principal amount, outstanding principal
balance as of the Cut-Off Date, annual pass-through rate or interest rate and
maturity date and certain other pertinent information for each such security.
The Depositor will represent and warrant to the Trustee, among other things,
the information contained in such schedule is true and correct and that
immediately prior to the transfer of the related securities to the Trustee,
the Depositor had good title to, and was the sole owner of, each such
security.
Repurchase or Substitution of Mortgage Loans and Contracts. The
Trustee will review the documents delivered to it with respect to the Mortgage
Loans and Contracts included in the related Trust. If any document is not
delivered or is found to be defective in any material respect and the
Depositor or the related Seller, if so required cannot deliver such document
or cure such defect within the period specified in the related Prospectus
Supplement after notice thereof (which the Trustee will undertake to give
within the period specified in the related Prospectus Supplement), and if any
other party obligated to deliver such document or cure such defect has not
done so and has not substituted or repurchased the affected Mortgage Loan or
Contract then the Depositor will cause the Seller, not later than the first
date designated for the deposit of payments into the Certificate Account (a
"Deposit Date") which is more than a specified number of days after such
period, (a) if so provided in the Prospectus Supplement to remove the affected
Mortgage Loan or Contract from the Trust and substitute one or more other
Mortgage Loans or Contracts therefor or (b) repurchase the Mortgage Loan or
Contract from the Trustee for a price equal to 100% of its Principal Balance
plus one month's interest thereon at the applicable Remittance Rate. This
repurchase and, if applicable, substitution obligation will generally
constitute the sole remedy available to the Trustee for a material defect in a
document relating to a Mortgage Loan or Contract.
The Depositor is required to cause the Seller to do either of the
following (a) cure any breach of any representation or warranty that
materially and adversely affects the interests of the Owners of the
Certificates in a Mortgage Loan (each, a "Defective Mortgage Loan") or
Contract within a specified number of days of its discovery by the Depositor
or its receipt of notice thereof from the Trustee, (b) repurchase such
Defective Mortgage Loan or Contract not later than the first Deposit Date
which is more than a specified number of days after such period for a price
equal to 100% of its Principal Balance plus one month's interest thereon at
the applicable Remittance Rate, or (c) if so specified in the Prospectus
Supplement, remove the affected Mortgage Loan or Contract from the Trust and
substitute one or more other mortgage loans or contracts therefor. This
repurchase and, if applicable, substitution obligation will generally
constitute the sole remedies available to the Trustee for any such breach.
If the related Prospectus Supplement so provides, the Depositor or a
designated affiliate may be obligated to repurchase or substitute Mortgage
Loans or Contracts as described above, whether or not the Depositor obtains
such an agreement from the Seller which sold such Mortgage Loans or Contracts.
If a REMIC election is to be made with respect to all or a portion of
a Trust, there may be federal income tax limitations on the right to
substitute Mortgage Loans or Contracts.
Evidence as to Compliance
The Agreement will provide that on or before a specified date in each
year, beginning the first such date that is at least a specified number of
months on and after the Cut-Off Date, a firm of independent public accountants
will furnish a statement to the Trustee to the effect that, based on an
examination of certain specified documents and records relating to the
servicing of the Depositor's mortgage loan portfolio conducted substantially
in compliance with the audit program for mortgages serviced for FNMA or FHLMC,
the United States Department of Housing and Urban Development Mortgage Audit
Standards or the Uniform Single Audit Program for Mortgage Bankers or in
accordance with other standards specified in the Agreement (the "Applicable
Accounting Standards"), such firm is of
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the opinion that such servicing has been conducted in compliance with the
Applicable Accounting Standards except for (a) such exceptions as such firm
shall believe to be immaterial and (b) such other exceptions as shall be set
forth in such statement.
The Trustee
Any commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor. In addition, the Depositor
and the Trustee acting jointly will have the power and the responsibility for
appointing co-trustees or separate trustees of all or any part of the Trust
relating to a particular series of Certificates. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Agreement shall be conferred or imposed upon the
Trustee and such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Trustee shall be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who
shall exercise and perform such rights, powers, duties and obligations solely
at the direction of the Trustee.
The Trustee will make no representations as to the validity or
sufficiency of the Agreement, the Certificates or of any Mortgage Asset or
related document, and will not be accountable for the use or application by
the Depositor of any funds paid to the Depositor in respect of the
Certificates or the related assets, or amounts deposited in the Certificate
Account or deposited into the Distribution Account. If no Event of Default has
occurred, the Trustee will be required to perform only those duties
specifically required of it under the Agreement. However, upon receipt of the
various certificates, reports or other instruments required to be furnished to
it, the Trustee will be required to examine them to determine whether they
conform to the requirements of the Agreement.
The Trustee may resign at any time, and the Depositor may remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement, if the Trustee becomes insolvent or in such other instances, if
any, as are set forth in the Agreement. Following any resignation or removal
of the Trustee, the Depositor 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.
Administration of the Certificate Account
The Agreement will require that the Certificate Account be either (i)
maintained with a depository institution the debt obligations of which (or, in
the case of a depository institution which is a part of a holding company
structure, the debt obligations of the holding company of which) have a rating
acceptable to each rating agency that was requested to rate the Certificates,
or (ii) an account or accounts the deposits in which are fully insured by
either the Bank Insurance Fund (the "BIF") of the FDIC or the Savings
Association Insurance Fund (as successor to the Federal Savings and Loan
Insurance Corporation) ("SAIF") of the FDIC. The collateral eligible to secure
amounts in the Certificate Account is limited to United States government
securities and other investments acceptable to the rating agencies rating such
series of Certificates, and may include one or more Certificates of a series
("Eligible Investments"). If so specified in the related Prospectus
Supplement, a Certificate Account may be maintained as an interest bearing
account, or the funds held therein may be invested pending each succeeding
Payment Date in Eligible Investments. If so specified in the related
Prospectus Supplement, the Servicer or its designee will be entitled to
receive any such interest or other income earned on funds in the Certificate
Account as additional compensation. The Servicer will deposit in the
Certificate Account from amounts previously deposited by it into the
Servicer's Custodial Account on the related Remittance Date the following
payments and collections received or made by it on and after the Cut-Off Date
(including scheduled payments of principal and interest due on and after the
Cut-Off Date but received before the Cut-Off Date):
(i) all Mortgagor payments on account of principal,
including Principal Prepayments and, if specified in the related
Prospectus Supplement, prepayment penalties;
(ii) all Mortgagor payments on account of interest, adjusted
to the Remittance Rate;
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(iii) all Liquidation Proceeds net of certain amounts
reimbursed to the Servicer or other person entitled thereto, as
described above;
(iv) all Insurance Proceeds, other than proceeds to be
applied to the restoration or repair of the related property or
released to the Mortgagor and net of certain amounts reimbursed to
the Servicer or other person entitled thereto, as described above;
(v) all condemnation awards or settlements which are not
released to the Mortgagor in accordance with normal servicing
procedures;
(vi) any Advances made as described under "Servicing of
Mortgage Loans and Contracts - Advances" herein and certain other
amounts required under the Agreement to be deposited in the
Certificate Account;
(vii) all proceeds of any Mortgage Loan or Contract or
property acquired in respect thereof repurchased by the Depositor,
the Seller or otherwise as described above or under "Termination"
below;
(viii) all amounts, if any, required to be deposited in the
Certificate Account from any Credit Enhancement for the related
series; and
(ix) all other amounts required to be deposited in the
Certificate Account pursuant to the related Agreement.
Reports
Concurrently with each distribution on the Certificates, there will
be mailed to Owners a statement generally setting forth, to the extent
applicable to any series, among other things:
(i) the aggregate amount of such distribution allocable to
principal, separately identifying the amount allocable to each class;
(ii) the amount of such distribution allocable to interest,
separately identifying the amount allocable to each class;
(iii) the aggregate Certificate Principal Balance of each
class of the Certificates after giving effect to distributions on
such Distribution Date;
(iv) the aggregate Certificate Principal Balance of any
class of Compound Interest Certificates after giving effect to any
increase in such Principal Balance that results from the accrual of
interest that is not yet distributable thereon;
(v) if applicable, the amount otherwise distributable to any
class of Certificates that was distributed to other classes of
Certificates;
(vi) if any class of Certificates has priority in the right
to receive Principal Prepayments, the amount of Principal Prepayments
in respect of the related Mortgage Assets;
(vii) the aggregate Principal Balance and number of Mortgage
Loans and Contracts which were delinquent as to a total of two
installments of principal and interest; and
(viii) the aggregate Principal Balances of Mortgage Loans
and Contracts which (a) were delinquent 30-59 days, 60-89 days, and
90 days or more, and (b) were in foreclosure.
Customary information deemed necessary for Owners to prepare their
tax returns will be furnished annually.
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Forward Commitments; Pre-Funding
The Trustee of a Trust may enter into a Pre-Funding Agreement for the
transfer of additional Mortgage Loans to such Trust following the date on
which such Trust is established and the related Certificates are issued. The
Trustee of a Trust may enter into Pre-Funding Agreements to permit the
acquisition of additional Mortgage Loans that could not be delivered by the
Depositor or have not formally completed the origination process, in each case
prior to the Delivery Date. Any Pre-Funding Agreement will require that any
Mortgage Loans so transferred to a Trust conform to the requirements specified
in such Pre-Funding Agreement. If a Pre-Funding Agreement is to be utilized,
the related Trustee will be required to deposit in the Purchase Account all or
a portion of the proceeds received by the Trustee in connection with the sale
of one or more classes of Certificates of the related series; the additional
Mortgage Loans will be transferred to the related Trust in exchange for money
released from the related Pre-Funding Account. Each Pre-Funding Agreement will
set a specified period during which any such transfers must occur. The
Pre-Funding Agreement or the related Agreement will require that, if all
moneys originally deposited to such Pre-Funding Account are not so used by the
end of such specified period, then any remaining moneys will be applied as a
mandatory prepayment of the related class or classes of Certificates as
specified in the related Prospectus Supplement. The specified period for the
acquisition by a Trust of additional Mortgage Loans is not expected to exceed
three months from the date such Trust is established.
Servicer Events of Default
"Events of Default" under the Agreement will consist of (i) any
failure by the Servicer to duly observe or perform in any material respect any
other of its covenants or agreements in the Agreement materially affecting the
rights of Owners which continues unremedied for a specified number of days
after the giving of written notice of such failure to the Depositor by the
Trustee or to the Servicer and the Trustee by the Owners of Certificates
evidencing interests aggregating not less than 25% of the affected class of
Certificates; and (ii) certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings and certain
actions by the Servicer indicating its insolvency, reorganization or inability
to pay its obligations.
Rights Upon Servicer Event of Default
As long as an Event of Default under the Agreement remains unremedied
by the Servicer, the Trustee, or Owners of Certificates may terminate all the
rights and obligations of the Servicer under the Agreement, whereupon the
Trustee or Master Servicer, if any, or a new Servicer appointed pursuant to
the Agreement, will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Agreement and will be entitled to
similar compensation arrangements. Following such termination, the Depositor
shall appoint any established mortgage loan servicer satisfying the
qualification standards established in the Agreement to act as successor to
the Servicer under the Agreement. If no such successor shall have been
appointed within a specified number of days following such termination, then
either the Depositor or the Trustee may petition a court of competent
jurisdiction for the appointment of a successor Servicer. Pending the
appointment of a successor Servicer, the Trustee or the Master Servicer, if
any, shall act as Servicer.
The Owners of Certificates will not have any right under the
Agreement to institute any proceeding with respect to the Agreement, unless
they previously have given to the Trustee written notice of default and unless
the Owners of the percentage of the Certificates specified in the Prospectus
Supplement have made written request to the Trustee to institute such
proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity and the Trustee for a specified number of days
has neglected or refused to institute any such proceedings. However, the
Trustee is under no obligation to exercise any of the trusts or powers vested
in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the Owners,
unless such Owners have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
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Amendment
An Agreement generally may be amended by the Depositor, the Servicer
and the Trustee, without the consent of the Owners of the Certificates, to
cure any ambiguity, to correct or supplement any provision therein which may
be defective or inconsistent with any other provision therein, to take any
action necessary to maintain REMIC status of any Trust as to which a REMIC
election has been made, to add any other provisions with respect to matters or
questions arising under the Agreement which are not materially inconsistent
with the provisions of the Agreement or for any other purpose, provided that
with respect to amendments for any other purpose (a) the Depositor shall
deliver an opinion of counsel satisfactory to the Trustee, that such amendment
will not adversely affect in any material respect the interests of any Owners
of Certificates of that series and (B) such amendment will not result in a
withdrawal or reduction of the rating of any rated Certificate.
Notwithstanding the foregoing, no such amendment may (i) reduce in any manner
the amount of, or delay the timing of, collections of payments received on the
related Mortgage Assets or distributions which are required to be made on any
Certificate without the consent of the Owner of such Certificate, (ii)
adversely affect in any material respect the interests of the Owners of any
class of Certificates in any manner other than as described in (i), without
the consent of the Owners of Certificates of such class evidencing not less
than a majority of the interests of such class or (iii) reduce the aforesaid
percentage of Certificates of any class required to consent to any such
amendment, without the consent of the Owners of all Certificates of such class
then outstanding. Any other amendment provisions inconsistent with the
foregoing shall be specified in the related Prospectus Supplement.
Termination
The obligations of the Depositor, the Servicer, and the Trustee
created by the Agreement will terminate upon the payment as required by the
Agreement of all amounts held by the Servicer or in the Certificate Account
and required to be paid to them pursuant to the Agreement after the later of
(i) the maturity or other liquidation of the last Mortgage Asset subject
thereto or the disposition of all property acquired upon foreclosure of any
such Mortgage Loan or Contract or (ii) the repurchase by the Depositor from
the Trust of all the outstanding Certificates or all remaining assets in the
Trust. The Agreement will establish the repurchase price for the assets in the
Trust and the allocation of such purchase price among the classes of
Certificates. The exercise of such right will effect early retirement of the
Certificates of that series, but the Depositor's right so to repurchase will
be subject to the conditions described in the related Prospectus Supplement.
If a REMIC election is to be made with respect to all or a portion of a Trust,
there may be additional conditions to the termination of such Trust which will
be described in the related Prospectus Supplement. In no event, however, will
the trust created by the Agreement continue beyond the expiration of 21 years
from the death of the survivor of certain persons named in the Agreement. The
Trustee will give written notice of termination of the Agreement to each
Owner, and the final distribution will be made only upon surrender and
cancellation of the Certificates at an office or agency of the Trustee
specified in such notice of termination.
USE OF PROCEEDS
Substantially all the net proceeds to be received from the sale of
each series of Certificates will be applied to the simultaneous purchase of
the Mortgage Assets related to such series (or to reimburse the amounts
previously used to effect such a purchase), the costs of carrying such
Mortgage Assets until sale of the Certificates and to pay other expenses.
THE DEPOSITOR
The Depositor will have no ongoing servicing obligations or
responsibilities with respect to any Mortgage Pool or Contract Pool. The
Depositor does not have, nor is it expected in the future to have, any
significant net worth.
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The Depositor anticipates that it will acquire Mortgage Assets in the
open market or in privately negotiated transactions, which may be through or
from an affiliate.
Neither the Depositor nor any of its affiliates will insure or
guarantee the Certificates of any series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS
The following discussion contains summaries of certain legal aspects
of mortgage loans and manufactured housing contracts which are general in
nature. Because such legal aspects are governed primarily by applicable state
law (which laws may differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which the security for the Mortgage Loans and Contracts
is situated. The summaries are qualified by reference to the applicable
federal and state laws governing the Mortgage Loans and Contracts.
General
Mortgages. The Mortgage Loans will be secured either by deeds of
trust or mortgages. A mortgage creates a lien upon the real property
encumbered by the mortgage. It is not prior to liens for real estate taxes and
assessments. Priority between mortgages depends on their terms and generally
on the order of filing with a state or county office. There are two parties to
a mortgage: the mortgagor, who is the borrower and homeowner or the land
trustee (as described below), and the mortgagee, who is the lender. Under the
mortgage instrument, 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 formally has three parties, the borrower-homeowner called the trustor
(similar to a mortgager), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid,
in trust and generally with a power of sale, to the trustee to secure payment
of the obligation. The trustee's authority under a deed of trust and the
mortgagee's authority under a mortgage are governed by law, the express
provisions of the deed of trust or mortgage and, in some cases, the directions
of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans.
The private, non-profit, cooperative apartment corporation owns all the real
property that comprises the project, including the land, separate dwelling
units and all common areas. The cooperative is directly responsible for
project management and, in most cases, payment of real estate taxes and hazard
and liability insurance. If there is a blanket mortgage on the cooperative
apartment building and or underlying land, as is generally the case, the
cooperative, as project mortgagor, is also responsible for meeting these
mortgage obligations. A blanket mortgage is ordinarily incurred by the
cooperative in connection with the construction or purchase of the
cooperative's apartment building. The interest of the occupant under
proprietary leases or occupancy agreements to which that cooperative is a
party are generally subordinate to the interest of the holder of the blanket
mortgage in that building. If the cooperative is unable to meet the payment
obligations arising under its blanket mortgage, the mortgagee holding the
blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements. In addition, the
blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize with a significant portion of principal
being due in one lump sum at final maturity. The inability of the cooperative
to refinance this mortgage and its consequent inability to make such final
payment could lead to foreclosure by the mortgagee providing the financing. A
foreclosure in either event by the holder of the blanket mortgage could
eliminate or significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual tenant-stockholder of
cooperative shares or in the case of a Trust including Cooperative Loans, the
collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through
ownership of stock shares or membership certificates in the corporation,
receive proprietary leases or occupancy agreements which confer exclusive
rights to occupy specific units. Generally, a tenant-stockholder of a
cooperative must make a monthly payment to the cooperative representing such
tenant-stockholder's pro rata share of the cooperative's payments for its
blanket mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. An ownership interest
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in a cooperative and accompanying occupancy rights is financed through a
cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and a financing statement covering the proprietary lease or occupancy
agreement and the cooperative shares is filed in the appropriate state and
local offices to perfect the lenders interest in its collateral. Subject to
the limitations discussed below, upon default of the tenant-stockholder, the
lender may sue for judgment on the promissory note, dispose of the collateral
at a public or private sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security agreement
covering the assignment of the proprietary lease or occupancy agreement and
the pledge of cooperative shares.
Foreclosure
Mortgages. Foreclosure of a deed of trust is generally accomplished
by a non-judicial trustee's sale under a specific provision in the deed of
trust that authorizes the trustee to sell the property to a third party upon
any default by the borrower under the terms of the note or deed of trust. In
some states, the trustee must record a notice of default and send a copy to
the borrower-trustor or and any person who has recorded a request for a copy
of a notice of default and notice of sale. In addition, the trustee must
provide notice in some states to any other individual having an interest in
the real property, including any junior lienholders. The borrower, or any
other person having a junior encumbrance on the real estate, may, during a
reinstatement period, cure the default by paying the entire amount in arrears
plus the costs and expenses incurred in enforcing the obligation. Generally,
state law controls the amount of foreclosure expenses and costs, including
attorney's fees' which may be recovered by a lender. If the 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.
Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties defendant. Judicial foreclosure proceedings are often not protested by
any of the parties defendant. However, when the mortgagee's right to foreclose
is contested, the legal proceedings necessary to resolve the issue can be time
consuming. After the completion of judicial foreclosure, the court generally
issues a judgment of foreclosure and appoints a referee or other court officer
to conduct the sale of the property.
In case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during foreclosure
proceedings, it is uncommon for a third party to purchase the property at the
foreclosure sale. Rather it is common for the lender to purchase the property
from the trustee or referee for an amount equal to the principal amount of the
mortgage or deed of trust, accrued and unpaid interest and expenses of
foreclosure. Thereafter, the lender will assume the burdens of ownership,
including paying real estate taxes, obtaining casualty 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.
Any loss may be reduced by the receipt of any mortgage insurance proceeds.
When the junior mortgagee or beneficiary under a junior deed of trust
cures the default and state law allows it to reinstate or redeem by paying the
full amount of the senior mortgage or deed of trust, then in those states the
amount paid so to cure or redeem generally becomes a part of the indebtedness
secured by the junior mortgage or deed of trust. See "Junior Liens; Rights of
Senior Mortgagors or Beneficiaries" below.
A sale conducted in accordance with the terms of the power of sale
contained in a mortgage or deed of trust is generally presumed to be conducted
regularly and fairly, and a conveyance of the real property by the trustee
confers, in most states, legal title to the real property to the purchaser,
free of all junior mortgages or deeds of trust
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and free of all other liens and claims subordinate to the mortgage or deed of
trust under which the sale is made (with the exception of certain governmental
liens). The purchaser's title is, however, subject to all senior liens,
encumbrances and mortgages and may be subject to mechanic's and materialman's
liens in some states. Thus, if the mortgage or deed of trust being foreclosed
is a junior mortgage or deed of trust, the sheriff or trustee will convey
title to the purchaser of the real property, subject to any existing first
mortgage or deed of trust and any other prior liens and claims. The
foreclosure of a junior mortgage or deed of trust, generally, will have an
effect on the first mortgage or deed of trust, if the senior mortgage or deed
of trust grants to the senior mortgagee or beneficiary the right to accelerate
its indebtedness under a "due-on-sale" clause or "due on further encumbrance"
clause contained in the senior mortgage or deed of trust. See "Anti-Deficiency
Legislation and Other Limitations on Lenders" below.
The proceeds received by the sheriff or trustee from the sale are
applied pursuant to the terms of the deed of trust, which may require
application first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust
under which the sale was conducted. In some states, any surplus money
remaining may be available to satisfy claims of the holders of junior
mortgages or deeds of trust and other junior liens and claims in order of
their priority, whether or not the mortgagor or trustee is in default, while
in some states, any surplus money remaining may be payable directly to the
mortgagor or trustor. Any balance remaining is generally payable to the
mortgagor or trustor. Following the sale, in some states the mortgagee or
beneficiary following a foreclosure of a mortgage or deed of trust may not
obtain a deficiency judgment against the mortgagor or trustor. A junior
lienholder whose rights in the property are terminated by the foreclosure by a
senior lienholder will not share in the proceeds from the subsequent
disposition of the property.
Cooperative Loans. The cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the cooperative's Certificate of
Incorporation and Bylaws, as well as the proprietary lease or occupancy
agreement, and may be canceled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owned by such
tenant-stockholder, including mechanics' liens against the cooperative
apartment building incurred by such tenant-stockholder. The proprietary lease
or occupancy agreement generally permits the cooperative to terminate such
lease or agreement in the event an obligor fails to make payments or defaults
in the performance of covenants required thereunder. Typically, the lender and
the cooperative enter into a recognition agreement which establishes the
rights and obligations of both parties in the event of a default by the
tenant-stockholder on its obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement. The total amount owed to the
cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the cooperative loan and accrued and
unpaid interest thereon.
Recognition agreements also provide that in the event of a
foreclosure on a cooperative loan, the lender must obtain the approval or
consent of the cooperative as required by the proprietary lease before
transferring the cooperative shares or assigning the proprietary lease.
Generally, the lender is not limited in any rights it may have to dispossess
the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a foreclosure sale has been
conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the
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sale will be applied first to pay the costs and expenses of the sale and then
to satisfy the indebtedness secured by the lender's security interest. The
recognition agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the cooperative corporation to
receive sums due under the proprietary lease or occupancy agreement. If there
are proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See
"Anti-Deficiency Legislation and Other Limitations on Lenders" below.
Junior Liens; Rights of Senior Mortgagees or Beneficiaries. Certain
of the Mortgage Loans, including Title I Loans, may be secured by mortgages or
deeds of trust providing for junior (i.e., second, third, etc.) liens on the
related Mortgaged Properties which are junior to the other mortgages or deeds
of trust held by other lenders or institutional investors. The rights of the
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive hazard insurance and condemnation proceeds
and to cause the property securing the Mortgage Loans to be sold upon default
of the mortgagor or trustor. As discussed more fully below, a junior mortgagee
or beneficiary in some states may satisfy a defaulted senior loan in full and
in some states may cure such default and bring the senior loan current, in
either event adding the amounts expended to the balance due on the junior
loan. In most states, absent a provision in the senior mortgage or deed of
trust, no notice of default is required to be given to a junior mortgagee or
beneficiary.
The forms of the mortgage or deed of trust used by most institutional
lenders generally confer on the mortgagee or beneficiary the right both to
receive all proceeds collected under any hazard insurance policy and all
awards made in connection with any condemnation proceedings, and to apply such
proceeds and awards to any indebtedness secured by the mortgage or deed of
trust, in such order as the mortgagee or beneficiary may determine. Thus, in
the event improvements on the property are damaged or destroyed by fire or
other casualty, or in the event the bankruptcy is taken by condemnation, the
mortgagee or beneficiary under the underlying first mortgage or deed of trust
may have the prior right to collect any insurance proceeds payable under a
hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the first
mortgage or deed of trust. In those situations, proceeds in excess of the
amount of first mortgage indebtedness generally may be applied to the
indebtedness of a junior mortgage or trust deed.
Other provisions typically found in the form of the mortgagee or deed
of trust generally used by most institutional lenders obligate the mortgagor
or trustor to pay before delinquency all taxes and assessments on the property
and, when due, all encumbrances, charges and liens on the property which
appear prior to the mortgage or deed of trust, to provide and maintain fire
insurance on the property, to maintain and repair the property and not to
commit or permit any waste thereof, and to appear in and defend any action or
proceeding purporting to affect the property or the rights of the mortgagee or
beneficiary under the mortgage or deed of trust. Upon a failure of the
mortgagor or trustor to perform any of these obligations, the mortgagee or
beneficiary typically is given the right under the mortgage or deed of trust
to perform the obligation itself at its election, with the mortgagor or
trustor agreeing to reimburse the mortgagee or beneficiary for any sums
expended by the mortgagee or beneficiary on behalf of the trustor. All sums so
expended by the mortgagee or beneficiary generally become part of the
indebtedness secured by the mortgage or deed of trust
Right of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and foreclosed junior lienors
are given a statutory period in which to redeem the property following
foreclosure. In some states, redemption may occur only upon payment of the
entire principal balance of the loan, accrued interest and expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. The effect of a statutory right
of redemption is to diminish the ability of the lender to sell the foreclosed
property. The rights of redemption would defeat the title of any purchaser
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.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory prohibitions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower
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following foreclosure or sale under a deed of trust. A deficiency judgment
would be a personal judgment against the former borrower equal in most cases
to the difference between the net amount realized upon the public sale of the
real property and the amount due to the lender. Other statutes require the
beneficiary or mortgagee to exhaust the security afforded under a deed of
trust or mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower. Finally, other statutory
provisions limit any deficiency judgment against the former borrower following
a judicial sale to the excess of the outstanding debt over the fair market
value of the property at the time of the public sale. The purpose of these
statutes is generally to prevent a beneficiary or a mortgagee from obtaining a
large deficiency judgment against the former borrower as a result of low or no
bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other 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 and/or
enforce a deficiency judgment. For example, with respect to federal bankruptcy
law, a court with federal bankruptcy jurisdiction may permit a debtor through
his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary
default in respect of a mortgage loan on a debtor's residence by paying
arrearages within a reasonable time period and reinstating the original
mortgage loan payment schedule even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered in state court
(provided no sale of the residence had yet occurred) prior to the filing of
the debtor's petition. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular fact 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 have also indicated that
the terms of a mortgage loan secured by property of the debtor may be
modified. These courts have suggested that such modifications may include
reducing the amount of each monthly payment, changing the rate of interest,
altering the repayment schedule 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. Federal bankruptcy law and limited case law
indicate that the foregoing modifications could not be applied to the terms of
a loan secured by property that is the principal residence of the debtor.
The Code provides priority to certain tax liens over the lien of the
mortgage. In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. These laws
include 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. These federal laws impose specific
statutory liabilities upon lenders who originate mortgage loans and who fail
to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted section 9-504 of the UCC to prohibit a deficiency award
unless the creditor establishes that the sale of the collateral (which, in the
case of a Cooperative Loan, would be the shares of the cooperative and the
related proprietary lease or occupancy agreement) was conducted in a
commercially reasonable manner.
Enforceability of Certain Provisions. Certain of the Mortgage Loans
will contain due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of a loan if the borrower sells, transfers, or conveys
the property. The enforceability of these clauses was the subject of
legislation or litigation in many states, and in some cases the enforceability
of these clauses was limited or denied. However, the Garn-St. Germain
Depository Institutions Act of 1982 (the "Garn-St. Germain Act") preempts
state constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions. The Garn-St. Germain
Act does "encourage" lenders to permit assumption of loans at the original
rate of interest or at some other rate less than the average of the original
rate and the market rate.
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The Garn-St. Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St. Germain Act (including federal
savings and loan associations and federal savings banks) may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property
may have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a
junior encumbrance. Regulations promulgated under the Garn-St. Germain Act by
the Federal Home Loan Bank Board as succeeded by the Office of Thrift
Supervision (the "OTS"), also prohibit the imposition of a prepayment penalty
upon the acceleration of a loan pursuant to a due-on-sale clause. Any
inability of the Depositor to enforce due-on-sale clauses may affect the
average life of the Mortgage Loans and the number of Mortgage Loans that may
be outstanding until maturity.
Upon foreclosure, courts have imposed general equitable principles.
These equitable principles are generally designed to relieve the borrower from
the legal effect of his defaults under the loan documents. Examples of
judicial remedies that have been fashioned include requirements that the
lender undertake affirmative and expensive actions to determine the causes for
the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right
of the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower falling to adequately maintain the property or
the borrower executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or
not federal or state constitutional provisions reflecting due process concerns
for adequate notice require that borrowers under deeds of trust or mortgages
receive notices in addition to the statutory-prescribed minimum. For the most
part, these cases have upheld the notice provisions as being reasonable or
have found that the sale by a trustee under a deed of trust, or under a
mortgage having a power of sale, does not involve sufficient state action to
afford constitutional protections to the borrower.
The standard forms of note, mortgage and deed of trust generally
contain provisions obligating the borrower to pay a late charge if payments
are not timely made, and in some circumstances may provide for prepayment fees
or penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if
the loan is prepaid. Under the Agreement, late charges (to the extent
permitted by law and not waived by the Servicer) will be retained by the
Servicer as additional servicing compensation.
Adjustable Rate Loans. The laws of certain states may provide that
mortgage notes relating to adjustable rate loans are not negotiable
instruments under the UCC. In such event, the Trustee will not be deemed to be
a "holder in due course," within the meaning of the UCC and may take such a
mortgage note subject to certain restrictions on its ability to foreclose and
to certain contractual defenses available to a mortgagor.
Environmental Legislation. Certain states impose a statutory lien for
associated costs on property that is the subject of a cleanup action by the
state on account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a lien will generally have priority over all
subsequent liens on the property and, in certain of these states, will have
priority over prior recorded liens including the lien of a mortgage. In
addition, under federal environmental legislation and under state law in a
number of states, a secured party which takes a deed in lieu of foreclosure or
acquires a mortgaged property at a foreclosure sale or assumes active control
over the operation or management of a property so as to be deemed an "owner"
or "operator" of the property may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a secured lender (such as a Trust) to
homeowners. In the event that title to a Mortgaged Property securing a
Mortgage Loan in a Trust was acquired by the Trust and cleanup costs were
incurred in respect of the Mortgaged Property, the Trust might realize a loss
if such costs were required to be paid by the Trust.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Relief Act, a borrower who enters
military service after the origination of a Mortgage Loan or Contract by such
borrower (including a borrower who is a member of the National Guard or is
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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 or similar limitations under state law could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Mortgage Loans. In
addition, the Relief Act imposes limitations which would impair the ability of
the Servicer to foreclose on an affected Mortgage Loan during the borrower'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.
Any shortfalls in interest collections resulting from application of
the Relief Act could adversely affect Certificates.
The Contracts
General. As a result of the Depositor's assignment of the Contracts
to the Trustee, the Owners of Certificates will succeed collectively to all
the rights (including the right to receive payment on the Contracts) and will
assume certain obligations of the Depositor. Each Contract evidences both (a)
the obligation of the obligor to repay the loan evidenced thereby, and (b) the
grant of a security interest in the Manufactured Home to secure repayment of
such loans. Certain aspects of both features of the Contracts are described
more fully below.
The Contracts generally are "chattel paper" as defined in the UCC in
effect in the states which the Manufactured Homes initially were registered.
Pursuant to the UCC, the sale of chattel paper is treated in a manner similar
to perfection of a security interest in chattel paper. Under the Agreement,
the Depositor will transfer physical possession of the Contracts to the
Trustee or its custodians. In addition, the Depositor will make an appropriate
filing of a UCC-1 financing statement in the appropriate states to give notice
of the Trustee's ownership of the Contracts. The Contracts will not be stamped
or marked otherwise to reflect their assignment from the Depositor to the
Trustee. Therefore, if a subsequent purchaser were able to take physical
possession of the Contracts without notice of such assignment the Trustee's
interest in Contracts could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes
securing the Contracts may be located in all 50 states. Security interests in
manufactured homes may be perfected either by notation of the secured party's
lien on the certificate of title or by delivery of the required documents and
payment of a fee to the state motor vehicle authority, depending on state law.
In some nontitle states, perfection pursuant to the provisions of the UCC is
required. The Depositor may effect such notation or delivery of the required
documents and fees, and obtain possession of the certificate of title, as
appropriate under the laws of the state in which any manufactured home
securing a manufactured housing conditional sales contract is registered. In
the event the Depositor fails, due to clerical errors, to effect such notation
or delivery, or files the security interest under the wrong law (for example,
under a motor vehicle title statute rather than under the UCC, in a few
states), the Trustee may not have a first priority security interest in the
Manufactured Home securing a Contract. As manufactured homes have become
larger and often have been attached to their sites without any apparent
intention to move them, courts in many states have held that manufactured
homes, under certain circumstances, may become subject to real estate title
and recording laws. As a result, a security interest in a manufactured home
could be rendered subordinate to the interests of other parties claiming an
interest in the home under applicable state real estate law. In order to
perfect a security interest in a manufactured home under real estate law, the
holder of the security interest must file either a "fixture filing" under the
provisions of the UCC or a real estate mortgage under the real estate laws of
the state where the home is located. These filings must be made in the real
state records office of the county where the home is located. So long as the
borrower does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the
UCC, and the notation of the security interest on the certificate of title or
the filing of a UCC financing statement will be effective to maintain the
priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to this site, other parties could
obtain an interest in the Manufactured Home which is prior to the security
interest transferred to the Trustee. With respect to a series of Certificates
and as described in the related Prospectus Supplement, the Depositor may be
required to perfect a security interest in the Manufactured Home under
applicable real estate laws. If such real estate
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filings are not required and if any of the foregoing events were to occur, the
only recourse would be to pursue the Trust's rights to require repurchase for
breach of warranties.
The Depositor will assign its security interest in the Manufactured
Homes to the Trustee. Neither the Depositor nor the Trustee will amend the
certificates of title to identify the Trust as the new secured party.
Accordingly, the Depositor will continue to be named as the secured party on
the certificates of title relating to the Manufactured Homes. In most states,
such assignment is an effective conveyance of such security interest without
amendment of any lien noted on the related certificate of title and the new
secured party succeeds to the Depositor's rights as the secured party.
However, in some states there exists a risk that, in the absence of an
amendment to the certificate of title, such assignment of the security
interest might not be held effective against creditors of the Depositor.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or
administrative error by state recording officials, the notation of the lien of
the Depositor on the certificate of title or delivery of the required
documents and fees will be sufficient to protect the Trust against the rights
of subsequent purchasers of a Manufactured Home or subsequent lenders who take
a security interest in the Manufactured Home. If there are any Manufactured
Homes as to which the security interest is not perfected, such security
interest would be subordinate to, among others, subsequent purchasers for
value of Manufactured Homes and holders of perfected security interests. There
also exists a risk in not identifying the Trust as the new secured party on
the certificate of title that, through fraud or negligence, the security
interest of the Trust could be released.
Enforcement of Security Interests in Manufactured Homes. The Servicer
on behalf of the Trustee, to the extent required by the related Agreement, may
take action to enforce the Trustee's security interest with respect to
Contracts in default by repossession and resale of the Manufactured Homes
securing such Contracts in default. So long as the Manufactured Home has not
become subject to the real estate law, a creditor can repossess a Manufactured
Home securing a Contract by voluntary surrender, by "self-help" repossession
that is "peaceful" (i.e., without breach of the peace) or in the absence of
voluntary surrender and the ability to repossess without breach of the peace,
by judicial process. The holder of a Contract must give the debtor a number of
days' notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the debtor and commercial reasonableness in effecting such a sale.
The law in most states also requires that the debtor be given notice of any
sale prior to resale of the unit so that the debtor may redeem at or before
such resale. In the event of such repossession and resale of a Manufactured
Home, the Trustee would be entitled to be paid out of the sale proceeds before
such proceeds could be applied to the payment of the claims of unsecured
creditors or the holders of subsequently perfected security interests or,
thereafter, to the debtor.
