<PAGE>
Pursuant to Rule 424(b)(5)
Registration No. 333-39505
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 16, 1997)
$1,750,000,000
CONTIMORTGAGE HOME EQUITY LOAN TRUST 1998-2
[LOGO] ContiMortgage
SELLER AND SERVICER
CONTIWEST CORPORATION
SELLER
CONTISECURITIES ASSET FUNDING CORP.
DEPOSITOR
The ContiMortgage Home Equity Loan Pass-Through Certificates, Series 1998-2
will consist of (i) the Class A-1 Certificates, the Class A-2 Fixed
Certificates, the Class A-2 Internal Certificates, the Class A-3 Certificates,
the Class A-4 Certificates, the Class A-5 Certificates, the Class A-6
Certificates, the Class A-7 Certificates, the Class A-8 Certificates, the Class
A-9 Certificates, the Class A-10 IO Certificates (collectively, the 'Class A
Trust Certificates'), (ii) the Class B Certificates (the 'Class B Certificates')
and the Class C Certificates (the 'Class C Certificates') and (iii) a residual
class with respect to each REMIC held by the Trust (the 'Class R Certificates'
and collectively with the Class C Certificates, the 'Retained Certificates') and
(iv) the Class A-2 Floating Certificates (the 'Grantor Trust Certificates').
Only the Class A-1, Class A-2 Fixed, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class A-8, Class A-9, Class A-10 IO Certificates (the 'Class A
Trust Offered Certificates'), the Class A-2 Floating Certificates and the Class
B Certificates (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 Trust Certificates, and the timely payment of interest
on the Class A-2 Floating Certificates. The Class B Certificates will not be
covered by either Certificate Insurance Policy. See 'Summary of Terms--Credit
Enhancement.'
[MBIA LOGO]
------------------------------
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENT IN THE OFFERED
CERTIFICATES, SEE 'RISK FACTORS' BEGINNING ON PAGE S-26 HEREIN, 'PREPAYMENT AND
YIELD CONSIDERATIONS' BEGINNING ON PAGE S-56 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
GRANTOR 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
CLASS PRINCIPAL BALANCE RATE PUBLIC(1)
<S> <C> <C> <C>
Per Class A-1 Certificates..................................... $114,000,000 5.64875% 100%
Per Class A-2 Floating Certificates............................ $175,000,000 (3) 100%
Per Class A-2 Fixed Certificates............................... $250,000,000 6.15% 99.99285%
Per Class A-3 Certificates..................................... $275,000,000 6.13% 99.98558%
Per Class A-4 Certificates..................................... $185,000,000 6.19% 99.99670%
Per Class A-5 Certificates..................................... $90,000,000 6.28%(4) 99.97811%
Per Class A-6 Certificates..................................... $97,000,000 6.36%(4) 99.97290%
Per Class A-7 Certificates..................................... $100,600,000 6.57%(4) 99.99517%
Per Class A-8 Certificates..................................... $235,000,000 (5) 100%
Per Class A-9 Certificates..................................... $158,400,000 (5) 100%
Per Class A-10 IO Certificates................................. (6) (6) 14.53652%
Per Class B Certificates....................................... $70,000,000 7.74%(7) 99.96992%
Total.......................................................... $1,750,000,000 $1,778,593,996.08
<CAPTION>
UNDERWRITING PROCEEDS TO
CLASS DISCOUNT DEPOSITOR(1)(2)
<S> <C> <C>
Per Class A-1 Certificates..................................... 0.100% 99.90000%
Per Class A-2 Floating Certificates............................ 0.160% 99.84000%
Per Class A-2 Fixed Certificates............................... 0.160% 99.83285%
Per Class A-3 Certificates..................................... 0.180% 99.80558%
Per Class A-4 Certificates..................................... 0.250% 99.74670%
Per Class A-5 Certificates..................................... 0.300% 99.67811%
Per Class A-6 Certificates..................................... 0.330% 99.64290%
Per Class A-7 Certificates..................................... 0.350% 99.64517%
Per Class A-8 Certificates..................................... 0.240% 99.76000%
Per Class A-9 Certificates..................................... 0.200% 99.80000%
Per Class A-10 IO Certificates................................. 0.07268% 14.46384%
Per Class B Certificates....................................... 0.600% 99.36992%
Total.......................................................... $4,138,120.81 $1,774,455,875.27
</TABLE>
(1) Plus accrued interest, if any, from June 18, 1998 with respect to the Fixed
Rate Certificates (excluding the Class A-1 Certificates).
(2) Before deducting expenses estimated to be $1,300,000.
(3) The Pass-Through Rate on the Class A-2 Floating Certificates will be based
on one-month LIBOR.
(4) Subject to an Available Funds Cap as described herein.
(5) The Pass-Through Rate on the Class A-8 Certificates and the Class A-9
Certificates will be based on one-month LIBOR and subject to the related
Available Funds Cap as described herein.
(6) Interest will be calculated on the basis of a Notional Amount equal to the
aggregate outstanding Certificate Principal Balance of the Class A-6 and
Class A-7 Certificates and will only be payable through the 30th Payment
Date at a Pass-Through Rate, which will be equal to 6.50% per annum.
(7) On each Payment Date, the Pass-Through Rate for the Class B Certificates
will equal the lesser of (a) the Pass-Through Rate for such Class as set out
above and (b) the lesser of the Group I and Group II Available Funds Cap.
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 June 29, 1998.
------------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
CONTIFINANCIAL SERVICES CORPORATION
CREDIT SUISSE FIRST BOSTON
GREENWICH CAPITAL MARKETS, INC.
MORGAN STANLEY DEAN WITTER
NOMURA SECURITIES INTERNATIONAL, INC.
-------------------------------
UNDERWRITER OF THE CLASS A-8 CERTIFICATES AND THE CLASS A-10 IO CERTIFICATES
MERRILL LYNCH & CO.
-------------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 9, 1998
<PAGE>
(Cover continued from previous page)
The Class A Trust Certificates, Class B Certificates, Class C
Certificates and Class R Certificates (the "Trust Certificates") represent
undivided ownership interests in two groups, (each a "Loan Group") of fixed
and adjustable rate home equity loans (the "Home Equity Loans") held by
ContiMortgage Home Equity Loan Trust 1998-2 (the "Trust").
The Certificates also will represent undivided ownership interests in
all monies due and received under the Home Equity Loans after June 17, 1998
(the "Cut-Off Date"), security interests in the properties which secure the
Home Equity Loans, funds on deposit in certain trust accounts and certain
other property. The Home Equity Loans were originated or purchased by the
Sellers. The Trust will be created pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be dated as of June 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").
The Class B Certificates are subordinate in right of distribution to
the Class A Trust Certificates to the extent described herein. The initial
aggregate Certificate Principal Balance of the Class B Certificates will equal
4.0% of the initial aggregate Certificate Principal Balance of the
Certificates.
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.
The Class A-10 IO Certificates are "interest only" certificates and
are not entitled to distributions in respect of principal. The yield to
maturity of the Class A-10 IO Certificates will be sensitive to very high
rates of prepayments on the Home Equity Loans in Loan Group I. Investors in
the Class A-10 IO 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.
Distributions of interest will be made to the Owners of the Offered
Certificates on the 15th day of each month (or, if such day is not a business
day, the next business day) beginning in July, 1998. To the extent available,
interest will be passed through on each Payment Date to the Owners of the
Offered Certificates based on the related Certificate Principal Balance (as
defined herein) or Notional Amount, as the case may be, and at the rate
applicable to each Class of the Offered Certificates (each, a "Pass-Through
Rate"). The Pass-Through Rates for the Class A-2 Floating Certificates, the
Class A-8 Certificates and the Class A-9 Certificates adjust monthly based on
one-month LIBOR (as defined herein) or as otherwise described herein.
Distributions of principal in reduction of the Certificate Principal Balances
will be made on each Payment Date in the manner and the amounts described
herein.
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
Trust Certificates (other than the Class R Certificates) will constitute
"regular interests" in a REMIC. The Class A-2 Floating Certificates will
constitute interests in a Grantor Trust. 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 December 16, 1997, 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).
S-2
<PAGE>
REPORTS TO OWNERS
Monthly and annual reports concerning the Certificates, the Trust and
the Grantor 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 and the Grantor 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-3
<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.
<TABLE>
<S> <C>
Issuers: ContiMortgage Home Equity Loan Trust 1998-2 (the "Trust").
ContiMortgage Grantor Trust 1998-A (the "Grantor Trust").
Certificates Offered: $1,750,000,000 ContiMortgage Home Equity Loan Pass-Through
Certificates, Series 1998-2, to be issued in the following Classes
(each, a "Class") and original Certificate Principal Balances (each,
a "Certificate Principal Balance"), set forth below:
Initial Certificate Pass-Through
Principal Balance Rate Class
----------------- ---- -----
$114,000,000 5.64875% Class A-1 Certificates
$175,000,000 (1) Class A-2 Floating Certificates
$250,000,000 6.15% Class A-2 Fixed Certificates
$275,000,000 6.13% Class A-3 Certificates
$185,000,000 6.19% Class A-4 Certificates
$ 90,000,000 6.28%(2) Class A-5 Certificates
$ 97,000,000 6.36%(2) Class A-6 Certificates
$100,600,000 6.57%(2) Class A-7 Certificates
$235,000,000 (3) Class A-8 Certificates
$158,400,000 (4) Class A-9 Certificates
(5) (6) Class A-10 IO Certificates
$ 70,000,000 7.74%(7) Class B Certificates
(1) On each Payment Date, the Pass-Through Rate with respect to the
Class A-2 Floating Certificates will be equal to LIBOR plus 0.03% per
annum (such rate, the "Class A-2 Floating Pass-Through Rate"). The
Class A-2 Internal Certificates, which will be deposited to the
Grantor Trust and are not offered hereby, will have an initial
Certificate Principal Balance of $175,000,000 and a Pass-Through Rate
of 5.92% per annum.
(2) The Pass-Through Rate with respect to the Class A-5, Class A-6,
and Class A-7 Certificates 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.
(3) On each Payment Date, the Pass-Through Rate for the Class A-8
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 (as
defined herein) LIBOR plus 0.25% per annum and (ii) for any Payment
Date thereafter, LIBOR plus 0.30% per annum and (y) the Group I
Available Funds Cap.
(4) On each Payment Date, the Pass-Through Rate for the Class A-9
Certificates will be equal to the lesser of (x) (i) with respect to
any Payment Date which occurs on or prior to the Clean-Up Call Date
(as defined herein ) LIBOR plus 0.14% per annum and (ii) for any
Payment Date thereafter, LIBOR plus 0.28% per annum and (y) the Group
II Available Funds Cap.
(5) The Class A-10 IO Certificates do not have a Certificate
Principal Balance but will accrue interest on their Notional Amount.
The "Notional Amount" of the Class A-10 IO Certificates will equal
(a) on any Payment Date on or prior to the 30th Payment Date, the
aggregate Certificate Principal Balance of the Class A-6 and Class
A-7 Certificates and (b) after the 30th Payment Date, zero.
(6) On each Payment Date, through the 30th Payment Date, the
Pass-Through Rate for the Class A-10 IO Certificates will be equal to
6.50% per annum.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
(7) On each Payment Date, the Pass-Through Rate for the Class B
Certificates will equal the lesser of (a) the Pass-Through Rate for
such Class as set out above and (b) the lesser of the Group I and
Group II Available Funds Cap.
Available Funds Caps: Group I Available Funds Cap: The Pass-Through Rate with respect to
the Adjustable-Rate Class A-8 Companion Certificates and the Fixed
Rate Class A-5 through Class A-7 PAC Certificates on any Payment Date
will equal the lesser of (x) the Pass-Through Rate for such Class and
(y) 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) (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, (ii) after the 6th
Payment Date, 0.50% per annum and (iii) for the 1st through 30th
Payment Dates, the product of (a) 6.50% per annum and (b) the Class
A-10 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; such rate described in clause (y) above, for any Payment
Date, the "Group I Available Funds Cap" for such Payment Date.
Group II Available Funds Cap: The Pass-Through Rate with respect to
the Class A-9 Certificates will on any Payment Date equal the lesser
of (x) the Pass-Through Rate for such Class and (y) the weighted
average Coupon Rate of the Home Equity Loans in Loan Group II as of
the opening of business on the first day of the related Remittance
Period, less the sum of (i) (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 II 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; such rate described in clause (y) above, for any Payment
Date, the "Group II Available Funds Cap" for such Payment Date.
The initial aggregate Certificate Principal Balance of the Class B
Certificates will equal 4.00% of the initial aggregate Certificate
Principal Balance of the Trust Certificates. The Class B Certificates
are subordinate in right of distribution to the related Class A Trust
Certificates to the extent described herein.
The Pass-Through Rate with respect to the Class B Certificates will
on any Payment Date equal the lesser of (A) the Pass-Through Rate for
such Class and (B) the lesser of (a) the Group I Available Funds Cap
and (b) the Group II Available Funds Cap.
On any date after the Closing Date, the "Aggregate Trust Certificate
Principal Balance" is the sum of the Certificate Principal Balance of
Class A Trust Certificates and Class B Certificates.