If the owner of a Manufactured Home moves it to a state other than
the state in which such Manufactured Home initially is registered, under the
laws of most states the perfected security interest in the Manufactured Home
would continue for four months after such relocation and thereafter only if
and after the owner registers the Manufactured Home in such state. If the
owner were to relocate a Manufactured Home to another state and not
re-register the Manufactured Home in such state, and if steps are not taken to
re-perfect the Trustee's security interest in such state, the security
interest in the Manufactured Home would cease to be perfected. A majority of
states generally requires surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien,
the Trustee would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the
Trustee would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require a
certificate of title for registration of a manufactured home, re-registration
could defeat perfection. In the ordinary course of servicing the manufactured
housing conditional sales contracts, the Servicer will be required to take
steps to effect such re-perfection upon receipt of notice of re-registration
or information from the obligor as to relocation. Similarly, when an obligor
under a manufactured housing conditional sales contract sells a manufactured
home, the Trustee must surrender possession of the certificate of title or
will receive notice as a result of its lien noted thereon and accordingly will
have an opportunity to require satisfaction of the related manufactured
housing conditional sales contract before release of the lien. Under each
Agreement the
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Servicer is obligated to take such steps, at the Servicer's expense, as are
necessary to maintain perfection of security interests in the Manufactured
Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Depositor will represent in the Agreement that it has no knowledge of any such
liens with respect to any Manufactured Home securing payment on any Contract.
However, such liens could arise at any time during the term of a Contract. No
notice will be given to the Trustee in the event such a lien arises.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the manufactured home securing such debtor's loan.
However, some states impose prohibitions or limitations on deficiency
judgments.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Consumer Protection Laws. The so-called "Holder-in-Due-Course" rule
of the Federal Trade Commission is intended to defeat the ability of the
transferor of a consumer credit contract which is the seller of goods which
gave rise to the transaction (and certain related lenders and assignees) to
transfer such contract free of notice of claims by the debtor thereunder. The
effect of this rule is to subject the assignee of such a contract to all
claims and defenses which the debtor could assert against the seller of goods.
Liability under this rule is limited to amounts paid under a Contract;
however, the obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the Trust against such
obligor. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination of and lending pursuant to the
Contracts, including the Truth-in-Lending Act, the Federal Trade Commission
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal
Credit Opportunity Act, the Fair Debt Collection Practices Act and the Uniform
Consumer Credit Code. In the case of some of these laws, the failure to comply
with their provisions may affect the enforceability of the related Contract
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale"
Clauses. The Contracts, in general, prohibit the sale or transfer of the
related Manufactured Homes without the consent of the Depositor and permit the
acceleration of the maturity of the Contracts by the Depositor upon any such
sale or transfer for which consent has not been granted. In certain cases, the
transfer may be made by a delinquent obligor in order to avoid a repossession
proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the
Servicer desires to accelerate the maturity of the related Contract, the
Servicer's ability to do so will depend on the enforceability under state law
of the "due-on-sale" clause. The Garn-St. Germain Act preempts, subject to
certain exceptions and conditions, state laws prohibiting enforcement of
"due-on-sale" clauses applicable to the Manufactured Homes. Consequently, in
some states the Servicer may be prohibited from enforcing a "due-on-sale"
clause in respect of certain Manufactured Homes.
The Title I Program
Certain of the Mortgage Loans or Contracts contained in a Trust may
be loans insured under the FHA Title I credit insurance program created
pursuant to Sections 1 and 2(a) of the National Housing Act of 1934 (the
"Title I Program"). Under the Title I Program, the FHA is authorized and
empowered to insure qualified lending institutions against losses on eligible
loans. The Title I Program operates as a coinsurance program in which the FHA
insures up to 90% of certain losses incurred on an individual insured loan,
including the unpaid principal balance of the loan, but only to the extent of
the insurance coverage available in the lender's FHA insurance coverage
reserve account. The owner of the loan bears the uninsured loss on each loan.
The types of loans, which are eligible for insurance by the FHA under
the Title I Program, include property improvement loans ("Property Improvement
Loans" or "Title I Loans") and manufactured home loans
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("Manufactured Home Loans" or "Title I Contracts"). A Property Improvement
Loan or Title I Loan means a loan made to finance actions or items that
substantially protect or improve the basic livability or utility of a property
and includes: (1) single family, multifamily and nonresidential property
improvement loans; (2) manufactured home improvement loans, where the home is
classified as personalty; (3) historic preservation loans; and (4) fire safety
equipment loans in existing health care facilities. A Manufactured Home Loan
or Title I Contract means a loan for the purchase or refinancing of a
manufactured home and/or the lot on which to place such home and includes: (1)
manufactured home purchase loans; (2) manufactured home lot loans; and (3)
combination loans.
In addition to these types of loans, there are two basic methods of
lending or originating loans which include a "direct loan" or a "dealer loan".
With respect to a direct loan, the borrower makes application directly to a
lender without any assistance from a dealer, which application may be filled
out by the borrower or by a person acting at the direction of the borrower who
does not have a financial interest in the loan transaction, and the lender may
disburse the loan proceeds solely to the borrower or jointly to the borrower
and other parties to the transaction. With respect to a dealer loan, the
dealer, who has a direct or indirect financial interest in the loan
transaction, assists the borrower in preparing the loan application or
otherwise assists the borrower in obtaining the loan from the lender and the
lender may disburse proceeds solely to the dealer or the borrower or jointly
to the borrower and the dealer or other parties. With respect to a dealer
Title I Loan, a dealer may include a seller, a contractor or supplier of goods
or services' and with respect to a dealer Title I Contract, a dealer is a
person engaged in the business of manufactured home retail sales.
Loans insured under the Title I Program are required to have fixed
interest rates and, generally, provide for equal installment payments due
weekly, biweekly, semi-monthly, or monthly, except that a loan may be payable
quarterly or semi-annually in order to correspond with the borrower's
irregular flow of income The first or last payments (or both) may vary in
amount but may not exceed 150% of the regular installment payment, and the
first payment may be due no later than two months from the date of the loan.
The note must contain a provision permitting full or partial prepayment of the
loan. The interest rate may be established by the lender and must be fixed for
the term of the loan and recited in the note. Interest on an insured loan must
accrue from the date of the loan and be calculated according to the actuarial
method. The lender must assure that the note and all other documents
evidencing the loan are in compliance with applicable Federal, state and local
laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence
and diligence to determine whether the borrower and any co-maker are solvent
and acceptable credit risks, with a reasonable ability to make payments on the
loan obligation. The lender's credit application and review must determine
whether the borrower's income will be adequate to meet the periodic payments
required by the loan, as well as the borrower's other housing and recurring
expenses, which determination must be made in accordance with the
expense-to-income ratios published by the Secretary of the United States
Department of Housing and Urban Development ("HUD").
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the
time of approval by the lending institution. If, after a loan has been made
and reported for insurance under the Title I Program, the lender discovers any
material misstatement of fact or that the loan proceeds have been misused by
the borrower, dealer or any other party, it shall promptly report this to the
FHA. In such case, provided that the validity of any lien on the property has
not been impaired, the insurance of the loan under the Title I Program will
not be affected unless such material misstatement of fact or misuse of loan
proceeds was caused by (or was knowingly sanctioned by) the lender or its
employees.
Requirements for Title I Loans. The maximum principal amounts for
Title I Loans must not exceed the actual cost of the project plus any
applicable fees and charges allowed under the Title I Program; provided that
such maximum amount does not exceed the following loan amounts: (i) $25,000
for a single family property improvement loan and nonresidential property
improvement loans; (ii) the lesser of $60,000 or an average of $12,000 per
dwelling unit for multifamily property improvement loans; and (iii) $17,500
for a manufactured home improvement loan. Generally, the term of a Title I
Loan may not be less than six months nor greater than 20 years and 32 days,
except that the maximum term of a single family property improvement loan on a
manufactured home is limited to 15 years and 32 days and the maximum term of a
manufactured home improvement loan is limited to 12 years and 32 days. A
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borrower may obtain multiple Title I Loans with respect to multiple
properties, and a borrower may obtain more than one Title I Loan with respect
to a single property, in each case as long as the total outstanding balance of
all Title I Loans on the same property does not exceed the maximum loan amount
for the type of Title I Loan thereon having the highest permissible loan
amount
Borrower eligibility for a Title I Loan requires that the borrower
have at least a one-half interest in either fee simple title to the real
property, a lease thereof for a term expiring at least six months after the
final maturity of the Title I Loan or a recorded land installment contract for
the purchase of the real property, and that the borrower have equity in the
property being improved at least equal to the amount of the Title I Loan if
such loan amount exceeds $15,000. Any Title I Loan in excess of $5,000 must be
secured by a recorded lien on the improved property which is evidenced by a
mortgage or deed of trust executed by the borrower and all other owners in fee
simple.
The proceeds from a Title I Loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any Title I Loan and from time to time the Secretary of HUD may
amend such list of items and activities. With respect to any dealer Title I
Loan, before the lender may disburse funds, the lender must have in its
possession a completion certificate on a HUD-approved form, signed by the
borrower and the dealer. With respect to any direct Title I Loan the lender is
required to obtain, promptly upon completion of the improvements but not later
than 6 months after disbursement of the loan proceeds with one 6 month
extension if necessary, a completion certificate, signed by the borrower. The
lender is required to conduct an on-site inspection on any Title I Loan where
the principal obligation is $7,500 or more, and or any direct Title I Loan
where the borrower fails to submit a completion certificate.
Requirements for Title I Contracts. The maximum principal amount for
any Title I Contract must not exceed the sum of certain itemized amounts,
which include a specified percentage of the purchase price of the manufactured
home depending on whether it is a new or existing home; provided that such
maximum amount does not exceed the following loan amounts: (i) $40,500 for a
new or existing manufactured home purchase loan; (ii) $13,500 for a
manufactured home lot purchase; and (iii) $54,000 for a combination loan
(i.e., a loan to purchase a new or existing manufactured home and the lot for
such home). Generally, the term of a Title I Contract may not be less than six
months nor greater than 20 years and 32 days, except that the maximum term of
a manufactured home lot loan is limited to 15 years and 32 days and the
maximum term of a multimodule manufactured home and lot in combination is
limited to 25 years and 32 days.
Borrower eligibility for a Title I Contract requires that the
borrower become the owner of the property to be financed with such loan and
occupy the manufactured home as the borrower's principal residence, except for
a manufactured home lot loan which allows six months to occupy the home as the
borrower's principal residence. If a manufactured home is classified as
realty, then ownership of the home must be in fee simple, and also, the
ownership of the manufactured home lot must be in fee simple, except for a lot
which consists of a share in a cooperative association that owns the
manufactured home park. The borrower's minimum cash down payment requirement
to obtain financing through a Title I Contract is as follows: (i) at least 5%
of the first $5,000 and 10% of the balance of the purchase price of a new
manufactured home and at least 10% of the purchase price of an existing
manufactured home for a manufactured home purchase loan, or in lieu of a full
or partial cash down payment, the trade-in of the borrower's equity in an
existing manufactured home; (ii) at least 10% of the purchase price and
development costs of a lot for a manufactured home lot loan; and (iii) at
least 5% of the first $5,000 and 10% of the balance of the purchase price of
the manufactured home and lot for a combination loan.
Any manufactured home financed by a Title I Contract must be
certified by the manufacturer to have been constructed in compliance with the
National Manufactured Housing Construction and Safety Standards Act of 1974
(42 U.S.C. 5401-5426), so as to conform to all applicable Federal construction
and safety standards, and with respect to the purchase of a new manufactured
home, the manufacture must furnish the borrower with a one year written
warranty on a HUD approved form which obligates the manufacturer to correct
any nonconformity with all applicable Federal construction and safety
standards or any defects in materials or workmanship for the one year period
after the date of delivery. The proceeds from a Title I Contract may be used
as follows: the purchase or refinancing of a manufactured home, a suitably
developed lot for a manufactured home already owned by the borrower, or a
manufactured home and suitably developed lot for the home in combination; or
the refinancing of an
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existing manufactured home already owned by the borrower in connection with
the purchase of a manufactured home lot or an existing lot already owned by
the borrower in connection with the purchase of a manufactured home. In
addition, the proceeds for a Title I Contract which is a manufactured home
purchase loan or a combination loan may be used for the purchase, construction
or installation of a garage, carport, patio or other comparable appurtenance
to the home. The proceeds from a Title I Contract cannot be used for the
purchase of furniture or the financing of any items and activities which are
set forth on the list published by the Secretary of HUD as amended from time
to time.
Any Title I Contract must be secured by a recorded lien on the
manufactured home, its furnishings, equipment, accessories and appurtenance,
which lien must be a first lien, superior to any other lien on the property.
With respect to any Title I Contract involving a manufactured home purchase
loan or combination loan and the sale of the manufactured home by a dealer,
the lender or its agent (other than the dealer) must conduct a
site-of-placement inspection within 60 days after the date of the loan to
verify that the terms and conditions of the purchase contract have been met,
the manufactured home and any options and appurtenances included in the
purchase price or financed with the loan have been delivered and installed,
and the placement certificate executed by the borrower and the dealer is in
order.
FHA Insurance Coverage. Under the Title I Program the FHA establishes
an insurance coverage reserve account for each lender which has been granted a
Title I insurance contract. The amount of insurance coverage in this account
is 10% of the amount disbursed, advanced or expended by the lender in
originating or purchasing eligible loans registered with the FHA for Title I
insurance, with certain adjustments. The balance in the insurance coverage
reserve account is the maximum amount of insurance claims the FHA is required
to pay. Loans to be insured under the Title I Program will be registered for
insurance by the FHA and the insurance coverage attributable to such loans
will be included in the insurance coverage reserve account for the originating
or purchasing lender following the receipt and acknowledgment by the FHA of a
loan report on the prescribed form pursuant to the Title I regulations. The
FHA charges a fee of 0.50% per annum of the net proceeds (the original
balance) of any eligible loan so reported and acknowledged for insurance by
the originating lender. The FHA bills the lender for the insurance premium on
each insured loan annually, on approximately the anniversary date of the
loan's origination. If an insured loan is prepaid during the year, the FHA
will not refund or abate the insurance premium.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect
to loans insured under the lender's contract of insurance by (i) the amount of
the FHA insurance claims approved for payment relating to such insured loans,
(ii) the amount of the Annual Reductions attributable to such insured loans
and (iii) the amount of insurance coverage attributable to insured loans sold
by the lender, and such insurance coverage may be reduced for any FHA
insurance claims rejected by the FHA. After a lender has held its Title I
contract of insurance for five years, the lender's FHA insurance coverage
reserve account is subject to an annual reduction (the "Annual Reduction") on
each October in an amount equal to 10% of the insurance coverage reserves
available on such date with respect to such contract of insurance; provided
that such Annual Reduction shall not reduce the insurance coverage to an
amount less than $50,000. The balance of the lender's FHA insurance coverage
reserve account will be further adjusted as required under Title I or by the
FHA, and the insurance coverage therein may be earmarked with respect to each
or any eligible loans insured thereunder, if a determination is made by the
Secretary of HUD that it is in its interest to do so. Originations and
acquisitions of new eligible loans will continue to increase a lender's
insurance coverage reserve account balance by 10% of the amount disbursed,
advanced or expended in originating or acquiring such eligible loans
registered with the FHA for insurance under the Title I Program. The Secretary
of HUD may transfer insurance coverage between insurance coverage reserve
accounts with earmarking with respect to a particular insured loan or group of
insured loans when a determination is made that it is in the Secretary's
interest to do so.
The lender may transfer (except as collateral in a bona fide loan
transaction) insured loans and loans reported for insurance only to another
qualified lender under a valid Title I contract of insurance. Unless an
insured loan is transferred with recourse or with a guarantee or repurchase
agreement, the FHA, upon receipt of written notification of the transfer of
such loan in accordance with the Title I regulations, will transfer from the
transferor's insurance coverage reserve account to the transferee's insurance
coverage reserve account an amount, if available, equal to 10% of the actual
purchase price or the net unpaid principal balance of such loan (whichever is
less). However, under the Title I Program not more than $5,000 in insurance
coverage shall be transferred to or from a
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lender's insurance coverage reserve account during any October 1 to September
30 period without the prior approval of the Secretary of HUD.
Claims Procedures Under Title I. Under the Title I Program the lender
may accelerate an insured loan following a default on such loan only after the
lender or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I Loan, the
lender may either (a) proceed against the Mortgaged Property under any
security instrument or (b) make a claim under the lender's contract of
insurance. If the lender chooses to proceed against the Mortgaged Property
under a security instrument (or if it accepts a voluntary conveyance or
surrender of the Mortgaged Property), the lender may file an insurance claim
only with the prior approval of the Secretary of HUD. After acceleration of
maturity on a defaulted Title I Contract, the lender must proceed against the
loan security by foreclosure or repossession, as appropriate, and acquire
good, marketable title to the property securing the loan. The lender must take
all actions necessary under applicable law to preserve its rights, if any, to
obtain a deficiency judgment against the borrower. Before filing a claim for
insurance with the FHA, the lender must sell for the best price obtainable any
property which the lender acquired by the foreclosure or repossession of such
property securing a defaulted Title I Contract.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation
of the lender's efforts to obtain recourse against any dealer who has agreed
thereto, certification of compliance with applicable state and local laws in
carrying out any foreclosure or repossession, and evidence that the lender has
properly filed proofs of claims, where the borrower is bankrupt or deceased.
Generally, a claim for reimbursement for loss on any eligible loan must be
filed with the FHA no later than (i) for any Title I Loan, 9 months after the
date of default of such loan, or (ii) for any Title I Contract, 3 months after
the date of sale of the property securing such loan, but not to exceed 18
months after the date of default. Concurrently with filing the insurance
claim, the lender shall assign to the United States of America the lender's
entire interest in the loan note (or a judgment in lieu of the note), in any
security held and in any claim filed in any legal proceedings. If, at the time
the note is assigned the Secretary has reason to believe that the note is not
valid or enforceable against the borrower, the FHA may deny the claim and
reassign the note to the lender. If either such defect is discovered after the
FHA has paid a claim, the FHA may require the lender to repurchase the paid
claim and to accept a reassignment of the loan note. If the lender
subsequently obtains a valid and enforceable judgment against the borrower,
the lender may resubmit a new insurance claim with an assignment of the
judgment. The FHA may contest any insurance claim and make a demand for
repurchase of the loan at any time up to two years from the date the claim was
certified for payment and may do so thereafter in the event of fraud or
misrepresentation on the part of the lender.
Under the Title I Program the amount of an FHA insurance claim
payment, when made, is equal to the Claimable Amount, up to the amount of
insurance coverage in the lender's insurance coverage reserve account. The
"Claimable Amount" is equal to 90% of the sum of: (a) the unpaid loan
obligation (net unpaid principal and the uncollected interest earned to the
date of default) with adjustments thereto if the lender has proceeded against
property securing such loan; (b) the interest on the unpaid amount of the loan
obligation from the date of default to the date of the claim's initial
submission for payment plus 15 calendar days (but not to exceed 9 months from
the date of default), calculated at the rate of 7% per annum; (c) the
uncollected court costs; (d) the attorneys fees not to exceed $500; (e) the
expenses for recording the assignment of the security to the United States;
and (f) if the loan is a Title I Contract, certain costs incurred in
connection with the foreclosure or repossession of the manufactured home
and/or lot.
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LEGAL INVESTMENT MATTERS
The Certificates may constitute "mortgage related securities" for
purposes of SMMEA, so long as they are rated in one of the two highest rating
categories by the Rating Agency or Agencies identified in the related
Prospectus Supplement and, as such, would be legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including, but not limited to, state-chartered savings banks,
commercial banks, saving and loan associations and insurance companies, as
well as trustees and state government employee retirement systems) created
pursuant to or existing under the laws of the United States or any State
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to State regulation to the same extent that, under
applicable law, obligations issued by or guaranteed as to principal and
interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities. Under SMMEA, in all States
which enacted legislation prior to October 4, 1991 specifically limiting the
legal investment authority of any of such entities with respect to "mortgage
related securities," the Certificates will constitute legal investments for
entities subject to such legislation only to the extent provided in such
legislation SMMEA provides, however, that in no event will the enactment of
any such legislation affect the validity of any contractual commitment to
purchase, bold or invest in any securities or require the sale or over
disposition of any securities, so long as such contractual commitment was made
or such securities were acquired prior to the enactment of such legislation.
Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois,
Kansas, Louisiana, Maryland, Michigan, Missouri, Nebraska, New Hampshire, New
York, North Carolina, Ohio, South Dakota, Utah, Virginia and West Virginia
each enacted legislation overriding the exemption afforded by SMMEA prior to
the October 4, 1991 deadline.
Institutions whose investment activities are subject to legal
investment laws or regulations or review by certain regulatory authorities may
be subject to restrictions on investment in certain classes of the
Certificates. Any financial institution which is subject to the jurisdiction
of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the FDIC, the OTS, the NCUA or other federal or state agencies
with similar authority should review any applicable rules, guidelines and
regulations prior to purchasing the certificates. The Federal Financial
Institutions Examination Council, for example, has issued a Supervisory Policy
Statement on Securities Activities effective February 10, 1992 (the "Policy
Statement"). The Policy Statement has been adopted by the Comptroller of the
Currency, the Federal Reserve Board, the FDIC and the OTS with respect to the
depository institutions that they regulate. The Policy Statement prohibits
depository institutions from investing in certain "high-risk mortgage
securities" except under limited circumstances, and sets forth certain
investment practices deemed to be unsuitable for regulated institutions. The
NCUA issued final regulations effective December 2, 1991 that restrict and in
some instances prohibit the investment by federal credit unions in certain
types of mortgage related securities.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits and
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," or in securities which are issued
in book-entry form.
Investors should consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
ERISA CONSIDERATIONS
ERISA imposes requirements on employee benefit plans (and on certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and
separate accounts in which such plans, accounts or arrangements are invested)
(collectively, "Plans") subject to ERISA and on persons who are fiduciaries
with respect to such Plans. Among other things, ERISA requires that the assets
of Plans be held in trust and that the trustee, or other duly authorized
fiduciary, have exclusive authority and discretion to manage and control the
assets of such Plans. ERISA also imposes certain duties on persons who are
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fiduciaries of Plans. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of a Plan is
considered to be a fiduciary of such Plan (subject to certain exceptions not
here relevant). In addition to the imposition of general fiduciary standards
of investment prudence and diversification, ERISA prohibits a broad range of
transactions involving Plan assets and persons ("Parties in Interest") having
certain specified relationships to a Plan and imposes additional prohibitions
where Parties in Interest are fiduciaries with respect to such Plan.
The United States Department of Labor (the "DOL") has issued
regulations concerning the definition of what constitutes the assets of a
Plan. (DOL Reg Section 2510.3-101). Under this regulation, the underlying
assets and properties of corporations, partnerships and certain other entities
in which a Plan makes an "equity" investment could be deemed for purposes of
ERISA to be assets of the investing Plan in certain circumstances. In such
case, the fiduciary making such an investment for the Plan could be deemed to
have delegated his or her asset management responsibility, and the underlying
assets and properties could be subject to ERISA reporting and disclosure.
Certain exceptions to the regulation may apply in the case of a Plan's
investment in the Certificates, but the Depositor cannot predict in advance
whether such exceptions apply due to the factual nature of the conditions to
be met. Accordingly, because the Mortgage Loans may be deemed Plan assets of
each Plan that purchases Certificates, an investment in the Certificates by a
Plan might give rise to a prohibited transaction under ERISA Sections 406 and
407 and be subject to an excise tax under Code Section 4975 unless a statutory
or administrative exemption applies.
DOL Prohibited Transaction Exemption 83-1 ("PTE 83-1") exempts from
ERISA's prohibited transaction rules certain transactions relating to the
operation of residential mortgage investment trusts and the purchase, sale and
holding of "mortgage pool pass-through certificates" in the initial issuance
of such certificates. PTE 83-1 permits, subject to certain conditions,
transactions which might otherwise be prohibited between Plans and Parties in
Interest with respect to those Plans involving the origination, maintenance
and termination of mortgage pools consisting of mortgage loans secured by
first or second mortgages or deeds of trust on single-family residential
property, and the acquisition and holding of certain mortgage pool
pass-through certificates representing an interest in such mortgage pools by
PTE.
PTE 83-1 sets forth three general conditions which must be satisfied
for any transaction to be eligible for exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans and
property securing such loans, and for indemnifying Owners against reductions
in pass-through payments due to property damage or defaults in loan payments
in an amount not less than the greater of one percent of the aggregate
principal balance of all covered pooled mortgage loans or the principal
balance of the largest covered pooled mortgage loan, (ii) the existence of a
pool trustee who is not an affiliate of the sponsor, and (iii) a limitation on
the amount of the payments retained by the pool sponsor, together with other
funds inuring to its benefit, to not more than adequate consideration for
selling the mortgage loans plus reasonable compensation for services provided
by the pool sponsor.
Although the Trustee for any series of Certificates will be
unaffiliated with the Depositor, there can be no assurance that the system of
insurance or subordination will meet the general or specific conditions
referred to above. In addition, the nature of a Trust's assets or the
characteristics of one or more classes of the related series of Certificates
may not be included within the scope of PTE 83-1 or any other class exemption
under ERISA. The Prospectus Supplement will provide additional information
with respect to the application of ERISA and the Code to the related
Certificates.
Several underwriters of mortgage-backed securities have applied for
and obtained ERISA prohibited transactions exemptions which are in some
respects broader than PTE 83-1. Such exemptions can only apply to
mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. Several other
underwriters have applied for similar exemptions. If such an exemption might
be applicable to a series of Certificates, the related Prospectus Supplement
will refer to such possibility.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Certificates
must make its own determination as to whether the general and the specific
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conditions of PTE 83-1 have been satisfied or as to the availability of any
other prohibited transaction exemptions Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the 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.
Any Plan proposing to invest in Certificates should consult with its
counsel to confirm that such investment will not result in a prohibited
transaction and will satisfy the other requirements of ERISA and the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is based upon the opinion of Dewey Ballantine LLP,
special counsel to the Depositor with respect to the material federal income
tax consequences of the purchase, ownership and disposition of Certificates.
The discussion below does not purport to address all federal income tax
consequences that may be applicable to particular categories of investors,
some of which may be subject to special rules. The authorities on which this
discussion is based are subject to change or differing interpretations, and
any such change or interpretation could apply retroactively. This discussion
reflects the applicable provisions of the Code, as well as final regulations
concerning REMICs (the "REMIC Regulations") and final regulations under
Sections 1271 through 1273 and 1275 of the Code concerning debt instruments
(the "OID Regulations"). The Depositor intends to rely on the OID Regulations
for all Certificates offered pursuant to this Prospectus; however, investors
should be aware that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the Certificates. Investors
should consult their own tax advisors in determining the federal, state, local
and any other tax consequences to them of the purchase, ownership and
disposition of Certificates. The Prospectus Supplement for each series of
Certificates will discuss any special tax consideration applicable to any
class of Certificates of such series, and the discussion below is qualified by
any such discussion in the related Prospectus Supplement.
For purposes of this opinion, where the applicable Prospectus
Supplement provides for a fixed retained yield with respect to the Mortgage
Assets underlying a series of Certificates, references to the Mortgage Assets
will be deemed to refer to that portion of the Mortgage Assets held by the
Trust which does not include the fixed retained yield.
Federal Income Tax Consequences For REMIC Certificates
General. With respect to a particular series of Certificates, an
election may be made to treat the Trust or one or more trusts or segregated
pools of assets therein as one or more REMICs within the meaning of Code
Section 860D. A Trust or a portion or portions thereof as to which one or more
REMIC elections will be made will be referred to as a "REMIC Pool." For
purposes of this discussion, Certificates of a series as to which one or more
REMIC elections are made are referred to as "REMIC Certificates" and will
consist of one or more classes of "Regular Certificates" and one class of
"Residual Certificates" in the case of each REMIC Pool. Qualification as a
REMIC requires ongoing compliance with certain conditions. With respect to
each series of REMIC Certificates, Dewey Ballantine LLP, special counsel to
the Depositor, has advised the Depositor that in their opinion, assuming (i)
the making of an appropriate election, (ii) compliance with the Agreement and
(iii) compliance with any changes in the law, including any amendments to the
Code or applicable Treasury regulations thereunder, each REMIC Pool will
qualify as a REMIC and that if a Trust qualifies as a REMIC, the tax
consequences to the Owners will be as described below. In such case, the
Regular Certificates will be considered to be "regular interests" in the REMIC
Pool and generally will be treated for federal income tax purposes as if they
were newly originated debt instruments, and the Residual Certificates will be
considered to be "residual interests" in the REMIC Pool. The Prospectus
Supplement for each series of Certificates will indicate whether one or more
REMIC elections with respect to the related Trust will be made, in which event
references to "REMIC" or "REMIC Pool" herein shall be deemed to refer to each
such REMIC Pool.
Status of REMIC Certificates. REMIC Certificates held by a domestic
building and loan association will constitute "a regular or residual interest
in a REMIC" within the meaning of Code Section 7701(a)(19)(C) (xi) in the same
proportion that the assets of the REMIC Pool would be treated as "loans
secured by an interest in real
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property" within the meaning of Code Section 7701(a)(19)(C)(v) or as other
assets described in Code Section 7701(a)(19)(C). REMIC Certificates held by a
real estate investment trust (a "REIT") will constitute "real estate assets"
within the meaning of Code Section 856(c)(5)(a), and interest on the REMIC
Certificates will be considered "interest on obligations secured by mortgages
on real property or on interests in real property" within the meaning of Code
Section 856(c) in the same proportion that, for both purposes, the assets of
the REMIC Pool would be so treated. If at all times 95% or more of the assets
of the REMIC Pool constitute qualifying assets for domestic building and loan
associations and REITs, the REMIC Certificates will be treated entirely as
qualifying assets for such entities. Moreover, the REMIC Regulations provide
that, for purposes of Code Sections 856(c), payments of principal and interest
on the Mortgage Assets that are reinvested pending distribution to holders of
REMIC Certificates, constitute qualifying assets for REIT. Where two REMIC
Pools are part of a tiered structure they will be treated as one REMIC for
purposes of the tests described above respecting asset ownership of more or
less than 95%. Notwithstanding the foregoing, however, REMIC income received
by a REIT owning a residual interest in a REMIC Pool could be treated in part
as non-qualifying REIT income if the REMIC Pool holds Mortgage Assets with
respect to which income is contingent on mortgagor profits or property
appreciation. In addition, if the assets of the REMIC include buy-down
Mortgage Assets, it is possible that the percentage of such assets
constituting "qualifying real property loans" or "loans secured by an interest
in real property" for purposes of Code Sections 593(d)(1) and
7701(a)(19)(C)(v), respectively, may be required to be reduced by the amount
of the related buy-down funds. REMIC Certificates held by a regulated
investment company will not constitute "government securities" within the
meaning of Code Section 851(b)(4)(a)(i). REMIC Certificates held by certain
financial institutions will constitute an "evidence of indebtedness" within
the meaning of Code Section 582(c)(i). REMIC Certificates representing
interests in obligations secured by manufactured housing treated as single
family residences under Code Section 25(e)(10) will be considered interests in
"qualified mortgages" as defined in Code Section 860E(a)(3).
Qualification as a REMIC. In order for the REMIC Pool to qualify as a
REMIC, there must be ongoing compliance on the part of the REMIC Pool with the
requirements set forth in the Code. The REMIC Pool must fulfill an asset test,
which requires that no more than a de minimis amount of the assets of the
REMIC Pool, as of the close of the third calendar month beginning after the
Delivery Date (which for purposes of this discussion is the date of issuance
of the REMIC Certificates) and at all times thereafter, may consist of assets
other than "qualified mortgages" and "permitted investments." The REMIC
Regulations provide a "safe harbor" pursuant to which the de minimis
requirement will be met if at all times the aggregate adjusted basis of any
nonqualified assets (i.e., assets other than qualified mortgages and permitted
investments) is less than 1% of the aggregate adjusted basis of all the REMIC
Pool's assets.
If a REMIC Pool fails to comply with one or more of the requirements
of the Code for REMIC status during any taxable year, the REMIC Pool will not
be treated as a REMIC for such year and thereafter. In this event, the
classification of the REMIC Pool for federal income tax purposes is uncertain.
The REMIC Pool could be treated as a taxable mortgage pool (a "TMP"), in which
case any residual income of the REMIC Pool (income from the Mortgage Assets
(possibly without a deduction for interest and original issue discount expense
allocable to the Regular Certificates) would be subject to corporate income
tax at the REMIC Pool level. The Code, however, authorizes the Treasury
Department to issue regulations that address situations where failure to meet
one or more of the requirements for REMIC status occurs inadvertently and in
good faith, and disqualification of the REMIC Pool would occur absent
regulatory relief. Investors should be aware, however, that the Conference
Committee Report to the Tax Reform Act of 1986 (the "1986 Act") indicates that
the relief may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC Pool's income for the period of
time in which the requirements for REMIC status are not satisfied.
Taxation of Regular Certificates
General. Payments received by holders of Regular Certificates
generally should be accorded the same tax treatment under the Code as payments
received on ordinary taxable corporate debt instruments. In general, interest
and original issue discount on a Regular Certificate will be treated as
ordinary income to a holder of the Regular Certificate (the "Regular
Certificateholder") as they accrue, and principal payments on a Regular
Certificate will be treated as a return of capital to the extent of the
Regular Certificateholder's basis in the Regular Certificate allocable
thereto. Regular Certificateholders must use the accrual method of accounting
with regard to Regular Certificates, regardless of the method of accounting
otherwise used by such Regular Certificateholders.
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Original Issue Discount. Regular Certificates may be issued with
"original issue discount" within the meaning of Code Section 1273(a). Holders
of any class of Regular Certificates having original issue discount generally
must include original issue discount in ordinary income for federal income tax
purposes as it accrues, in accordance with a constant interest method that
takes into account the compounding of interest, in advance of receipt of the
cash attributable to such income. The Depositor anticipates that the amount of
original issue discount required to be included in a Regular
Certificateholder's income in any taxable year will be computed as described
below.
Each Regular Certificate (except to the extent described below with
respect to a Regular Certificate on which distributions of principal are made
in a single installment or upon an earlier distribution by lot of a specified
principal amount upon the request of a Regular Certificateholder or by random
lot (a "Retail Class Certificate")) will be treated as a single installment
obligation for purposes of determining the original issue discount includible
in a Regular Certificateholder's income. The total amount of original issue
discount on a Regular Certificate is the excess of the "stated redemption
price at maturity" of the Regular Certificate over its "issue price." The
issue price of a Regular Certificate is the first price at which a substantial
amount of Regular Certificates of that class are first sold to the public. The
Depositor will determine original issue discount by including the amount paid
by an initial Regular Certificateholder for accrued interest that relates to a
period prior to the issue date of the Regular Certificate in the issue price
of a Regular Certificate and will include in the stated redemption price at
maturity any interest paid on the first Distribution Date to the extent such
interest is attributable to a period in excess of the number of days between
the issue date and such first Distribution Date. The stated redemption price
at maturity of a Regular Certificate always includes the original principal
amount of the Regular Certificate, but generally will not include
distributions of stated interest if such interest distributions constitute
"qualified stated interest." Qualified stated interest generally means stated
interest that is unconditionally payable in cash or in property (other than
debt instruments of the issuer) at least annually at (i) a single fixed rate,
(ii) one or more qualified floating rates (as described below), (iii) a fixed
rate followed by one or more qualified floating rates, (iv) a single objective
rate (as described below) or (v) a fixed rate and an objective rate that is a
qualified inverse floating rate. The OID Regulations state that interest
payments are unconditionally payable only if reasonable remedies exist to
compel payment or late payment and nonpayment are remote. Because the debt
securities will generally not provide the holders with the ability to compel
payment, interest payments may be included in the debt security's stated
redemption price at maturity and taxed as OID. Any stated interest in excess
of the qualified stated interest is included in the stated redemption price at
maturity. If the amount of original issue discount is "de minimis" as
described below, the amount of original issue discount is treated as zero, and
all stated interest is treated as qualified stated interest. Distributions of
interest on Regular Certificates with respect to which deferred interest will
accrue may not constitute qualified stated interest, in which case the stated
redemption price at maturity of such Regular Certificates includes all
distributions of interest as well as principal thereon. Moreover, if the
interval between the issue date and the first Distribution Date on a Regular
Certificate is longer than the interval between subsequent Distribution Dates
(and interest paid on the first Distribution Date is less than would have been
earned if the stated interest rate were applied to outstanding principal
during each day in such interval), the stated interest distributions on such
Regular Certificate technically do not constitute qualified stated interest.
In such case a special rule, applying solely for the purpose of determining
whether original issue discount is de minimis, provides that the interest
shortfall for the long first period (i.e., the interest that would have been
earned if interest had been paid on the first Distribution Date for each day
the Regular Certificate was outstanding) is treated as made at a fixed rate if
the value of the rate on which the payment is based is adjusted in a
reasonable manner to take into account the length of the interval. There is
also a special "teaser" rule which may be available to treat OID arising from
a long first accrual period as de minimis OID. Regular Certificateholders
should consult their own tax advisors to determine the issue price and stated
redemption price at maturity of a Regular Certificate.