Certain Designation: For purposes of this Prospectus Supplement, the following
designations will refer to the Classes of Certificates indicated.
Trust Certificates Class A-1, Class A-2 Fixed, Class A-2 Internal (not offered), Class
A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8, Class
A-9, Class A-10 IO, Class B, Class C (not offered) and Class R (not
offered) Certificates.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Class A Trust Certificates Class A-1, Class A-2 Fixed, Class A-2 Internal, Class A-3, Class A-4,
Class A-5, Class A-6, Class A-7, Class A-8, Class A-9, and Class A-10
IO Certificates.
Class A Trust Offered
Certificates Class A-1, Class A-2 Fixed, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class A-8, Class A-9 and Class A-10 IO Certificates.
Fixed Rate Certificates Class A-1, Class A-2 Fixed, Class A-2 Internal, Class A-3, Class A-4,
Class A-5, Class A-6, Class A-7, Class A-10 IO and Class B
Certificates.
Floating Rate Certificates Class A-2 Floating Certificates, Class A-8 Certificates and Class A-9
Certificates.
Interest-Only Certificates Class A-10 IO Certificates.
Offered Certificates Class A Trust Offered Certificates, Class A-2 Floating Certificates
and Class B Certificates.
Planned Amortization Class
("PAC") Certificates Class A-2 Internal, Class A-2 Fixed, Class A-3, Class A-4, Class A-5,
Class A-6 and Class A-7 Certificates.
Companion Certificates Class A-8 Certificates.
Grantor Trust Certificates Class A-2 Floating 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.
Grantor Trustee: Manufacturers and Traders Trust Company (the "Grantor Trustee"), a
New York banking corporation.
Cut-Off Date: As of the close of business on June 17, 1998.
Statistical Calculation
Date: As of the close of business on May 18, 1998.
Closing Date: On or about June 29, 1998.
Description of
the Certificates: The Home Equity Loan Pass-Through Certificates (the "Trust
Certificates") will consist of the Class A Trust Certificates, Class
B Certificates, Class C Certificates and a residual class for each
REMIC held by the Trust (the "Class R Certificates" and collectively
with the Class C Certificates, the "Retained Certificates"). The
Trust Certificates will be issued pursuant to a Pooling and
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Servicing Agreement (the "Pooling and Servicing Agreement") to be
dated as of June 1, 1998, among the Depositor, the Sellers, the
Servicer and the Trustee.
The Class A-2 Floating Certificates will be issued pursuant to a
Grantor Trust Agreement (the "Grantor Trust Agreement") to be dated
as of June 1, 1998, among the Depositor, the Servicer and the Grantor
Trustee. At all times the outstanding Certificate Principal Balance
of the Class A-2 Floating Certificates will equal the outstanding
Certificate Principal Balance of the Class A-2 Internal Certificates.
The Trust Offered Certificates and the Class A-2 Floating
Certificates are referred to collectively herein as the "Offered
Certificates." Only the Offered Certificates are offered hereby.
The Grantor Trust and the The Class A-2 FloatingCertificates represent undivided ownership
Swap Agreement: interests in the Grantor Trust. The assets of the Grantor Trust
will consist of (1) a fixed-rate Certificate issued by the Trust
(the "Class A-2 Internal Certificate") which has a fixed
pass-through rate of 5.92%, (2) a swap agreement between the
Grantor Trust and National Westminster Bank, Plc
(the "Swap Agreement") pursuant to which National Westminster Bank,
Plc (the "Swap Counterparty") will be entitled to receive the fixed
rate of interest paid to the Grantor Trustin respect of the Class
A-2 Internal Certificates and will be obligated to pay to the Grantor
Trust a floating rate based on one-month LIBOR which is sufficient
to pay interest due on the Class A-2Floating Certificates and (3)
the rights of the Grantor Trustee under the related Certificate
Insurance Policy.
Pursuant to the Swap Agreement, on each Payment Date, the Swap
Counterparty will be entitled to receive from the Grantor Trust the
distributions of interest on the outstanding Certificate Principal
Balance of the Class A-2 Internal Certificates immediately prior to
such Payment Date, which accrues at a fixed rate of 5.92% per annum.
The Swap Counterparty will be obligated to pay to the Grantor Trust
prior to each Payment Date an amount equal to one month's interest at
the Class A-2 Floating Pass-Through Rate on the outstanding
Certificate Principal Balance of the Class A-2 Floating Certificates
immediately prior to such Payment Date. At all times the outstanding
Certificate Principal Balance of the Class A-2 Floating Certificates
will equal the outstanding Certificate Principal Balance of the Class
A-2 Internal Certificates.
On each Payment Date, the interest received by the Grantor Trust as
Owner of the Class A-2 Internal Certificates will be paid to the Swap
Counterparty under the Swap Agreement in exchange for interest due on
the Class A-2 Floating Certificates at the Class A-2 Floating
Pass-Through Rate. The interest due to be received by the Grantor
Trust from the Swap Counterparty under the Swap Agreement will be
distributed to the Owners of the Class A-2 Floating Certificates. To
the extent an insufficient amount is received from the Swap
Counterparty, the Grantor Trustee will make a claim under the related
Certificate Insurance Policy.
On each Payment Date, all principal payments received by the Grantor
Trust as Owner of the Class A-2 Internal Certificates will be
distributed to the Owner of the Class A-2 Floating Certificates as
payments of principal of the Class A-2 Floating Certificates.
Denominations: The Offered Certificates are issuable in book entry form in minimum
original principal amounts (or a Notional Amount in the case of the
Class A-10 IO Certificates) of $1,000 and integral multiples in
excess thereof.
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
The Home Equity Loans: Unless otherwise noted, all statistical percentages in this
Prospectus Supplement are approximate and measured by the aggregate
principal balance (the "Loan Balance") of the home equity loans in
the Trust (the "Home Equity Loans"), in relation to the Home Equity
Loans in the applicable Loan Group or the Trust (the "Original
Aggregate Loan Balance"), in each case as of the Statistical
Calculation Date. See "Additional Information" in this Prospectus
Supplement. 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") are
located in 49 states and the District of Columbia and 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.
Loan Group I consists of the Home Equity Loans in the Fixed Rate Pool
and Adjustable Rate Pool 1. Loan Group II consists of the Home Equity
Loans in Adjustable Rate Pool 2.