Under a de minimis rule, original issue discount on a Regular
Certificate will be considered to be zero if such original issue discount is
less than 0.25% of the stated redemption price at maturity of the Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate. For this purpose, the weighted maturity of the Regular
Certificate is computed as the sum of the amounts determined by multiplying
the number of full years (i.e., rounding down partial years) from the issue
date until each distribution 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 Regular Certificate and the denominator of which is the stated
redemption price at maturity of the Regular Certificate. Although currently
unclear, it appears that the schedule of such distributions should be
determined in accordance with the assumed rate of prepayment of the Mortgage
Assets
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and the anticipated reinvestment rate, if any, relating to the Regular
Certificates (the "Prepayment Assumption"). The Prepayment Assumption with
respect to a series of Regular Certificates will be set forth in the related
Prospectus Supplement. The holder of a debt instrument includes any de minimis
original issue discount in income pro rata as stated principal payments are
received.
Of the total amount of original issue discount on a Regular
Certificate, the Regular Certificateholder generally must include in gross
income for any taxable year the sum of the "daily portions," as defined below,
of the original issue discount on the Regular Certificate accrued during an
accrual period for each day on which he holds the Regular Certificate,
including the date of purchase but excluding the date of disposition. Although
not free from doubt, the Depositor intends to treat the monthly period ending
on the day before each Distribution Date as the accrual period, rather than
the monthly period corresponding to the prior calendar month. With respect to
each Regular Certificate, a calculation will be made of the original issue
discount that accrues during each successive full accrual period (or shorter
period from the date of original issue) that ends on the day before the
related Distribution Date on the Regular Certificate. For a Regular
Certificate, original issue discount is to be calculated initially based on a
schedule of maturity dates that takes into account the level of prepayments
and an anticipated reinvestment rate that are most likely to occur, which is
expected to be based on the Prepayment Assumption. The original issue discount
accruing in a full accrual period would be the excess, if any, of (i) the sum
of (a) the present value of all of the remaining distributions to be made on
the Regular Certificate as of the end of that accrual period that are included
in the Regular Certificate's stated redemption price at maturity and (b) the
distributions made on the Regular Certificate during the accrual period that
are included in the Regular Certificate's stated redemption price at maturity
over (ii) the adjusted issue price of the Regular Certificate at the beginning
of the accrual period. The present value of the remaining distributions
referred to in the preceding sentence is calculated based on (i) the yield to
maturity of the Regular Certificate at the issue date, (ii) events (including
actual prepayments) that have occurred prior to the end of the accrual period
and (iii) the Prepayment Assumption. For these purposes, the adjusted issue
price of a Regular Certificate at the beginning of any accrual period equals
the issue price of the Regular Certificate, increased by the aggregate amount
of original issue discount with respect to the Regular Certificate that
accrued in all prior accrual periods and reduced by the amount of
distributions included in the Regular Certificate's stated redemption price at
maturity that were made on the Regular Certificate in such prior period. The
original issue discount accruing during any accrual period (as determined in
this paragraph) will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
period.
Under the method described above, the daily portions of original
issue discount required to be included in income by a Regular
Certificateholder generally will increase to take into account prepayments on
the Regular Certificates as a result of prepayments on the Mortgage Assets or
that exceed the Prepayment Assumption, and generally will decrease (but not
below zero for any period) if the prepayments are slower than the Prepayment
Assumption. To the extent specified in the applicable Prospectus Supplement,
an increase in prepayments on the Mortgage Assets with respect to a series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
A purchaser of a Regular Certificate at a price greater than the
issue price also will be required to include in gross income the daily
portions of the original issue discount on the Regular Certificate. With
respect to such a purchaser, the daily portion for any day is reduced by the
amount that would be the daily portion for such day (computed in accordance
with the rules set forth above) multiplied by a fraction, the numerator of
which is the amount, if any, by which the price paid by such purchaser for the
Regular Certificate exceeds the sum of the issue price and the aggregate
amount of original issue discount that would have been includible in the gross
income of an original holder of the Regular Certificate who purchased the
Regular Certificate at its issue price, less any prior distributions included
in the stated redemption price at maturity, and the denominator of which is
the sum of the daily portions for such Regular Certificate (computed in
accordance with the rules set forth above) for all days after the date of
purchase and ending on the date on which the remaining principal amount of
such Regular Certificate is expected to be reduced to zero under the
Prepayment Assumption.
A Certificateholder may elect to include in gross income all stated
interest, original issue discount, de minimis original issue discount, market
discount (as described below under "Market Discount"), de minimis market
discount and unstated interest (as adjusted for any amortizable bond premium
or acquisition premium)
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currently as it accrues using the constant yield to maturity method. If this
election is made, the holder is treated as satisfying the requirements for
making the elections with respect to amortization of premium and current
inclusion of market discount, each as described under "Premium" and "Market
Discount" below.
Variable Rate Regular Certificates. Regular Certificates may provide
for interest based on a variable rate. The OID Regulations provide special
rules for variable rate instruments that meet three requirements. First, the
noncontingent principal payments may not exceed the instrument's issue price
by more than a specified amount equal to the lesser of (i) .015 multiplied by
the product of the total noncontingent payments and the weighted average
maturity or (ii) 15% of the total noncontingent principal payments. Second,
the instrument must provide for stated interest (compounded or paid at least
annually) at (i) one or more qualified floating rates, (ii) a single fixed
rate followed by one or more qualified floating rates, (iii) a single
objective rate or (iv) a single fixed rate and a single objective rate that is
a qualified inverse floating rate. Third, the instrument must provide that
each qualified floating rate or objective rate in effect during an accrual
period 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 Regular Certificate). A rate is a qualified floating rate if
variations in the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds. Generally, neither (i) a
multiple of a qualified floating rate in excess of a fixed multiple that is
greater than 0.65 but not more than 1.35 (and increased or decreased by a
fixed rate) nor (ii) a cap or floor that is likely to cause the interest rate
on a Regular Certificate to be significantly less or more than the overall
expected return on the Regular Certificate is considered a qualified floating
rate. An objective rate generally is a rate based on a single fixed formula
and on objective financial or economic information. An objective rate is a
qualified inverse floating rate if the rate is equal to a fixed rate minus a
qualified floating rate and variations in such rate can reasonably be expected
to reflect inversely contemporaneous variations in the cost of newly borrowed
funds. A rate will not be an objective rate if it is reasonably expected that
the average rate during the first half of the instrument's term will be
significantly more or less than the average rate in the final term. An
objective rate must be determined according to a single formula that is fixed
throughout the term of the Regular Certificate and is based on objective
financial information or economic information; however, an objective rate does
not include a rate based on information that is in the control of the issuer
or that is unique to the circumstances of a related party. Stated interest on
a variable rate debt instrument is qualified stated interest if the interest
is unconditionally payable in cash or property at least annually.
In general, the determination of original issue discount and
qualified stated interest on a variable rate debt instrument is made by
converting the debt instrument into a fixed rate debt instrument and then
applying the general original issue discount rules described above to the
instrument. If a variable rate debt instrument provides for stated interest at
a single qualified floating rate or objective rate, all stated interest is
qualified stated interest and the amount of original issue discount, if any,
is determined by assuming the variable rate is a fixed rate equal to (a) in
the case of a qualified floating or inverse floating rate, the value, as of
the issue date, of the qualified floating inverse floating rate or (b) in the
case of an objective rate (other than a qualified inverse floating rate), a
fixed rate that reflects the yield that is reasonably expected for the debt
instrument. For all other variable rate debt instruments, the amount of
interest and original issue discount accruals are determined using the
following steps. First, a fixed rate substitute for each variable rate under
the debt instrument is determined. In general, the fixed rate substitute is a
fixed rate equal to the rate of the applicable type of variable rate as of the
issue date. Second, an equivalent fixed rate debt instrument is constructed
using the fixed rate substitute(s) in lieu of the variable rates and keeping
all other terms identical. Third, the amount of qualified stated interest and
original issue discount with respect to the equivalent fixed rate debt
instrument are determined under the rules for fixed rate debt instruments.
Finally, appropriate adjustments for actual variable rates are made during the
term by increasing or decreasing the qualified stated interest to reflect the
amount actually paid during the applicable accrual period as compared to the
interest assumed to be accrued or paid under the equivalent fixed rate debt
instrument. If there is no qualified stated interest under the equivalent
fixed rate debt instrument, the adjustment is made to the original issue
discount for the period.
The application of the OID Regulations to variable rate debt
instruments is limited and may not apply to some Regular Certificates having
variable rates. Furthermore, by their terms, the provisions of regulations
issued on June 11, 1996, applicable to instruments having contingent payments,
may apply to those Regular Certificates. Prospective purchasers of variable
rate Regular Certificates are advised to consult their tax advisers concerning
the tax treatment of such Regular Certificates.
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Market Discount. A purchaser of a Regular Certificate also may be
subject to the market discount rules of Code Sections 1276 through 1278. Under
these sections and the principles applied by the OID Regulations in the
context of original issue discount, "market discount" is the amount by which a
subsequent purchaser's initial basis in the Regular Certificate (i) is
exceeded by the stated redemption price at maturity of the Regular Certificate
or (ii) in the case of a Regular Certificate having original issue discount,
is exceed by the sum of the issue price of such Regular Certificate plus any
original issue discount that would have previously accrued thereon if held by
an original Regular Certificateholder (who purchased the Regular Certificate
at its issue price), in either case less any prior distributions included in
the stated redemption price at maturity of such Regular Certificate. Such
purchaser generally will be required to recognize accrued market discount as
ordinary income as distributions includible in the stated redemption price at
maturity of such Regular Certificate are received in an amount not exceeding
any such distribution. That recognition rule would apply regardless of whether
the purchaser is a cash-basis or accrual-basis taxpayer. Such market discount
would accrue in a manner to be provided in Treasury regulations and should
take into account the Prepayment Assumption. The Conference Committee Report
to the 1986 Act provides that until such regulations are issued, such market
discount would accrue either (i) on the basis of a constant interest rate or
(ii) in the ratio of stated interest allocable to the relevant period to the
sum of the interest for such period plus the remaining interest as of the end
of such period, or in the case of a Regular Certificate issued with original
issue discount, in the ratio of original issue discount accrued for the
relevant period to the sum of the original issue discount accrued for such
period plus the remaining original issue discount as of the end of such
period. Such purchaser also generally will be required to treat a portion of
any gain on a sale or exchange of the Regular Certificate as ordinary income
to the extent of the market discount accrued to the date of disposition under
one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial distributions in reduction of the
stated redemption price at maturity were received. Such purchaser will be
required to defer deduction of a portion of the excess of the interest paid or
accrued on indebtedness incurred to purchase or carry a Regular Certificate
over the interest distributable thereon. The deferred portion of such interest
expense in any taxable year generally will not exceed the accrued market
discount on the Regular Certificate for such year. Any such deferred interest
expense is, in general, allowed as a deduction not later than the year in
which the related market discount income is recognized or the Regular
Certificate is disposed of. As an alternative to the inclusion of market
discount in income on the foregoing basis, the Regular Certificateholder may
elect to include market discount in income currently as it accrues in all
market discount instruments acquired by such Regular Certificateholder in that
taxable year or thereafter, in which case the interest deferral rule will not
apply. In Revenue Procedure 92-67, the Internal Revenue Service set forth
procedures for taxpayers (1) electing under Code Section 1278(b) to include
market discount in income currently, (2) electing under rules of Code Section
1276(b) to use a constant interest rate to determine accrued market discount
on a bond where the holder of the bond is required to determine the amount of
accrued market discount at a time prior to the holder's disposition of the
bond, and (3) requesting consent to revoke an election under Code Section
1278(b).
By analogy to the OID Regulations, market discount with respect to a
Regular Certificate will be considered to be zero if such market discount is
less than 0.25% of the remaining stated redemption price at maturity of such
Regular Certificate multiplied by the weighted average maturity of the Regular
Certificate (determined as described above under "Original Issue Discount")
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued, and therefore investors should
consult their own tax advisors regarding the application of these rules as
well as the advisability of making any of the elections with respect thereto.
Premium. A Regular Certificate purchased at a cost greater than its
remaining stated redemption price at maturity generally is considered to be
purchased at a premium. If the Regular Certificateholder holds such Regular
Certificate as a "capital asset" within the meaning of Code Section 1221, the
Regular Certificateholder may elect under Code Section 171 to amortize such
premium as an offset to interest income under a constant yield method that
reflects compounding based on the interval between payments on the Regular
Certificates. This election, once made, applies to all obligations held by the
taxpayer at the beginning of the first taxable year to which such section
applies and to all taxable debt obligations thereafter acquired and is binding
on such taxpayer in all subsequent years. The Conference Committee Report to
the 1986 Act indicates a Congressional intent that the same rules that apply
to the accrual of market discount on installment obligations will also apply
to amortizing bond premium under Code Section 171 on installment obligations
such as the Regular Certificates.
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Sale or Exchange of Regular Certificates. If a Regular
Certificateholder sells or exchanges a Regular Certificate, the Regular
Certificateholder will recognize gain or loss equal to the difference, if any,
between the amount received and his adjusted basis in the Regular Certificate.
The adjusted basis of a Regular Certificate generally will equal the cost of
the Regular Certificate to the seller, increased by any original issue
discount or market discount previously included in the seller's gross income
with respect to the Regular Certificate and reduced by amounts included in the
stated redemption price at maturity of the Regular Certificate that were
previously received by the seller and by any amortized premium.
Except as described above with respect to market discount, and except
as provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term or
short-term depending on whether the Regular Certificate has been held for the
long-term capital gain holding period (currently more than one year). Gain
from the disposition of a Regular Certificate that might otherwise be capital
gain will be treated as ordinary income to the extent that such gain does not
exceed the excess, if any, of (i) the amount that would have been includible
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 (ii) the amount of income actually includible in the
gross income of such holder with respect to the Regular Certificate. In
addition, gain or loss recognized from the sale of a Regular Certificate by
certain banks or thrift institutions will be treated as ordinary income or
loss pursuant to Code Section 582(c).
Taxation of Residual Certificates
Taxation of REMIC Income. Generally, the "daily portions" of REMIC
taxable income or net loss will be includible as ordinary income or loss in
determining the federal taxable income of holders of Residual Certificates
("Residual Certificateholders") and will not be taxed separately to the REMIC
Pool. The daily portions of REMIC taxable income or net loss of a Residual
Certificateholder are determined by allocating the REMIC Pool's taxable income
or net loss for each calendar quarter ratably to each day in such quarter and
by allocating such daily portion among the Residual Certificateholders in
proportion to their respective holdings of Residual Certificates in the REMIC
Pool on such day. REMIC taxable income is generally determined in the same
manner as the taxable income of an individual using a calendar year and the
accrual method of accounting, except that (i) the limitation on deductibility
of investment interest expense and expenses for the production of income do
not apply, (ii) all bad loans will be deductible as business bad debts and
(iii) the limitation on the deductibility of interest and expenses related to
tax-exempt income will apply. REMIC taxable income generally means the REMIC
Pool's gross income, including interest, original issue discount income and
market discount income, if any, on the Mortgage Assets, plus income on
reinvestment of cashflows and reserve assets, minus deductions, including
interest and original issue discount expense on the Regular Certificates,
servicing fees on the Mortgage Assets and other administrative expenses of the
REMIC Pool, amortization of premium, if any, with respect to the Mortgage
Assets, and any tax imposed on the REMIC's income from foreclosure property.
The requirement that Residual Certificateholders report their pro rata share
of taxable income or net loss of the REMIC Pool will continue until there are
no Certificates of any class of the related series outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship
between the timing of recognition of interest and original issue discount or
market discount income or amortization of premium with respect to the Mortgage
Assets, on the one hand, and the timing of deductions for interest (including
original issue discount) on the Regular Certificates, on the other hand.
Because of the way REMIC taxable income is calculated, a Residual
Certificateholder may recognize "phantom" income (i.e., income recognized for
tax purposes in excess of income as determined under financial accounting or
economic principles) which will be matched in later years by a corresponding
tax loss or reduction in taxable income, but which could lower the yield to
Residual Certificateholders due to the lower present value of such future loss
or reduction. For example, if an interest in the Mortgage Assets is acquired
by the REMIC Pool at a discount, and one or more of such Mortgage Assets is
prepaid, the Residual Certificateholder may recognize taxable income without
being entitled to receive a corresponding amount of cash because (i) the
prepayment may be used in whole or in part to make distributions in reduction
of principal on the Regular Certificates and (ii) the discount income on the
Mortgage Loan which is includible in the REMIC's taxable income may exceed the
discount deduction allowed to the REMIC upon such distributions on the Regular
Certificates. When there is more than one class of Regular
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Certificates that distribute principal sequentially, this mismatching of
income and deductions is particularly likely to occur in the early years
following issuance of the Regular Certificates when distributions in reduction
of principal are being made in respect of earlier maturing classes of
Certificates. If taxable income attributable to such a mismatching is realized
in general, losses would be allowed in later years as distributions on the
later classes of Regular Certificates are made. Taxable income may also be
greater in earlier years than in later years as a result of the fact that
interest expense deductions, expressed as a percentage of the outstanding
principal amount of such a series of Regular Certificates, may increase over
time as distributions in reduction of principal are made on the lower yielding
classes of Regular Certificates, where interest income with respect to any
given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan. Consequently, Residual
Certificateholders must have sufficient other sources of cash to pay any
federal, state or local income taxes due as a result of such mismatching or
unrelated deductions against which to offset such income. Prospective
investors should be aware, however, that a portion of such income may be
ineligible for offset by such investor's unrelated deductions. See the
discussion of "excess inclusions" below under "Limitations on Offset or
Exemption of REMIC Income; Excess Inclusions." The timing of such mismatching
of income and deductions described in this paragraph, if present with respect
to a series of Certificates, may have a significant adverse effect upon the
Residual Certificateholder's after-tax rate of return. In addition, a Residual
Certificateholder's taxable income during certain periods may exceed the
income reflected by such Certificateholder for such periods in accordance with
generally accepted accounting principles.
Basis and Losses. The amount of any net loss of the REMIC Pool that
may be taken into account by the Residual Certificateholder is limited to the
adjusted basis of the Residual Certificate as of the close of the quarter (or
time of disposition of the Residual Certificate if earlier), determined
without taking into account the net loss for the quarter. The initial adjusted
basis of a purchaser of a Residual Certificate is the amount paid for such
Residual Certificate. Such adjusted basis will be increased by the amount of
taxable income of the REMIC Pool reportable by the Residual Certificateholder
and decreased by the amount of loss of the REMIC Pool reportable by the
Residual Certificateholder. A cash distribution from the REMIC Pool also will
reduce such adjusted basis (but not below zero). Any loss that is disallowed
on account of this limitation may be carried over indefinitely with respect to
the Residual Certificateholder as to whom such loss was disallowed and may be
used by such Residual Certificateholder only to offset any income generated by
the residual from such REMIC Pool. Residual Certificateholders should consult
their tax advisors about other limitations on the deductibility of net losses
that may apply to them.