Fixed Rate Pool: As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans in the Fixed Rate Pool was $68,223.45; the
interest rates (the "Coupon Rates") of such Home Equity Loans ranged
from 6.75% to 17.99%; the weighted average Loan-to-Value Ratio of
such Home Equity Loans was 75.56%; the weighted average Combined
Loan-to-Value Ratio of such Home Equity Loans was 77.72%; the
weighted average Coupon Rate of such Home Equity Loans was 10.47%;
and the weighted average remaining term to maturity of such Home
Equity Loans was 237.14 months. The remaining terms to maturity as of
the Statistical Calculation Date of the Home Equity Loans in the
Fixed Rate Pool ranged from 21 months to 360 months. The maximum Loan
Balance of the Home Equity Loans in the Fixed Rate Pool as of the
Statistical Calculation Date was $449,480.29. The Home Equity Loans
in the Fixed Rate Pool containing "balloon" payments represent 44.35%
of the Loan Balance of the Fixed Rate Pool. No Home Equity Loans in
the Fixed Rate Pool will mature later than June 1, 2028. As of the
Statistical Calculation Date, 12,401 of the Home Equity Loans in the
Fixed Rate Pool are secured by first mortgages representing in the
aggregate 95.56% of the Loan Balance of the Fixed Rate Pool and 1,180
of Home Equity Loans in the Fixed Rate Pool are secured by second
lien mortgages representing in the aggregate 4.44% of the Loan
Balance of the Fixed Rate Pool. As a percentage of the Loan Balance
of the Fixed Rate Pool, 86.69% were secured by mortgages on
single-family detached dwellings, 2.00% by mortgages on single-family
attached dwellings, 6.42% by mortgages on two-to-four family
dwellings, 0.70% by condominiums, 2.29% by manufactured housing,
1.64% by Planned Unit Development, and 0.26% by other types of
dwellings. See "The Home Equity Loan Pool-Home Equity Loans-Fixed
Rate Loans" herein.
Adjustable Rate Pool 1: As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans in Adjustable Rate Pool 1 was $113,298.30; the
Coupon Rates of
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such Home Equity Loans ranged from 7.14% to 14.99%; the weighted
average Loan-to-Value Ratio of such Home Equity Loans was 80.89%; the
weighted average Coupon Rate of such Home Equity Loans was 10.029%;
and the weighted average remaining term to maturity of such Home
Equity Loans was 358.13 months. The remaining terms to maturity as of
the Statistical Calculation Date of the Home Equity Loans in
Adjustable Rate Pool 1 ranged from 177 months to 360 months. The
maximum Loan Balance of the Home Equity Loans in Adjustable Rate Pool
1 as of the Statistical Calculation Date was $430,000.00. No Home
Equity Loan in Adjustable Rate Pool 1 will mature later than June 1,
2028. All of the Home Equity Loans in Adjustable Rate Pool 1 are
secured by first mortgages. As a percentage of the Loan Balance of
Adjustable Rate Pool 1, 86.39% were secured by mortgages on
single-family detached dwellings, 0.94% by mortgages on single-family
attached dwellings, 3.68% by mortgages on two-to-four family
dwellings, 1.34% by condominiums, 2.21% by manufactured housing,
5.41% by Planned Unit Development and 0.03% by other types of
dwellings. See "The Home Equity Loan Pool-Home Equity
Loans-Adjustable Rate Pool 1" herein.
All of the Home Equity Loans in Adjustable Rate Pool 1 have maximum
Coupon Rates. The weighted average maximum Coupon Rate of the Home
Equity Loans in Adjustable Rate Pool 1 is 16.24%, with maximum Coupon
Rates that range from approximately 13.14% to 21.99%. The Home Equity
Loans in Adjustable Rate Pool 1 have a weighted average gross margin
as of the Statistical Calculation Date of 6.12%. The gross margin for
Adjustable Rate Pool 1 ranges from 3.60% to 10.25%.
Approximately $98,041,122.00 or 70.41% of the Home Equity Loans in
Adjustable Rate Pool 1 by aggregate Loan Balance as of the
Statistical Calculation Date bear interest at a fixed rate for two
years after origination and thereafter the Coupon Rates and the
monthly payments adjust semiannually based on Six-Month LIBOR (the
"2/28 Loans"). After the first adjustment, the 2/28 Loans have
periodic reset caps ranging from 1.00% to 3.00%.
Approximately $41,202,493.76 or 29.59% of the Home Equity Loans in
Adjustable Rate Pool 1 by aggregate Loan Balance as of the
Statistical Calculation Date bear interest at a fixed rate for three
years after origination and thereafter the Coupon Rates and the
monthly payments adjust semiannually based on Six-Month LIBOR (as
described above) (the "3/27 Loans"). After the first adjustment, the
3/27 Loans have periodic reset caps ranging from 1.00% to 3.00%.
Adjustable Rate Pool 2: As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans in Adjustable Rate Pool 2 was $82,966.16; the
Coupon Rates of such Home Equity Loans ranged from 6.88% to 15.30%;
the weighted average Loan-to-Value Ratio of such Home Equity Loans
was 80.02%; the weighted average Coupon Rate of such Home Equity
Loans was 10.08%; and the weighted average remaining term to maturity
of such Home Equity Loans was 357.20 months. The remaining terms to
maturity as of the Statistical Calculation Date of the Home Equity
Loans in Adjustable Rate Pool 2 ranged from 119 months to 360 months.
The maximum Loan Balance of the Home Equity Loans in Adjustable Rate
Pool 2 as of the Statistical Calculation Date was $400,183.13. No
Home Equity Loan in Adjustable Rate Pool 2 will mature later than May
15, 2028. All of the Home Equity Loans in Adjustable Rate Pool 2 are
secured by first mortgages. As a percentage of the Loan Balance of
Adjustable Rate Pool 2, 87.00% were secured by mortgages on
single-family detached dwellings, 1.10% by mortgages on single-family
attached dwellings,
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4.97% by mortgages on two-to-four family dwellings, 1.41% by
condominiums, 2.61% by manufactured housing, and 2.89% by Planned
Unit Development. See "The Home Equity Loan Pool-Home Equity
Loans-Adjustable Rate Pool 2" herein.
All of the Home Equity Loans in Adjustable Rate Pool 2 have maximum
Coupon Rates. The weighted average maximum Coupon Rate of the Home
Equity Loans in Adjustable Rate Pool 2 is 16.38%, with maximum Coupon
Rates that range from approximately 9.49% to 22.30%. The Home Equity
Loans in Adjustable Rate Pool 2 have a weighted average gross margin
as of the Statistical Calculation Date of 6.25%. The gross margin for
Adjustable Rate Pool 2 ranges from 1.30% to 10.65%.
Approximately $29,976,002.84 or 21.51% of Home Equity Loans in
Adjustable Rate Pool 2 by aggregate Loan Balance as of the
Statistical Calculation Date bear interest at rates that adjust,
along with the related monthly payments, semiannually based on
Six-Month LIBOR (the "Six-Month LIBOR Loans"). All of the Six-Month
LIBOR Loans have periodic reset caps of 1.00%.
Approximately $109,407,137.87 or 78.49% of the Home Equity Loans in
Adjustable Rate Pool 2 by aggregate Loan Balance as of the
Statistical Calculation Date are 2/28 Loans. After the first
adjustments, the 2/28 Loans have periodic reset caps ranging 1.00% to
3.00%.
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 Class
A-10 IO) 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, Class A-8 and Class A-9 Certificates
on the respective Final Scheduled Payment Dates for the Class A-1,
Class A-8 and Class A-9 Certificates is guaranteed by the Certificate
Insurer.
Final Scheduled
Class Payment Date
----- ------------
Class A-1 Certificates: June 15, 1999
Class A-2 Floating Certificates: March 15, 2013
Class A-2 Fixed Certificates: March 15, 2013
Class A-3 Certificates: March 15, 2013
Class A-4 Certificates: January 15, 2014
Class A-5 Certificates: September 15, 2016
Class A-6 Certificates: November 15, 2019
Class A-7 Certificates: March 15, 2023
Class A-8 Certificates: June 15, 2028
Class A-9 Certificates: June 15, 2028
Class A-10 IO Certificates: December 15, 2000
Class B Certificates: July 15, 2029
Distributions-General: On the 15th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day, commencing in July, 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 (or, in the case of the Class A-2 Internal
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Certificates, to distribute to the Grantor Trustee) of the Fixed Rate
Certificates (other than the Class A-1 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
Floating Rate Certificates and the Class A-1 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 (except the Class A-1 Certificates) will be interest
which has accrued on the related Certificate Principal Balance (the
Notional Amount in the case of the Class A-10 IO 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 Floating Rate Certificates and the
Class A-1 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 (except the
Class A-1 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 Floating Rate Certificates and the Class A-1 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.
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,
in each case with respect to such Loan Group;
Second, for the payment of that Loan Group's Class A Trust
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 Trust Certificates related to such Loan Group,
the related Current Interest plus the Interest Carry Forward Amount
with respect to each such Class of related Class A Trust Certificates
without any priority among such Class A Trust Certificates; provided,
that if the Interest
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Amount Available is not sufficient to make a full distribution of
interest with respect to all Classes of the related Class A Trust
Certificates, then such amount will be distributed among the
outstanding Classes of related Class A Trust 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 any shortfall in the other Loan Group's
Class A Trust 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 A Trust Certificates related
to the other Loan Group; the amount of any shortfall on such Payment
Date under priority Second above;
Fourth, for the payment of 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 an amount equal to the product of (a) the Current
Interest for the Class B Certificates and (b) a fraction, the
numerator of which is the outstanding Class A Trust Certificate
Principal Balance related to such Loan Group and the denominator of
which is the sum of the outstanding Class A Trust Certificate
Principal Balances related to both Loan Groups;
Fifth, for the payment of the Reimbursement Amount, if any, then due
to the Certificate Insurer, the lesser of (x) the Reimbursement
Amount then owed to the Certificate Insurer and (y) the Maximum
Insurer Current Reimbursement Amount (as defined below) for such
Payment Date; the amount paid to the Certificate Insurer on account
of any Reimbursement Amount shall be funded from the Available Funds
then remaining on deposit in the Certificate Account with respect to
each Loan Group in an amount equal to the product of (a) the total
amount so to be funded and (b) a fraction, the numerator of which is
the outstanding Class A Trust Certificate Principal Balance related
to such Loan Group and the denominator of which is the sum of the
outstanding Class A Trust Certificate Principal Balances related to
both Loan Groups;
Sixth, for the payment of that Loan Group's Class A Trust Certificate
principal, to the extent of the Available Funds then remaining in the
Certificate Account with respect to such Loan Group, plus the
principal component of any Insured Payment, to the Owners of the
Class A Trust Certificates with respect to such Loan Group, an amount
necessary to reduce the Class A Principal Balance of such related
Class A Trust Certificates to the Class A Optimal Balance for such
Payment Date; provided, that such amount of principal so distributed
with respect to such Loan Group shall be reduced, but not below zero,
by an amount equal to the Overcollateralization Stepdown Amount (as
defined below), if any, for such Payment Date; such amount to be
distributed with respect to specific Classes of the Class A Trust
Certificates in the further priorities described below under
"Principal Allocations with Respect to Class A Trust Certificates";
Seventh, for the payment of the other Loan Group's Class A Trust
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 Trust Certificates related to the other
Loan Group, the amount of any Crossover Overcollateralization
Increase Amount (as defined below);
Eighth, for the payment of Class B Certificate principal, to the
extent of the amount then remaining in the Certificate Account with
respect to both Loan Groups together, an amount necessary to reduce
the Class B Principal Balance to the Class B Optimal Balance for such
Payment Date;
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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:
(a) to fund the Interest Carry Forward Amount, if any,
with respect to the Class B Certificates;
(b) to fund the Class B Realized Loss Amortization
Amount for such Payment Date;
(c) to the Servicer to the extent of any unreimbursed
Delinquency Advances or Servicing Advances and any
other costs and expenses incurred by the Issuer;
(d) to fund a distribution to Owners of the Class C
Certificates; and
(e) 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 Trust Certificates in
accordance with priorities "Sixth" and "Seventh" under "Cashflow
Priority Flow of Funds" above on such Payment Date.
"Class B Principal Distribution Amount" means, with respect to any
Payment Date, the actual amount distributed as principal to the
Owners of the Class B Certificates in accordance with priority
"Eighth" under "Cashflow Priority Flow of Funds" above on such
Payment Date. Since, prior to the Stepdown Date, the "Class B Optimal
Balance" is set at a level equal to the Class B Initial Certificate
Principal Balance, the Owners of the Class B Certificates will
receive no distributions of principal prior to the Stepdown Date
(unless the Certificate Principal Balances of all Class A Trust
Certificates are earlier reduced to zero).
"Crossover Overcollateralization Increase Amount" means, with respect
to any Payment Date and a Loan Group, an increase in such Loan
Group's distribution on account of Class A Trust Certificate
principal with respect to the other Loan Group's Class A Trust
Certificates in response to a deficient level of
overcollateralization. Specifically, the "Crossover
Overcollateralization Increase Amount" with respect to a Loan Group
and Payment Date is equal to the lesser of (i) the excess of (a) the
aggregate Class A Trust Certificate Principal Balance with respect to
the other Loan Group (after taking into account the distribution
described in clause "Sixth" under "Cashflow Priority Flow of Funds"
above) over (b) the Class A Optimal Balance for such other Loan Group
and Payment Date and (ii) the amount of Available Funds remaining in
the Certificate Account with respect to such Loan Group after taking
into account the distribution described in clause "Sixth" under
"Cashflow Priority Flow of Funds" above with respect to such Loan
Group.