A Residual Certificateholder will not be permitted to amortize
directly the cost of its Residual Certificate as an offset to its share of the
taxable income of the related REMIC Pool. However, such taxable income will
not include cash received by the REMIC Pool that represents a recovery of the
REMIC Pool's basis in its assets. Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificates over their life. However, in view of the possible acceleration of
the income of Residual Certificateholders described above under "Taxation of
REMIC Income," the period of time over which such issue price is effectively
amortized may be longer than the economic life of the Residual Certificates.
If a Residual Certificate has a negative value, it is not clear
whether its issue price would be considered to be zero or such negative amount
for purposes of determining the REMIC Pool's basis in its assets. The REMIC
Regulations do not address whether residual interests could have a negative
basis and a negative issue price. The Depositor does not intend to treat a
class of Residual Certificates as having a value of less than zero for
purposes of determining the bases of the related REMIC Pool in its assets.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate
is greater than the corresponding portion of the REMIC Pool's basis in the
Mortgage Assets, the Residual Certificateholder will not recover a portion of
such basis until termination of the REMIC Pool unless Treasury regulations yet
to be issued provide for periodic adjustments to the REMIC income otherwise
reportable by such holder. The REMIC Regulations do not so provide. See
"Treatment of Certain Items of REMIC Income and Expense - Market Discount"
below regarding the basis of Mortgage Assets to the REMIC Pool and "Sale or
Exchange of Residual Certificates" below regarding possible treatment of a
loss upon termination of the REMIC Pool as a capital loss.
Mark to Market Rules
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Prospective purchasers of a Residual Certificate should be aware that
on December 24, 1996, the Internal Revenue Service issued final regulations
(the "Mark to Market Regulations") relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities of a dealer, except to
the extent that the dealer has specifically identified a security as held for
investment. The Mark to Market Regulations provide that for purposes of this
mark-to-market requirement, a Residual Certificate acquired after January 4,
1995, is not treated as a security and thus may not be marked to market.
Treatment of Certain Items of REMIC Income and Expense
Original Issue Discount. Generally, the REMIC Pool's deductions for
original issue discount will be determined in the same manner as original
issue discount income on Regular Certificates as described above under
"Taxation of Regular Certificates - Original Issue Discount" and "Variable
Rate Regular Certificates," without regard to the de minimis rule described
therein.
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Assets if, in general, the basis of the REMIC Pool in such
Mortgage Assets is exceeded by their unpaid principal balances. The REMIC
Pool's basis in such Mortgage Assets is generally the fair market value of the
Mortgage Assets immediately after the transfer thereof to the REMIC Pool. The
REMIC Regulations provide that such basis is equal in the aggregate to the
issue prices of all regular and residual interests in the REMIC Pool. In
respect of Mortgage Assets that have market discount to which Code Section
1276 applies, the accrued portion of such market discount would be recognized
currently by the REMIC as an item of ordinary income. Market discount income
generally should accrue in the manner described above under "Taxation of
Regular Certificates - Market Discount."
Premium. Generally, if the basis of the REMIC Pool in the Mortgage
Assets exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Assets at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in the Mortgage
Assets is the fair market value of the Mortgage Assets, based on the aggregate
of the issue prices of the regular and residual interests in the REMIC Pool
immediately after the transfer thereof to the REMIC Pool. In a manner
analogous to the discussion above under "Taxation of Regular Certificates -
Premium," a person that holds a Mortgage Loan as a capital asset under Code
Section 1221 may elect under Code Section 171 to amortize premium on Mortgage
Assets originated after September 27, 1985 under a constant yield method.
Amortizable bond premium will be treated as an offset to interest income on
the Mortgage Assets, rather than as a separate deduction item. Premium on
Mortgage Assets may be deductible in accordance with a reasonable method
regularly employed by the holder thereof. The allocation of such premium pro
rata among principal payments should be considered a reasonable method;
however, the Internal Revenue Service may argue that such premium should be
allocated in a different manner, such as allocating such premium entirely to
the final payment of principal.
Limitations on Offset or Exemption of REMIC Income; Excess
Inclusions. A portion of the income allocable to a Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter,
with will be subject to federal income tax in all events. Thus, for example,
an excess inclusion (i) cannot, except as described below, be offset by any
unrelated losses or loss carryovers of a Residual Certificateholder, (ii) will
be treated as "unrelated business taxable income" within the meaning of Code
Section 512 if the Residual Certificateholder is a pension fund or any other
organization that is subject to tax only on its unrelated business taxable
income and (iii) is not eligible for any reduction in the rate of withholding
tax in the case of a Residual Certificateholder that is a foreign investor, as
further discussed in "Taxation of Certain Foreign Investors - Residual
Certificates" below. Members of an affiliated group are treated as one
corporation for purposes of applying the limitation on offset of excess
inclusion income. The Small Business Protection Act of 1996 (the "1996 Act")
eliminated a special rule that permitted thrift institutions to use net
operating losses and other allowable deductions to offset their excess
inclusion income from Residual Certificates with significant value for taxable
years beginning after December 31, 1995 (subject to exceptions for certain
certificates held continuously since November 1, 1995). The 1996 Act also
provides new rules affecting the determination of alternative maximum taxable
income ("AMTI") of a Residual Certificateholder. First, AMTI is calculated
without regard to the special rule that taxable income cannot be less than
excess inclusion income for the year. Second, AMTI cannot be less than excess
inclusion income for the year. Finally, any AMTI net operating loss deduction
is computed without regard to excess inclusion income.
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These new rules are effective for tax years beginning after December 31, 1986,
unless a Residual Certificateholder elects to have the rules apply only to tax
years ending after August 20, 1996.
Except as discussed in the following paragraph, with respect to
excess inclusions from Residual Certificates without "significant value," for
any Residual Certificateholder, the excess inclusion for any calendar quarter
is the excess, if any, of (i) the income of such Residual Certificateholder
for that calendar quarter from its Residual Certificate over (ii) the sum of
the "daily accruals" (as defined below) for all days during the calendar
quarter on which the Residual Certificateholder holds such Residual
Certificate. For this purpose, the daily accruals with respect to a Residual
Certificate are determined by allocating to each day in the calendar quarter
its ratable portion of the product of the "adjusted issue price" (as defined
below) of the Residual Certificate at the beginning of the calendar quarter
and 120 percent of the "Federal long-term rate" in effect at the time the
Residual Certificate is issued. For this purposes the "adjusted issue price"
of a Residual Certificate at the beginning of any calendar quarter equals the
issue price of the Residual Certificate (adjusted for contributions),
increased by the amount of daily accruals for all prior quarters, and
decreased (but not below zero) by the aggregate amount of payments made on the
Residual Certificate before the beginning of such quarter. The Federal
long-term rate is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by
the IRS.
The Code provides that to the extent provided in regulations, as an
exception to the general rule described above, the entire amount of income
accruing on a Residual Certificate will be treated as an excess inclusion if
the Residual Certificates in the aggregate are considered not to have
"significant value." The Treasury Department has not yet provided regulations
in this respect and the REMIC Regulations did not adopt this rule.
Under Treasury regulations to be promulgated, a portion of the
dividends paid by a REIT which owns a Residual Certificate are to be
designated as excess inclusions in an amount corresponding to the Residual
Certificate's allocable share of the excess inclusions. Similar rules apply in
the case of regulated investment companies, common trust funds and
cooperatives. Thus, investors in such entities which own a Residual
Certificate will be subject to the limitations on excess inclusions described
above. The REMIC Regulations do not provide guidance on this issue.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If legal title or beneficial interest in
a Residual Certificate is transferred to a Disqualified Organization (as
defined below), a tax would be imposed in an amount equal to the product of
(i) the present value of the total anticipated excess inclusions with respect
to such Residual Certificate for periods after the transfer and (ii) the
highest marginal federal corporate income tax rate. The REMIC Regulations
provide that the anticipated excess inclusion are based on actual prepayment
experience to the date of the transfer and projected payments based on the
Prepayment Assumption. The present value discount rate equals the applicable
Federal rate under Code Section 1274(d) that would apply to a debt instrument
that was issued on the date the Disqualified Organization acquired the
Residual Certificate and whose term ended on the close of the last quarter in
which excess inclusion was expected to accrue with respect to the Residual
Certificate. Such a tax generally would be imposed on the transferor of the
Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee, or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a Disqualified Organization and, as of
the time of the transfer, the transferor does not have actual knowledge that
such affidavit is false. The tax also may be waived by the Treasury Department
if the Disqualified Organization promptly disposes of the Residual Certificate
and the transferor pays income tax at the highest corporate rate on the excess
inclusion for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such
Disqualified Organization and (ii) the highest marginal federal corporate
income tax rate. Such tax would be deductible from the
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ordinary gross income of the Pass-Through Entity for the taxable year. The
Pass-Through Entity would not be liable for such tax if it has received an
affidavit from such record holder that (i) states under penalty of perjury
that it is not a Disqualified Organization or (ii) furnishes a social security
number and states under penalties of perjury that the social security number
is that of the transferee, provided that during the period such person is the
record holder of the Residual Certificate, the Pass-Through Entity does not
have actual knowledge that such affidavit is false. Excess inclusion income of
a Residual Certificate held by an electing large partnership (as defined in
Code section 775) is subject to tax in the hands of the partnership.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government,
any international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511 and (ii) "Pass-Through
Entity" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations yet to be issued, any person holding an interest in a Pass-Through
Entity as a nominee for another will, with respect to such interest, be
treated as a Pass-Through Entity.
The Agreement with respect to a series of Certificates will provide
that neither legal title nor beneficial interest in a Residual Certificate may
be transferred or registered unless (i) the proposed transferee provides to
the Depositor and the Trustee an affidavit to the effect that such transferee
is not a Disqualified Organization, is not purchasing such Residual
Certificates on behalf of a Disqualified Organization (i.e., as a broker,
nominee or middleman thereof) and is not an entity that holds REMIC residual
securities as nominee to facilitate the clearance and settlement of such
securities through electronic book-entry changes in accounts of participating
organizations and (ii) the transferor provides a statement in writing to the
Depositor and the Trustee that it has no actual knowledge that such affidavit
is false. Moreover, the Agreement will provide that any attempted or purported
transfer in violation of these transfer restrictions will be null and void and
will vest no rights in any purported transferee. Each Residual Certificate
with respect to a series will have a legend referring to such restrictions on
transfer, and each Residual Certificateholder will be deemed to have agreed,
as a condition of ownership thereof, to any amendments to the related
Agreement required under the Code or applicable Treasury regulations to
effectuate the foregoing restrictions. Information necessary to compute an
applicable excise tax must be furnished to the Internal Revenue Service and to
the requesting party within 60 days of the request, and the Depositor or the
Trustee may charge a fee for computing and providing such information.
Noneconomic Residual Interests. Under the REMIC Regulations certain
transfers of Residual Certificates are disregarded, in which case the
transferor continues to be treated as the owner of the Residual Certificates
and thus continues to be subject to tax on its allocable portion of the net
income of the REMIC Pool. Under the Final REMIC Regulations, a transfer of a
Noneconomic Residual Interest (defined below) to a Residual Certificateholder
(other than a Residual Certificateholder who is not a U.S. Person, as defined
below under "Foreign Investors") is disregarded for all federal income tax
purposes unless no significant purpose of the transfer is to impede the
assessment or collection of tax. A residual interest in a REMIC (including a
residual interest with a positive value at issuance) is a "Noneconomic
Residual Interest" unless, at the time of the transfer, (i) the present value
of the expected future distributions on the residual interest at least equals
the product of the present value of the anticipated excess inclusions and the
highest federal corporate income tax rate in effect for the year in which the
transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The anticipated excess inclusions and
the present value rate are determined in the same manner as set forth above
under "Disqualified Organizations." 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
transferor would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. Under the REMIC Regulations, a transferor is
presumed not to have improper knowledge if (i) the transferor conducted, 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 found that the transferee had historically paid its debts as they
came due and found no
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significant evidence to indicate that the transferor will not continue to pay
its debts as they come due in the future; and (ii) the transferee represents
to the transferor that it understands that, as the holder of the Noneconomic
Residual Interest, the transferee may incur tax liabilities in excess of any
cash flows generated by the residual interest and that the transferee intends
to pay taxes associated with holding of residual interest as they become due.
The Agreement will require the transferee of a Residual Certificate to state
as part of the affidavit described above under the heading "Disqualified
Organizations" that such transferee (i) has historically paid its debts as
they come due, (ii) intends to continue to pay its debts as they come due in
the future, (iii) understands that, as the holder of a Noneconomic Residual
Interest, it may incur tax liabilities in excess of any cash flows generated
by the Residual Certificate, and (iv) intends to pay any and all taxes
associated with holding the Residual Certificate as they become due. The
transferor must have no reason to believe that such statement is untrue.
Foreign Investors. The REMIC Regulations provide that the transfer of
a Residual Certificate that has "tax avoidance potential" to a "foreign
person" will be disregarded for all federal tax purposes. A Residual
Certificate is deemed to have tax avoidance potential unless, at the time of
the transfer, the transferor reasonably expects that, for each excess
inclusion, (i) the REMIC Pool will distribute to the transferee residual
interest holder an amount that will equal at least 30% of the excess
inclusions and (ii) that each such amount will be distributed at or after the
time at which the excess inclusion accrues and not later than the close of the
calendar year following the calendar year of accrual. If the non-U.S. Person
transfers the Residual Certificate back to a U.S. Person, the transfer will be
disregarded and the foreign transferor will continue to be treated as the
owner unless arrangements are made so that the transfer does not have the
effect of allowing the transferor to avoid tax on accrued excess inclusions.
The Prospectus Supplement relating to a series of Certificates may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate that is subject
to U.S. federal income tax regardless of the source of its income or a trust
described in Code section 7701(a)(30).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual
Certificateholder will recognize gain or loss equal to the excess, if any, of
the amount realized over the adjusted basis (as described above under
"Taxation of Residual Certificates - Basis and Losses") of such Residual
Certificateholder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Certificateholder will have taxable income to the extent that any
cash distribution to him from the REMIC Pool exceeds such adjusted basis on
that Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual
Certificateholder's Residual Certificate, in which case, if the Residual
Certificateholder has an adjusted basis in his Residual Certificate remaining
when his interest in the REMIC Pool terminates, and if he holds such Residual
Certificate as a capital asset under Code Section 1221, then he will recognize
a capital loss at that time in the amount of such remaining adjusted basis.
Losses on dispositions of Residual Certificates will be disallowed
where the seller of the Residual Certificate, during the period beginning six
months before the sale or disposition of the Residual Certificate and ending
six months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as
certain non-REMIC owner trusts) that is economically comparable to a Residual
Certificate.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions. Net income from certain transactions by the
REMIC Pool, called prohibited transactions, will not be part of the
calculation of income or loss includible in the federal income tax returns of
Residual Certificateholders, but rather will be taxed directly to the REMIC
Pool at a 100% rate. Prohibited transactions generally include (i) the
disposition of a qualified mortgage other than for (a) substitution within two
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years of the Startup Day for a defective (including a defaulted) obligation
(or repurchase in lieu of substitution of a defective (including a defaulted)
obligation at any time) or for any qualified mortgage within three months of
the Startup Day, (b) foreclosure, default or imminent default of a qualified
mortgage, (c) bankruptcy or insolvency of the REMIC Pool or (d) a qualified
(complete) liquidation, (ii) the receipt of income from assets that are not
the type of mortgages or investments that the REMIC Pool is permitted to hold,
(iii) the receipt of compensation for services or (iv) the receipt of gain
from disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a
due-on-sale or encumbrance clause or the conversion of an interest rate by a
mortgagor pursuant to the terms of a convertible adjustable rate Mortgage
Loan. The REMIC Regulations also provide that the modification of mortgage
loans underlying Mortgage-Backed Securities will not be treated as a
modification of the Mortgage-Backed Securities, provided that the trust
issuing the Mortgage-Backed Securities was not created to avoid prohibited
transaction rules.
Contributions to the REMIC Pool After the Startup Day. In general,
the REMIC Pool will be subject to a tax at a 100% rate on the value of any
property contributed to the REMIC Pool after the Startup Day. Exceptions are
provided for cash contributions to the REMIC Pool (i) during the three months
following the Startup Day, (ii) made to a qualified reserve fund by a Residual
Certificateholder, (iii) in the nature of a guarantee, (iv) made to facilitate
a qualified liquidation or clean-up call and (v) as otherwise permitted in
Treasury regulations yet to be issued.
Net Income from Foreclosure Property. The REMIC Pool will be subject
to federal income tax at the highest corporate rate on "net income from
foreclosure property," determined by reference to the rules applicable to real
estate investment trusts. Generally, property acquired by the REMIC Pool
through foreclosure or deed in lieu of foreclosure would be treated as
"foreclosure property" for a period of three years, with possible extensions.
Net income from foreclosure property generally means (i) gain from the sale of
a foreclosure property that is inventory property and (ii) gross income from
foreclosure property other than qualifying rents and other qualifying income
for a real estate investment trust.
Liquidation of the REMIC Pool
If a REMIC Pool and the Trustee adopt a plan of complete liquidation,
within the meaning of Code Section 860F(a)(4)(A)(i) and sell all of the REMIC
Pool's assets (other than cash) within a 90-day period beginning on the date
of the adoption of the plan of liquidation, the REMIC Pool will recognize no
gain or loss on the sale of its assets, provided that the REMIC Pool credits
or distributes in liquidation all of the sale proceeds plus its cash (other
than amounts retained to meet claims against the REMIC Pool) to holders of
Regular Certificates and Residual Certificateholders within the 90-day period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar
year basis and to file federal income tax returns for federal income tax
purposes in a manner similar to a partnership. The form for such income tax
return is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return. The Trustee will be required to sign the REMIC Pool's returns.
Treasury regulations provide that, except where there is a single Residual
Certificateholder for an entire taxable year, the REMIC Pool generally will be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination by the Internal Revenue Service of
any adjustments to, among other things, items of REMIC income, gain, loss,
deduction or credit in a unified administrative proceeding. The Depositor or a
designated Residual Certificateholders will be obligated to act as "tax
matters person," as defined in applicable Treasury regulations, with respect
to the REMIC Pool. If the Code or applicable Treasury regulations do not
permit the Depositor to act as tax matters person in its capacity as agent of
the Residual Certificateholders, the Residual Certificateholder chosen by the
Residual Certificateholders or such other person specified pursuant to
Treasury regulations will be required to act as tax matters person.
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Treasury regulations provide that a holder of a Residual Certificate
is not required to treat items on its return consistently with their treatment
on the REMIC Pool's return if a holder owns 100% of the Residual Certificates
for the entire calendar year. Otherwise, each holder of a Residual Certificate
is required to treat items on its return consistently with their treatment on
the REMIC Pool's return, unless the holder of a Residual Certificate either
files a statement identifying the inconsistency or establishes that the
inconsistency resulted from incorrect information received from the REMIC
Pool. The Service may assess a deficiency resulting from a failure to comply
with the consistency requirement without instituting an administrative
proceeding at the REMIC Pool level.
Limitations on Deduction of Certain Expenses
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a taxable
year of an individual taxpayer will be reduced by the lesser of (i) 3% of the
excess, if any, of adjusted gross income over $100,000, adjusted yearly for
inflation ($50,000, adjusted yearly for inflation, in the case of a married
individual filing a separate return), or (ii) 80% of the amount of itemized
deductions otherwise allowable for such year. In the case of a REMIC Pool,
such deductions may include deductions under Code Section 212 for servicing
fees and all administrative and other expenses relating to the REMIC Pool or
any similar expenses allocated to the REMIC Pool with respect to a regular
interest it holds in another REMIC. Such investors who hold REMIC Certificates
either directly or indirectly through certain pass-through entities may have
their pro rata share of such expenses allocated to them as additional gross
income, but may be subject to such limitation on deductions. In addition, such
expenses are not deductible at all for purposes of computing the alternative
minimum tax, and may cause such investors to be subject to significant
additional tax liability. Treasury regulations provide that the additional
gross income and corresponding amount of expenses generally are to be
allocated entirely to the holders of Residual Certificates in the case of a
REMIC Pool that would not qualify as a fixed investment trust in the absence
of a REMIC election. However, such additional gross income and limitation on
deductions will apply to the allocable portion of such expenses to holders of
Regular Certificates, as well as holders of Residual Certificates, where such
Regular Certificates are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. In general, such allocable portion
will be determined based on the ratio that a REMIC Certificateholder's income,
determined on a daily basis, bears to the income of all holders of Regular
Certificates and Residual Certificates with respect to a REMIC Pool. As a
result, individuals, estates or trusts holding REMIC Certificates (either
directly or indirectly through a grantor trust, partnership, S corporation,
REMIC, or certain other pass-through entities described in the foregoing
Treasury regulations) may have taxable income in excess of the interest income
at the pass-through rate on Regular Certificates that are issued in a single
class or otherwise consistently with fixed investment trust status or in
excess of cash distributions for the related period on Residual Certificates.
Taxation of Certain Foreign Investors
Regular Certificates. Interest, including original issue discount,
distributable to Regular Certificateholders who are nonresident aliens,
foreign corporations, or other Non-U.S. Persons (as defined below), will be
considered "portfolio interest" and therefore, generally will not be subject
to 30% United States withholding tax, provided that such Non-U.S. Person (i)
is not a "10-percent shareholder" within the meaning of Code Section
871(h)(3)(B) or a controlled foreign corporation described in Code Section
881(c)(3)(C) and (ii) provides the Trustee, or the person who would otherwise
be required to withhold tax from such distributions under Code Sections 1441
or 1442, with an appropriate statement, signed under penalties of perjury,
identifying the beneficial owner and stating, among other things, that the
beneficial owner of the Regular Certificate is a Non-U.S. Person. If such
statement, or any other required statement, is not provided, 30% withholding
will apply unless reduced or eliminated pursuant to an applicable tax treaty
or unless the interest on the Regular Certificate is effectively connected
with the conduct of a trade or business within the United States by such
Non-U.S. Person. In the latter case, such Non-U.S. Person will be subject to
United States federal income tax at regular rates. Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a Regular Certificate. The term "Non-U.S.
Person" means any person who is not a U.S. Person.
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Residual Certificates. The Conference Committee Report to the 1986
Act indicates that amounts paid to Residual Certificateholders who are
Non-U.S. Persons are treated as interest for purposes of the 30% (or lower
treaty rate) United States withholding tax. Treasury regulations provide that
amounts distributed to Residual Certificateholders qualify as "portfolio
interest," subject to the conditions described in "Regular Certificates"
above, but only to the extent that (i) the Mortgage Assets were issued after
July 18, 1984 and (ii) the Trust fund or segregated pool of assets therein (as
to which a separate REMIC election will be made), to which the Residual
Certificate relates, consists of obligations issued in "registered form"
within the meaning of Code Section 163(f)(1). Generally, Mortgage Assets will
not be, but regular interests in another REMIC Pool will be, considered
obligations issued in registered form. Furthermore, a Residual
Certificateholder will not be entitled to any exemption (or lower treaty rate)
from the 30% withholding tax to the extent of that portion of REMIC taxable
income that constitutes an "excess inclusion." See "Taxation of Residual
Certificates - Limitations on Offset or Exemption of REMIC Income; Excess
Inclusions." If the amounts paid to Residual Certificateholders who are
Non-U.S. Persons are effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Persons, 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
Non-U.S. Persons will be subject to United States federal income tax at
regular rates. If 30% (or lower treaty rate) withholding is applicable, such
amounts generally will be taken into account for purposes of withholding only
when paid or otherwise distributed (or when the Residual Certificate is
disposed of) under rules similar to withholding upon disposition of debt
instruments that have original issue discount. See "Tax-Related Restrictions
on Transfer of Residual Certificates - Foreign Investors" above concerning the
disregard of certain transfers having "tax avoidance potential."
Recently issued Treasury regulations (the "Final Withholding
Regulations"), which are generally effective with respect to payments made
after December 31, 1998, consolidate and modify the current certification
requirements and means by which a holder may claim exemption from United
States federal income tax withholding and provide certain presumptions
regarding the status of holders when payments to the holders cannot be
reliably associated with appropriate documentation provided to the payor. All
holders of Offered Certificates should consult their tax advisers regarding
the application of the Final Withholding Regulations.
Backup Withholding
Distributions made on the Regular Certificates, and proceeds from the
sale of the Regular Certificates to or through certain brokers, may be subject
to a "backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and,
under certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from
distribution on the Regular Certificates would be refunded by the Internal
Revenue Service or allowed as a credit against the Regular Certificateholder's
federal income tax liability.
Reporting Requirements
Reports of accrued interest and original issue discount will be made
annually to the Internal Revenue Service and to individuals, estates,
non-exempt and non-charitable trusts, and partnerships who are either holders
of record of Regular Certificates or beneficial owners who own Regular
Certificates through a broker or middleman as nominee. All brokers, nominees
and all other non-exempt holders of record of Regular Certificates (including
corporations, non-calendar year taxpayers, securities or commodities dealers,
real estate investment trusts, investment companies, common trust funds,
thrift institutions and charitable trusts) may request such information for
any calendar quarter by telephone or in writing by contacting the person
designated in Internal Revenue Service Publication 938 with respect to a
particular series of Regular Certificates. Holders through nominees must
request such information from the nominee. Treasury regulations provide that
information necessary to compute the accrual of any market discount on the
Regular Certificates must be furnished.
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The Internal Revenue Service's Form 1066 has an accompanying Schedule
Q, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or
Net Loss Allocation. Treasury regulations require that Schedule Q be furnished
by the REMIC Pool to each Residual Certificateholder with respect to each
calendar quarter.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Internal Revenue Service concerning
Code Section 67 expenses (see "Limitations on Deduction of Certain Expenses"
above) allocable to such holders. Furthermore, under such regulations,
information must be furnished quarterly to Residual Certificateholders,
furnished annually to holders of Regular Certificates, and filed annually with
the Internal Revenue Service concerning the percentage of the REMIC Pool's
assets meeting the qualified asset tests described above under "Federal Income
Tax Consequences for REMIC Certificates" above.
Federal Income Tax Consequences for Certificates as to Which No REMIC Election
Is Made
Dewey Ballantine LLP, special counsel to the Depositor, is of the
opinion that if a Trust does not elect REMIC status and is not treated as a
partnership, the tax consequences to the Owners will be as described below.
Standard Certificates
General. If no election is made to treat a Trust (or a segregated
pool of assets therein) with respect to a series of Certificates as a REMIC,
the Trust may be classified as a grantor trust under subparagraph E, Part 1 of
subchapter J of the Code and not as a partnership or an association taxable as
a corporation. Where there is no fixed retained yield with respect to the
Mortgage Assets underlying the Certificates of a series, and where such
Certificates are not designated as Stripped Certificates, as described below
under "Stripped Certificates" or as Partnership Interests described under
"Taxation of Securities Classified as Partnership Interests," the holder of
each such "Standard Certificate" in such series will be treated as the owner
of a pro rata undivided interest in the ordinary income and corpus portions of
the Trust represented by his Certificate and will be considered the beneficial
owner of a pro rata undivided interest in each of the Mortgage Assets, subject
to the discussion below under "Recharacterization of Servicing Fees."
Accordingly, the holder of a Certificate (a "Certificateholder") of a
particular series will be required to report on its federal income tax return
its pro rata share of the entire income from the Mortgage Assets, original
issue discount (if any), prepayment fees, assumption fees, and late payment
charges received by or on behalf of the Trust, in accordance with such
Certificateholder's method of accounting. A Certificateholder generally will
be able to deduct its share of servicing fees and all administrative and other
expenses of the Trust in accordance with his method of accounting, provided
that such amounts are reasonable compensation for services rendered to that
Trust. However, investors who are individuals, estates or trusts who own
Certificates, either directly or indirectly through certain pass-through
entities, will not be allowed to deduct certain itemized deductions described
in Code Section 67, including deductions under Code Section 212 for servicing
fees and all such administrative and other expenses of the Trust, to the
extent that such deductions, in the aggregate, do not exceed two percent of
the investor's adjusted gross income. In addition, Code Section 68 provides
that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $100,000, adjusted yearly for inflation
($50,000, adjusted yearly for inflation, in the case of a married individual
filing a separate return), or (ii) 80% of the amount of itemized deductions
otherwise allowable for such year. As a result such investors holding
Certificates, directly or indirectly through a pass-through entity, may have
aggregate taxable income in excess of the aggregate amount of cash received on
such Certificates with respect to interest at the pass-through rate on such
Certificates or discount thereon. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax and
may cause such investors to be subject to significant additional tax
liability. Moreover, where there is fixed retained yield with respect to the
Mortgage Assets underlying a series of Certificates or where the servicing
fees are in excess of reasonable servicing compensation, the transaction will
be subject to the application of the "stripped bond" and "stripped coupon"
rules of the Code, as described below under "Stripped Certificates" and
"Premium and Discount - Recharacterization of Servicing Fees," respectively.
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Tax Status. Subject to the discussion below, Dewey Ballantine, special
counsel to the Depositor, is of the opinion that:
1. A Standard Certificate owned by a "domestic building and
loan association" within the meaning of Code Section 7701(a)(19) will
be considered to represent "loans . . . secured by an interest in
real property" within the meaning of Code Section 7701(a)(19)(C)(v),
provided that the real property securing the Mortgage Assets
represented by that Certificate is of the type described in such
section.
2. A Standard Certificate owned by a real estate investment
trust will be considered to represent "real estate assets" within the
meaning of Code Section 856(C) (5) (A) to the extent that the assets
of the related Trust consist of qualified assets, and interest income
on such assets will he considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section
856(c).
3. A Standard Certificate owned by a REMIC will be
considered to represent an "obligation (including any participation
or certificate of beneficial ownership therein) which is principally
secured by an interest in real property" within the meaning of Code
Section 860G(a)(3)(A) to the extent that the assets of the related
Trust consist of "qualified mortgages" within the meaning of Code
Section 860G(a)(3).
An issue arises as to whether buy-down Mortgage Assets may be
characterized in their entirety under the Code provisions cited in the
immediately preceding paragraph. There is indirect authority supporting
treatment of an investment in a buy-down Mortgage Loan as entirely secured by
real property if the fair market value of the real property securing the loan
exceeds the principal amount of the loan at the time of issuance or
acquisition, as the case may be. There is no assurance that the treatment
described above is proper. Accordingly, Certificateholders are urged to
consult their own tax advisors concerning the effects of such arrangements on
the characterization of such Certificateholder's investment for federal income
tax purposes.
Premium and Discount
Certificateholders are advised to consult with their tax advisors as
to the federal income tax treatment of premium and discount arising either
upon initial acquisition of Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a
Certificate will be determined generally as described above under "- Taxation
of Regular Certificates - Premium."
Original Issue Discount. The Internal Revenue Service has stated in
published rulings that, in circumstances similar to those described herein,
the original issue discount rules will be applicable to a Certificateholder's
interest in those Mortgage Assets as to which the conditions for the
application of those sections are met. Rules regarding periodic inclusion of
original issue discount income are applicable to mortgages of corporations
originated after May 27, 1969, mortgages of noncorporate mortgagors (other
than individuals) originated after July l, 1982, and mortgages of individuals
originated after March 2, 1984. Such original issue discount could arise by
the charging of points by the originator of the mortgages in an amount greater
than a statutory de minimis exception, to the extent that the points are not
currently deductible under applicable Code provisions or are not for services
provided by the lender. It is generally not anticipated that adjustable rate
Mortgage Assets will be treated as issued with original issue discount.
However, the application of the OID Regulations to adjustable rate mortgage
loans with incentive interest rates or annual or lifetime interest rate caps
may result in original issue discount.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant yield method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
However, Code Section 1272 provide for a reduction in the amount of original
issue discount includible in the income of a holder of an obligation that
acquires the obligation at a price greater than the sum of the original issue
price and the previously accrued original issue discount, less prior payments
of principal. Accordingly, if such Mortgage Assets acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Assets, no original issue discount attributable to the
difference between the issue price and the
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original principal amount of such Mortgage Assets (i.e., points) will be
includible by such holder. Section 1272(a)(6) provides for the use of a
prepayment assumption in determining original issue discount for any pool of
debt instruments the yield on which may be affected by reason of prepayments.
Market Discount. Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the Mortgage Assets will be
determined and will be reported as ordinary income generally in the manner
described above under "- Taxation of Regular Certificates - Market Discount."
Recharacterization of Servicing Fees. If the servicing fees paid to
Servicers were deemed to exceed reasonable servicing compensation, the amount
of such excess would be nondeductible under Code Section 162 or 212. In this
regard, there are no authoritative guidelines for federal income tax purposes
as to either the maximum amount of servicing compensation that may be
considered reasonable in the context of this or similar transactions or
whether, in the case of the Certificates, the reasonableness of servicing
compensation should be determined on a weighted average or loan-by-loan basis.
If a loan-by-loan basis is appropriate, the likelihood that such amount would
exceed reasonable servicing compensation as to some of the Mortgage Assets
would be increased. Recently issued Internal Revenue Service guidance
indicates that a servicing fee in excess of reasonable compensation ("excess
servicing") will cause the Mortgage Assets to be treated under the "stripped
bond" rules. Such guidance provides safe harbors for servicing deemed to be
reasonable and requires taxpayers to demonstrate that the value of servicing
fees in excess of such amounts is not greater than the value of the services
provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a
servicer that receives excess servicing fees would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage
Assets. Under the rules of Code Section 1286, the separation of the right to
receive some or all of the interest payments on an obligation from the right
to receive some or all of the principal payments on the obligation would
result in treatment of such Mortgage Assets as "stripped coupons" and
"stripped bonds." While Certificateholders would still be treated as owners of
beneficial interests in a grantor trust for federal income tax purposes, the
corpus of such trust could be viewed as excluding the portion of the Mortgage
Assets the ownership of which is attributed to a servicer, or as including
such portion as a second class of equitable interest. Applicable Treasury
regulations treat such an arrangement as a fixed investment trust, since the
multiple classes of trust interests should be treated as merely facilitating
direct investments in the trust assets and the existence of multiple classes
of ownership interests is incidental to that purpose. In general, such a
recharacterization should not have any significant effect upon the timing or
amount of income reported by a Certificateholder. See "Stripped Certificates"
below for a further description of the federal income tax treatment of
stripped bonds and stripped coupons.
In the alternative, the amount, if any, by which the servicing fees
paid to the servicers are deemed to exceed reasonable compensation for
servicing could be treated as deferred payments of purchase price by the
Certificateholders to purchase an undivided interest in the Mortgage Assets.
In such event, the present value of such additional payments might be included
in the Certificateholder's basis in such undivided interests for purposes of
determining whether the Certificate was acquired at a discount, at par, or at
a premium. Under this alternative, Certificateholders may also be entitled to
a deduction for unstated interest with respect to each deferred payment. The
Internal Revenue Service may take the position that the specific statutory
provisions of Code Section 1286 described above override the alternative
described in this paragraph. Certificateholders are advised to consult their
tax advisors as to the proper treatment of the amounts paid to the servicers
as set forth herein as servicing compensation or under either of the
alternatives set forth above.
Sale or Exchange of Certificates. Upon sale or exchange of a
Certificate, a Certificateholder will recognize gain or loss equal to the
difference between the amount realized on the sale and its aggregate adjusted
basis in the Mortgage Assets and other assets represented by the Certificate.
In general, the aggregate adjusted basis will equal the Certificateholder's
cost for the Certificate, increased by the amount of any income previously
reported with respect to the Certificate and decreased by the amount of any
losses previously reported with respect to the Certificate and the amount of
any distributions received thereon. Except as provided above with respect to
market discount on any Mortgage Assets, and except for certain financial
institutions subject to the provisions of Code Section 582(c), any such gain
or loss would be capital gain or loss if the Certificate was held as a capital
asset.
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Stripped Certificates
General. Pursuant to Code Section 1286, the separation of ownership
of the right to receive some or all of the principal payments on an obligation
from ownership of the right to receive some or all of the interest payments
results in the creation of "stripped bonds" with respect to principal payments
and "stripped coupons" with respect to interest payments. For purposes of this
discussion, Certificates that are subject to those rules will be referred to
as "Stripped Certificates." The Certificates will be subject to those rules if
(i) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale), in the form of fixed retained yield or otherwise, an
ownership interest in a portion of the payments on the Mortgage Assets, (ii)
the Depositor, any of its affiliates or a servicer is treated as having an
ownership interest in the Mortgage Assets to the extent it is paid (or
retains) servicing compensation in an amount greater than reasonable
consideration for servicing the Mortgage Assets (see "Standard Certificates -
Recharacterization of the Servicing Fees" above) and (iii) Certificates are
issued in two or more classes or subclasses representing the right to non pro
rata percentages of the interest and principal payments on the Mortgage
Assets.
In general, a holder of a Stripped Certificate (a "Stripped
Certificateholder") will be considered to own "stripped bonds" with respect to
its pro rata share of all or a portion of the principal payments on each
Mortgage Loan and/or "stripped coupons" with respect to its pro rata share of
all or a portion of the interest payments on each Mortgage Loan, including the
Stripped Certificate's allocable share of the servicing fees paid, to the
extent that such fees represent reasonable compensation for services rendered.
See discussion above under "Standard Certificates - Recharacterization of
Servicing Fees." For this purpose the Trust intends to allocate the servicing
fees to the Stripped Certificates in proportion to the respective offering
price of each class (or subclass) of Stripped Certificates. The holder of a
Stripped Certificate generally will be entitled to a deduction each year in
respect of the servicing fees, as described above under "- Federal Income Tax
Consequences for Certificates as to Which No REMIC Election is Made - Standard
Certificates - General," subject to the limitations described therein.