"Overcollateralization Stepdown Amount" means, with respect to any
Payment Date and a Loan Group, a reduction in such Loan Group's
distribution on account of Class A Trust Certificate principal in
response to a surplus level of overcollateralization with respect to
the other Loan Group's Class A Trust Certificates. After the Stepdown
Date, the paydown rules with respect to the maintenance of the
Optimal Balances of the Class A Trust Certificates and of
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the Class B Certificates permit the required dollar amount of
overcollateralization to reduce or "step down" (subject to the
occurrence of the trigger events described herein). This stepdown in
the required level of overcollateralization permits the Trust to fund
a distribution with respect to the Retained Certificates in an amount
equal to the surplus level of overcollateralization. In the event
that a surplus level of overcollateralization exists with respect to
one Loan Group, but the Available Funds with respect to that Loan
Group are insufficient to fund a distribution to the Retained
Certificates to the full extent necessary to release such surplus
overcollateralization, the other Loan Group's Available Funds may be
used to fund such release. Specifically, the "Overcollateralization
Stepdown Amount" with respect to a Loan Group and any Payment Date is
equal to the excess, if any, by which (x) the Class A Optimal Balance
for the other Loan Group exceeds the aggregate Class A Trust
Certificate Principal Balance with respect to such other Loan Group,
after taking into account the payment of the Class A Principal
Distribution Amount with respect to such other Loan Group on such
Payment Date.
"Current Interest" with respect to each Class of Class A Trust
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
Class A Trust Certificates and Class B 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
Policy with respect to the Class A Trust Certificates is 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 Trust Certificates in the event of an Insurer Default.
"Maximum Insurer Current Reimbursement Amount" means, with respect to
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
Policies, rather than used to pay Class A Trust Certificate Principal
on such Payment Date, without causing the Aggregate Class A Trust
Certificate Balance to exceed the Total Loan Balance (i.e., without
causing there to be a Class A Overcollateralization Deficit).
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 both Loan Groups
after taking into account all distributions described in clauses
"First" through "Fourth" under "Cashflow Priority Flow of Funds"
above and (y) the excess of (1) the sum of (a) the Total Loan Balance
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.
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Optimal Balances: Class A Optimal Balance" means, as of any Payment Date and with
respect to either Loan Group, as follows, but in no event less than
zero:
I. Prior to the Stepdown Date:
(a) if a Cumulative Realized Loss Trigger Event is not
then in effect, the excess of (x) the Group Loan
Balance for the related Loan Group over (y) an
amount equal to (i) prior to the 7th Payment Date,
4.00% of the Original Group Loan Balance for the
related Loan Group, and (ii) on and after the 7th
Payment Date, 5.45% of the Original Group Loan
Balance for the related Loan Group; or
(b) if a Cumulative Realized Loss Trigger Event is in
effect, the product of (x) 100% minus the
percentage equivalent of a fraction, the numerator
of which is $112,000,000 and the denominator of
which is the Total Loan Balance and (y) the Group
Loan Balance for the related Loan Group.
II. On and after the Stepdown Date:
(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) 88.2825% and (y) the Group Loan
Balance for the related Loan Group; and
(ii) the product of (x) 100% minus the percentage
equivalent of a fraction, the numerator of which is
$8,750,000 and the denominator is the Total Loan
Balance and (y) the Group Loan Balance for the
related Loan Group; 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 65.25%
and the Three-Month Rolling Average 60+ Delinquency
Rate and (y) the Group Loan Balance for the related
Loan Group; and
(ii) the product of (x) 100% minus the percentage
equivalent of a fraction, the numerator of which is
$8,750,000 and the denominator is the Total Loan
Balance and (y) the Group Loan Balance for the
related Loan Group; or
(c) if a Cumulative Realized Loss Trigger Event is in
effect but as to which a Delinquency Trigger Event
is not in effect, the product of (x) 91.40% minus
the percentage equivalent of a fraction, the
numerator of which is $42,000,000 and the
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denominator of which is the Total Loan Balance and
(y) the Group Loan Balance for the related Loan
Group;
(d) if both a Delinquency Trigger Event and a
Cumulative Realized Loss Trigger Event are then in
effect, the lesser of:
(i) the product of (x) 100% minus the product of 65.25%
and the Three-Month Rolling Average 60+ Delinquency
Rate and (y) the Group Loan Balance for the related
Loan Group; and
(ii) the product of (x) 91.40% minus the percentage
equivalent of a fraction, the numerator of which is
$42,000,000 and the denominator of which is the
Total Loan Balance and (y) the Group Loan Balance
for the related Loan Group.
"Class B Optimal Balance" means, as of any Payment Date:
I. Prior to the Stepdown Date and if the Aggregate
Class A Trust Certificate Principal Balance is then greater than
zero, the Class B Initial Certificate Principal Balance; and
II. On and after the Stepdown Date, or if the Aggregate Class
A Trust Certificate Principal Balance then equals zero, the excess of
(a) the Total Loan Balance over (b) the Aggregate Class A Trust
Certificate Principal Balance plus the Targeted Overcollateralization
Amount.
"Aggregate Class A Trust Certificate Principal Balance" means, for
any Payment Date, the aggregate Class A Trust Certificate Principal
Balance for both Loan Groups after taking into account the payment of
the Class A Principal Distribution Amount for both Loan Groups on
such Payment Date.
"Group Loan Balance" means for any Payment Date, the applicable Group
I Loan Balance or Group II Loan Balance for such Payment Date.
"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 Loan Balance" means the applicable Original Group I
Loan Balance or Original Group II Loan Balance.
"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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"Total Loan Balance" means, for any Payment Date, the aggregate
outstanding Loan Balance of the Home Equity Loans in both Loan Group
I and Loan Group II as of the last day of the related Remittance
Period.
"Original Total Loan Balance" means the aggregate outstanding Loan
Balance of the Home Equity Loans in both Loan Group I and Loan Group
II as of the Cut-Off Date.