Code Section 1286 treats a stripped bond or a stripped coupon
generally as a new obligation issued (i) on the date that the stripped
interest is purchased and (ii) at a price equal to its purchase price or, if
more than one stripped interest is purchased, the share of the purchase price
allocable to such stripped interest. Each stripped interest generally will
have original issue discount equal to the excess of its stated redemption
price at maturity (or, in the case of a stripped coupon, the amount payable on
the due date of such coupon) over its issue price. Although the treatment of
Stripped Certificates for federal income tax purposes is not clear in certain
respects at this time, particularly where such Stripped Certificates are
issued with respect to a Trust containing variable-rate Mortgage Assets, the
Depositor has been advised by counsel that (i) the Trust will be treated as a
grantor trust under subpart E, Part 1 of subchapter J of the Code and not as
an association taxable as a corporation, and (ii) each Stripped Certificate
should be treated as a single installment obligation for purposes of
calculating original issue discount and gain or loss on disposition. This
treatment is based on the interrelationship of Code Section 1286 and the
regulations thereunder, Code Sections 1272 through 1275, and the OID
Regulations. While under Code Section 1286 computations with respect to
Stripped Certificates arguably should be made in one of the ways described
below, the OID Regulations state, in general, that all debt instruments issued
in connection with the same transaction must be treated as a single debt
instrument. The Trustee will make and report all computations described below
using this aggregate approach, unless substantial legal authority requires
otherwise.
Furthermore, the regulations under Code Section 1286 support the
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is originated for purposes of calculating any original issue discount.
The preamble to such regulations state that such regulations are premised on
the assumption that an aggregation approach is appropriate in determining
whether original issue discount on a stripped bond or stripped coupon is de
minimis. In addition, under these regulations, a Stripped Certificate that
represents a right to payments of both interest and principal may be viewed
either as issued with original issue discount or market discount (as described
below), at a de minimis original issue discount, or presumably, at a premium.
The preamble to such regulations also provide that such regulations are
premised on the assumption that generally the interest component of such a
Stripped Certificate would be treated as stated interest under the original
issue discount rules. Further, the regulations provide that the purchaser of
such a Stripped Certificate may be required to account for any discount as
market discount rather than original issue discount if either (i) the initial
discount with respect to the Strip Certificate was treated as zero under the
de minimis rule or (ii) no more than 100 basis points in excess of reasonable
servicing is stripped off the related
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Mortgage Assets. Any such market discount would be reportable as described
above under "Federal Income Tax Consequences for REMIC Certificates - Taxation
of Regular Certificates - Market Discount," without regard to the de minimis
rule therein.
Status of Stripped Certificates. No specific legal authority exists
as to whether the character of the Stripped Certificates, for federal income
tax purposes, will be the same as that of the Mortgage Assets. Although the
issue is not free from doubt, counsel has advised the Depositor that Stripped
Certificates owned by applicable holders should be considered, "real estate
assets" within the meaning of Code Section 856(c)(A), "obligations(s) . . .
principally secured by an interest in real property" within the meaning of
Code Section 860G(a)(3)(A), and "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v), and interest
(including original issue discount) income attributable to Stripped
Certificates should be considered to represent "interest on obligations
secured by mortgages on real property" within the meaning or Code Section
856(c), provided that in each case the Mortgage Assets and interest on such
Mortgage Assets qualify for such treatment. The application of such Code
provisions to buy-down Mortgage Assets is uncertain. See "-Federal Income Tax
Consequences for Certificates as to Which No REMIC Election is Made" and "-
Standard Certificates - Tax Status" above.
Original Issue Discount. Except as described above under "- General,"
each Stripped Certificate will be considered to have been issued (i) on the
date that the stripped interest is purchased and (ii) at a price equal to its
purchase price or, if more than one stripped interest is purchased, the share
of the purchase price allocable to such stripped interest. Each stripped
interest generally will have original issue discount equal to the excess of
its stated redemption price at maturity (or, in the case of a stripped coupon,
the amount payable on the due date of such coupon) over its issue price.
Original issue discount with respect to a Stripped Certificate must be
included in ordinary income as it accrues, in accordance with a constant yield
method that takes into account the compounding of interest, which may be prior
to the receipt of the cash attributable to such income. Counsel has advised
the Depositor that the amount of original issue discount required to be
included in the income of a Stripped Certificateholder in any taxable year
likely will be computed generally as described above under "Federal Income Tax
Consequences for REMIC Certificates - Taxation of Regular Certificates -
Original Issue Discount" and "- Variable Rate Regular Certificates." However,
with the apparent exception of a Stripped Certificate issued with de minimis
original issue discount, as described above under "- General," the issue price
of a Stripped Certificate will be the purchase price paid by each holder
thereof, and the stated redemption price at maturity will include the
aggregate amount of the payments to be made on the Stripped Certificate to
such Stripped Certificateholder, presumably under the Prepayment Assumption,
other than amounts treated as qualified stated interest.
If the Mortgage Assets prepay at a rate either faster or slower than
that under the Prepayment Assumption, a Stripped Certificateholder's
recognition of original issue discount will be either accelerated or
decelerated and the amount of such original issue discount will be either
increased or decreased depending on the relative interests in principal and
interest on each Mortgage Loan represented by such Stripped
Certificateholder's Stripped Certificate. While the matter is not free from
doubt, the holder of a Stripped Certificate should be entitled in the year
that it becomes certain (assuming no further prepayments) that the holder will
not recover a portion of its adjusted basis in such Stripped Certificate to
recognize an ordinary loss equal to such portion of unrecoverable basis.
Sale or Exchange of Stripped Certificates. Sale or exchange of a
Stripped Certificate prior to its maturity will result in gain or loss equal
to the difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Federal Income Tax Consequences for REMIC Certificates - Taxation
of Regular Certificates - Sale or Exchange of Regular Certificates." To the
extent that a subsequent purchaser's purchase price is exceeded by the
remaining payments on the Stripped Certificates, such subsequent purchaser
will be required for federal income tax purposes to accrue and report such
excess as if it were original issue discount (or market discount) in the
manner described above. It is not clear for this purpose whether the assumed
prepayment rate that is to be used in the case of a Stripped Certificateholder
other than by original Stripped Certificateholder should be based on the
Prepayment Assumption or a new rate based on the circumstances at the date of
subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of the rules described above.
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Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
Reporting Requirements and Backup Withholding
The Trustee will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as the Trustee deems to be necessary or desirable to enable such
Certificateholders to prepare their federal income tax returns. Such
information will include the amount of original issue discount accrued on
Certificates held by persons other than Certificateholders exempted from the
reporting requirements. The amounts required to be reported by the Trustee may
not be equal to the proper amount of original issue discount required to be
reported as taxable income by a Certificateholder, other than an original
Certificateholder. The Trustee will also file such original issue discount
information with the Internal Revenue Service. If a Certificateholder fails to
supply an accurate taxpayer identification number or properly certify the
number or if the Secretary of the Treasury determines that a Certificateholder
has not reported all interest and dividend income required to be shown on his
federal income tax return, 31% backup withholding may be required in respect
of any reportable payments, as described above under "- Backup Withholding."
Taxation of Certain Foreign Investors
To the extent that a Certificate evidences ownership in Mortgage
Assets that are issued on or before July 18, 1984, interest or original issue
discount paid by the person required to withhold tax under Code Section 1441
or 1442, which apply to nonresident aliens, foreign corporations, or other
Non-U.S. Persons generally will be subject to 30% United States withholding
tax, or such lower rate as may be provided for interest by an applicable tax
treaty. Accrued original issue discount recognized by the Certificateholder on
the sale or exchange of such a Certificate also will be subject to federal
income tax at the same rate.
Treasury regulations provide that interest or original issue discount
paid by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Assets issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements described above under "-
Taxation of Certain Foreign Investors - Regular Certificates."
Recently issued Treasury regulations (the "Final Withholding
Regulations"), which are generally effective with respect to payments made
after December 31, 1998, consolidate and modify the current certification
requirements and means by which a holder may claim exemption from United
States federal income tax withholding and provide certain presumptions
regarding the status of holders when payments to the holders cannot be
reliably associated with appropriate documentation provided to the payor. All
holders of Offered Certificates should consult their tax advisers regarding
the application of the Final Withholding Regulations.
Taxation of Securities Classified as Partnership Interests
Certain Trusts may be treated as partnerships for Federal income tax
purposes. In such event, the Trusts may issue Certificates characterized as
"Partnership Interests" as discussed in the related Prospectus Supplement.
With respect to such series of Partnership Interests, Dewey Ballantine LLP,
special counsel to the Depositor, is of the opinion that (unless otherwise
limited in the related Prospectus Supplement, which will also cover any
material federal income tax consequences applicable to the Owners), the Trust
will be characterized as a partnership and not an association taxable as a
corporation for federal income tax purposes.
PLAN OF DISTRIBUTION
Certificates are being offered hereby in series through one or more
underwriters or groups of underwriters (the "Underwriters"). The Prospectus
Supplement will set forth the terms of offering of the series of Certificates,
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including the public offering or purchase price of each class of Certificates
of such series being offered thereby or the method by which such price will be
determined and the net proceeds to the Depositor from the sale of each such
class. Such Certificates will be acquired by the Underwriters for their own
account or may be offered by the Underwriters on a best efforts basis. The
Underwriters may resell such Certificates from time to time in one or more
transactions including negotiated transactions, at fixed public offering
prices or at varying prices to be determined at the time of sale or at the
time of commitment therefor. The managing Underwriter or Underwriters with
respect to the offer and sale of a particular series of Certificates will be
set forth on the cover of the Prospectus Supplement relating to such series
and the members of the underwriting syndicate, if any, will be named in such
Prospectus Supplement
In connection with the sale of the Certificates, Underwriters may
receive compensation from the Depositor or from purchasers of the Certificates
in the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the Certificates may be deemed to be
underwriters in connection with such Certificates, and any discounts or
commissions received by them from the Depositor and any profit on the resale
of Certificates by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended. The Prospectus
Supplement will describe any such compensation paid by the Depositor.
It is anticipated that the underwriting agreement pertaining to the
sale of any series of Certificates will provide that the obligations of the
Underwriters will be subject to certain conditions precedent, that the
Underwriters will be obligated to purchase all such Certificates if any are
purchased and that the Depositor will indemnify the Underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended.
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Depositor by Dewey Ballantine LLP,
New York, NY and by Alan L. Langus, Chief Counsel for the Depositor. Certain
legal matters relating to insolvency issues and certain federal income tax
matters concerning the Certificates will be passed upon for the Depositor by
Dewey Ballantine LLP.
FINANCIAL INFORMATION
A Trust will be formed with respect to each series of Certificates.
No Trust will have any assets or obligations prior to the issuance of the
related series of Certificates. No Trust will engage in any activities other
than those described herein or in the Prospectus Supplement. Accordingly, no
financial statement with respect to any Trust is included in this Prospectus
or will be included in the Prospectus Supplement.
The Depositor has determined that its financial statements are not
material to the offering made hereby.
A Prospectus Supplement and the related Form 8-K (which will be
incorporated by reference to the Registration Statement) may contain financial
statements of the related Credit Enhancer, if any.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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APPENDIX
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
Page
1986 Act...................................................................53
1996 Act...................................................................60
Agreement...................................................................1
AMTI.......................................................................60
Annual Reduction...........................................................48
Applicable Accounting Standards............................................32
Balloon Loans...............................................................6
Beneficial Owners...........................................................4
BIF........................................................................33
Book Entry Certificates.....................................................4
Certificate Account........................................................12
Certificate Interest Rate..................................................10
Certificate Principal Balance...............................................9
Certificate Register.......................................................10
Certificate Registrar......................................................10
Certificateholder..........................................................66
Certificates................................................................1
Clearing Agency.............................................................4
Clearing Agency Participants................................................4
Code........................................................................4
Companion Certificates.....................................................11
Compound Interest Certificates.............................................10
Contract Loan Schedule.....................................................31
Contract Pool..............................................................17
Contracts..................................................................17
Conventional Multifamily Loans..............................................1
Cooperative Loans..........................................................14
Cooperatives................................................................1
Credit Enhancement...................................................4, 7, 18
Credit Enhancer.............................................................9
Custodial Account..........................................................24
Cut-Off Date...............................................................10
Debt Service Coverage Ratio................................................16
Defective Mortgage Loan....................................................32
Delivery Date...............................................................9
Deposit Date...............................................................32
Depositor...................................................................1
Disqualified Organization..................................................61
Distribution Date..........................................................11
DOL........................................................................50
Due Dates..................................................................16
Eligible Investments.......................................................33
Equity Participation.......................................................16
ERISA.......................................................................5
Events of Default..........................................................35
FDIC.......................................................................24
FHA.........................................................................1
FHA-Insured Multifamily Loans...............................................1
FHLMC.......................................................................2
Financial Guaranty Insurance Policy........................................19
Financial Guaranty Insurer.................................................19
FNMA........................................................................2
Garn-St. Germain Act.......................................................41
GNMA........................................................................2
HUD........................................................................46
Insurance Paying Agent.....................................................19
Insurance Proceeds.........................................................23
Insured Payment............................................................19
Interest Accrual Period....................................................12
Liquidation Proceeds.......................................................23
Loan-to-Value Ratio........................................................15
Lock-out Expiration Date...................................................16
Lock-out Period............................................................16
Manufactured Home..........................................................17
Manufactured Home Loans....................................................45
Mark to Market Regulations.................................................59
Master Servicer.............................................................1
MBS.....................................................................2, 17
MBS Agreement..............................................................17
MBS Issuer.................................................................17
MBS Servicer...............................................................17
MBS Trustee................................................................18
Monthly Advance............................................................24
Mortgage Assets.............................................................1
Mortgage Loan Rate.........................................................16
Mortgage Loans..............................................................1
Mortgage Notes.............................................................14
Mortgage Pool Insurance Policy.............................................20
Mortgage Rates.............................................................15
Mortgage-Backed Securities..............................................2, 17
Mortgaged Properties.......................................................14
Mortgages..................................................................14
Mortgagors.................................................................23
Multifamily Loans...........................................................1
Multifamily Properties.....................................................14
NCUA.......................................................................24
Net Leases.................................................................17
Net Operating Income.......................................................16
Noneconomic Residual Interest..............................................62
Non-Priority Certificates..................................................11
Nonrecoverable Advance.....................................................24
Non-U.S. Person............................................................65
Notional Principal Balance.............................................10, 12
OID Regulations............................................................51
Original Value.............................................................15
OTS........................................................................41
Owners..................................................................4, 11
Partnership Interests......................................................71
Pass-Through Entity........................................................61
Pass-Through Rate...........................................................3
Plans......................................................................50
Policy Statement...........................................................49
Pool Insurer...............................................................20
Pre-Funding Account.........................................................3
Pre-Funding Agreement.......................................................3
Prepayment Assumption......................................................54
Prepayment Premium.........................................................16
Principal Balance..........................................................15
Principal Prepayments......................................................12
Priority Certificates......................................................11
Property Improvement Loans.................................................45
PTE 83-1...................................................................50
Record Date................................................................11
Regular Certificateholder..................................................53
Regular Certificates...................................................52, 65
REIT.......................................................................52
Relief Act..................................................................8
REMIC................................................................1, 4, 52
REMIC Certificates.........................................................51
REMIC Pool.................................................................52
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REMIC Regulations..........................................................51
Remittance Date............................................................24
Remittance Rate............................................................24
Reserve Fund...............................................................22
Residual Certificateholders................................................57
Residual Certificates......................................................52
Retail Class Certificate...................................................53
SAIF.......................................................................33
Scheduled Amortization Certificates........................................11
Seller......................................................................1
Senior Certificates........................................................19
Servicer....................................................................1
SMMEA.......................................................................5
Special Allocation Certificates............................................11
Special Hazard Insurance Policy............................................21
Special Hazard Insurer.....................................................21
Standard Certificate.......................................................66
Stripped Certificateholder.................................................69
Stripped Certificates..................................................66, 68
Subordinated Certificates..................................................19
Title I Contracts..........................................................45
Title I Loans..............................................................45
Title I Program............................................................45
TMP........................................................................52
Trust.......................................................................1
Trustee.....................................................................1
U.S. Person................................................................62
UCC........................................................................39
Underwriters...............................................................72
VA..........................................................................2
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE DEPOSITOR SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
PAGE
--------
Prospectus Supplement
Summary of Terms.............................. S-2
Risk Factors.................................. S-12
The Sellers and the Servicer.................. S-17
Use of Proceeds............................... S-21
The Depositor................................. S-22
The Home Equity Loans......................... S-22
Prepayment and Yield Considerations........... S-23
Formation of The Trust and Trust Property..... S-28
Additional Information........................ S-29
Description of the Offered Certificates....... S-30
Credit Enhancement............................ S-45
The Certificate Insurer....................... S-53
The Pooling and Servicing Agreement........... S-55
Certain Federal Income Tax Consequences....... S-65
ERISA Considerations.......................... S-67
Ratings....................................... S-70
Legal Investment Considerations............... S-71
Underwriting.................................. S-71
Report of Experts............................. S-72
Certain Legal Matters......................... S-73
Planned Principal Balances and Maximum
Maturity Schedules.......................... Annex I
Global Clearance, Settlement and Tax
Documentation Procedures.................... Annex II
Auction Procedures............................ Annex III
The Home Equity Loan Pool--Statistical
Information................................. Annex IV
Decrement Tables.............................. Annex V
Index to Location of Principal Defined
Terms ...................................... A-1
Prospectus
Summary of Prospectus......................... 1
Risk Factors.................................. 6
Description of the Certificates............... 9
The Trusts.................................... 13
Credit Enhancement............................ 18
Servicing of Mortgage Loans and Contracts..... 23
Administration................................ 29
Use of Proceeds............................... 36
The Depositor................................. 36
Certain Legal Aspects of the Mortgage
Assets...................................... 36
Legal Investment Matters...................... 48
ERISA Considerations.......................... 49
Certain Federal Income Tax Consequences....... 51
Plan of Distribution.......................... 71
Legal Matters................................. 72
Financial Information......................... 72
Index to Location of Principal Defined
Terms ...................................... 73
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$2,100,000,000
CONTIMORTGAGE HOME
EQUITY LOAN TRUST 1998-3
[LOGO]
SELLER AND SERVICER
CONTIWEST CORPORATION
SELLER
CONTISECURITIES ASSET FUNDING
CORP.
DEPOSITOR
PROSPECTUS SUPPLEMENT
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
CONTIFINANCIAL SERVICES
CORPORATION
CREDIT SUISSE FIRST BOSTON
GREENWICH CAPITAL
MARKETS, INC.
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC
SEPTEMBER 18, 1998
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