Principal Allocations
with respect to
Class A Trust 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-1 Certificates until the
Certificate Principal Balance thereof has been reduced
to zero;
(ii) second, to each Class of PAC Certificates, sequentially
in the order of their numerical Class designations (beginning with
the Class A-2 Internal Certificates and the Class A-2 Fixed
Certificates, which will receive principal pro rata) in an amount
up to the amount necessary to reduce the respective Certificate
Principal Balances thereof to their Planned Principal Balances for
such Payment Date;
(iii) third, to the Class A-8 Certificates, until the
Certificate Principal Balances thereof have been reduced
to zero; and
(iv) fourth, to the PAC Certificates as provided in clause (ii),
but without regard to their Planned Principal Balances and until the
respective Certificate Principal Balances thereof have been reduced to
zero.
The Class A Principal Distribution Amount for Loan Group II is
required to be distributed on each Payment Date to the Owners of the
Class A-9 Certificates, until the Class A-9 Certificate Principal
Balance has been reduced to zero.
The final Payment Date for the Class A-1 Certificates will be June
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 Principal Remittance Amount with respect to Loan
Group I 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 Class A Trust Certificates in
the amount of such shortfall.
The final Payment Date for the Class A-8 and the Class A-9
Certificates will be June 15, 2028, at which time the remaining
Certificate Principal Balance, if any then outstanding, of the Class
A-8 and the Class A-9 Certificates will be paid in full. If the
related Principal Remittance Amounts with respect to such Payment
Date are not sufficient to pay in full the remaining Certificate
Principal Balance of the Class A-8 and the Class A-9 Certificates on
such final Payment Date, a draw will be made on the Certificate
Insurance Policy with respect to the Class A Trust Certificates in
the amount of such shortfall.
</TABLE>
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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 amount
available for distributions of principal of the Class A Trust
Certificates with respect to Loan Group I (other than the Class A-10
IO Certificates) 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 amount available for distributions of principal of the Class A
Trust Certificates (other than the Class A-10 IO Certificates) 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 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 Trust Certificates (other than the Class
A-10 IO Certificates) will be made on a pro rata basis without regard
to Loan Group and without regard to any Planned Principal Balances or
the order of priority described above.
Monthly Servicing Fee: The Servicer is entitled to a fee (the "Servicing Fee") equal to
0.50% per annum (subject to certain limitations described in the
Pooling and Servicing Agreement), payable monthly at one-twelfth the
annual rate, of the then outstanding principal amount of each Home
Equity Loan as of the first day of each calendar month.
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 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 Trust Certificates will be
provided by both the subordination of the Class B Certificates, as
well as by the Certificate Insurance Policy relating to the Class A
Trust Certificates.
"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 Trust 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 Trust Certificates, which results in
the Aggregate Trust 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).
</TABLE>
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The Pooling and Servicing Agreement requires that, beginning with the
seventh Payment Date, the Overcollateralization Amount shall be
initially increased to, and thereafter maintained at, the Targeted
Overcollateralization Amount. With respect to the Class A Trust
Certificates in the aggregate, the paydown rules require that, on and
after the seventh Payment Date and prior to the Stepdown Date, the
Total Loan Balance exceed the aggregate Certificate Principal Balance
of the Class A Trust Certificates by an amount equal to 5.45% of the
Original Total Loan Balance (i.e., $95,375,000; subject to the
occurrence of a Delinquency Trigger Event or a Cumulative Realized
Loss Trigger Event, the 5.45% overcollateralization level is allowed
to reduce or "step down" after the Stepdown Date); this subordinate
amount is represented by the Class B Certificate Principal Balance
(originally equal to 4.00% of the Original Total Loan Balance),
together with the Overcollateralization Amount; with respect to the
Class B 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 Class A Trust Certificates or
Class B Certificates.
"Overcollateralization Amount" as of any Payment Date means the
positive difference, if any, between (x) the Total Loan Balance and
(y) the Aggregate Trust Certificate Principal Balance (after taking
into account all distributions of principal on such Payment Date).
"Overcollateralization Floor" means $8,750,000.
"Stepdown Date" means the later to occur of (x) the Payment Date in
July 2001 and (y) the first Payment Date on which the Aggregate Class
A Principal Balance is less than or equal to the Class A Optimal
Balance for such Payment Date.
"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:
(A) if no Cumulative Realized Loss Trigger Event is
in effect, 1.45% of the Original Total Loan
Balance; or
(B) if a Cumulative Realized Loss Trigger Event is
in effect, $42,000,000.
(iii) on and after the Stepdown Date:
(A) if neither a Delinquency Trigger Event
nor a Cumulative Realized Loss Trigger Event is
in effect, the greater of (I) 3.1175% of the
Total Loan Balance and (II) the
Overcollateralization Floor; or
(B) if a Delinquency Trigger Event is in effect but a
Cumulative Realized Loss Trigger Event is
not in effect, the Targeted Overcollateralization
Amount shall be equal to the Targeted Overcollateralization
</TABLE>
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Amount for the immediately preceding Payment Date; or
(C) if a Cumulative Realized Loss Trigger Event is
in effect (whether or not a Delinquency
Trigger Event is in effect), $42,000,000.
Trigger Events. A "Cumulative Realized Loss Trigger Event" has
occurred on any date of determination if the amount of Cumulative
Realized Losses expressed as a percentage of the Original Total Loan
Balance on any date of determination equals or exceeds the percentage
for such date set below:
<CAPTION>
<S> <C> <C>
Date Percentage
---- ----------
July 1998 - June 2000 1.05%
July 2000 - June 2001 1.80%
July 2001 - June 2002 2.40%
July 2002 - June 2003 2.85%
July 2003 and thereafter 3.00%
<CAPTION>
<S> <C>
A "Delinquency Trigger Event" will be deemed to have occurred with
respect to any Payment Date on or after the Stepdown Date if the
Three-Month Rolling Average 60+ Day Delinquency Rate equals or
exceeds, the greater of (x) 17.95% and (y) the Class A Enhancement
Percentage for such Payment Date.
The "Class A Enhancement Percentage" for any Payment Date is the
percentage equivalent of a fraction, the numerator of which is the
excess of:
(x) the Total Loan Balance for such Payment Date over
(y) the aggregate Class A Trust Certificate Principal Balance for
both Loan Groups after taking into account the payment of the Class A
Principal Distribution Amount for both Loan Groups on such Payment
Date, assuming that no Delinquency Trigger Event is in effect
and the denominator of which is the Total Loan Balance 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 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 and third, with respect to the Class A Trust
Certificates, 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 Total Loan Balance of the Home
Equity Loans (i.e., a reduction in the collateral balance will
occur). Since the aggregate
</TABLE>
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Overcollateralization Amount is the excess, if any, of the
outstanding Total Loan Balance over the Aggregate Trust Certificate
Principal Balance (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.
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 will be
subordinated, to the extent described herein, to such rights of the
Owners of the Class A Trust Certificates. This subordination is
intended to enhance the likelihood of regular receipt by the Owners
of the Class A Trust 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 Trust
Certificates by means of the subordination of the Class B
Certificates will be accomplished by the preferential right of the
Owners of the Class A Trust Certificates to receive, on each Payment
Date, full payment of the interest then due with respect to the Class
A Trust Certificates prior to the payment of Class B Certificate
interest, and the full payment of the principal then due with respect
to the Class A Trust Certificates prior to the payment of Class B
Certificate principal. The rights of the Retained Certificates to
receive distributions are subordinate to the rights of the Class A
Trust 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 Trust
Certificates and the Class B Certificates. This subordination is
intended to enhance the likelihood of regular receipt by the Owners
of the Class A Trust 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 during the prior Remittance Period and after taking into
account the distribution of principal with respect to the Class A
Trust Certificates or Class B Certificates on such Payment Date, the
Aggregate Trust Certificate Principal Balance exceeds the Total Loan
Balance (i.e., if the level of overcollateralization is negative),
then the Certificate Principal Balance of the Class B Certificates
will be reduced (in effect, "written down") such that the level of
overcollateralization 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 Class B Certificates. The Pooling and Servicing
Agreement does not permit the "write down" of the Certificate
Principal Balance of any Class A Trust Certificate.
Once the Certificate Principal Balance of the Class B Certificates
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 the 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.
</TABLE>
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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 Class A
Trust Certificates and a Certificate Insurance Policy with respect to
the Class A-2 Floating Certificates.
Subject to the terms thereof, the Certificate Insurance Policies
unconditionally and irrevocably obligate the Insurer to make Insured
Payments to the Trustee or to the Grantor Trustee, as applicable.
The Certificate Insurance Policies are noncancellable for any reason.
"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 Class A Trust Certificates related to both
Loan Groups and the then existing Aggregate Overcollateralization
Deficit, if any, over (II) the Aggregate Total Available Funds after
taking into account the portion of any Aggregate 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 Class A Trust Certificates related to both
Loan Groups, plus (C) on the June 15, 1999 Payment Date only, the
excess, if any, of (i) the Certificate Principal Balance of the Class
A-1 Certificates, over (ii) the Principal Remittance Amount for such
Payment Date, plus (D) on the June 15, 2028 Payment Date only, the
excess, if any, of (i) the Certificate Principal Balance of the Class
A-8 Certificates over (ii) the Principal Remittance Amount for Loan
Group I with respect to such Payment Date, plus (E) on the June 15,
2028 Payment Date only, the excess, if any, of (i) the Certificate
Principal Balance of the Class A-9 Certificates over (ii) the
Principal Remittance Amount for Loan Group II with respect to such
Payment Date.
"Class A Overcollateralization Deficit" for any Payment Date means
the excess of the Aggregate Class A Trust Certificate Principal
Balance over the outstanding Total Loan Balance.
"Preference Amount" means any amount previously distributed to an
Owner of an Offered 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.
"Total Available Funds," as of any Payment Date, means in the
aggregate, the Monthly Remittance Amounts for both Loan Groups, less
the sum of (i) the aggregate amount applied to the payment of the
Trustee Fee and the Premium Amount and (ii) any such amount that
cannot be distributed to the Owners of the Class A Trust Certificates
as a result of proceedings under the United States Bankruptcy Code.
Insured Payments under the Certificate Insurance Policy relating to
the Class A Trust Certificates do not cover Realized Losses except to
the extent that Class A Overcollateralization Deficit exists. Insured
Payments do not cover the Servicer's failure to make Delinquency
Advances, except to the extent that Class A Overcollateralization
Deficit would otherwise result therefrom. Nevertheless, the effect of
the Certificate Insurance Policy related to the Class A Trust
Certificates is to guarantee the timely payment of interest on all
Classes of the Class A Trust Certificates and the ultimate payment of
the principal amount of the Class A Trust Certificates (other than
the Class A-10 IO Certificates). Since
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the principal distributions on the Class A-2 Internal Certificates
are insured under the Certificate Insurance Policy related to the
Class A Trust Certificates, such principal distributions on the Class
A-2 Floating Certificates are not separately insured under the
Certificate Insurance Policy related to the Grantor Trust.
The Certificate Insurance Policies do not guarantee any specified
rate of prepayments, nor does the Certificate Insurance Policy
related to the Class A Trust Certificates provide funds to redeem the
Class A Trust Certificates (except for the Class A-1, Class A-8 and
Class A-9 Certificates) or the Class A-2 Floating Certificates on any
specified date. The Certificate Insurance Policy related to the Class
A Trust Certificates provides that the outstanding Certificate
Principal Balance, if any then remains outstanding, of the Class A-1
Certificates will be paid in full on the June 15, 1999 Payment Date,
and that the outstanding Certificate Principal Balances, if any then
remains outstanding, of the Class A-8 and the Class A-9 Certificates
will be paid in full on the June 15, 2028 Payment Date. The
Certificate Insurance Policies do not guarantee that the PAC
Certificates will amortize in accordance with their Planned Principal
Balance schedules. The Certificate Insurer's obligation under the
Certificate Insurance Policies will be discharged to the extent that
funds are received by the Trustee or the Grantor Trustee, as
applicable, for distribution to the applicable Owners of the Class A
Trust Certificates and the Class A-2 Floating Certificates, as
applicable. See "Credit Enhancement-The Certificate Insurance
Policies" herein.
Optional Termination: The Owners of 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. Transfers within DTC, Cedel or Euroclear, as the case may
be, will be in accordance with the usual rules and operating
procedures of the relevant system. So long as the Offered
Certificates are Book-Entry Certificates (as defined herein), such
Certificates will be evidenced by one or more Certificates registered
in the name of Cede & Co. ("Cede"), as the nominee of DTC or one of
the European Depositaries. Cross-market transfers between persons
holding directly or indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly through Cedel or
Euroclear, on the other, will be effected in DTC through Citibank
N.A. ("Citibank") or The Chase Manhattan Bank ("Chase" and together
with Citibank, the "European Depositaries"), the relevant
depositaries of Cedel and Euroclear, respectively, and each a
participating member of DTC. The Offered Certificates will initially
be registered in the name of Cede. The interests of the Owners of
such Certificates will be represented by book-entries on the records
of DTC and participating members thereof. No Beneficial Owner will be
entitled to receive a definitive certificate representing such
person's interest, except in the event that Definitive Certificates
(as defined herein) are issued under the limited circumstances
described herein. All references in this Prospectus Supplement to any
Offered Certificates reflect the rights of Beneficial Owners only as
such rights may be exercised through DTC and its
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participating organizations for so long as such Offered Certificates
are held by DTC. See "Description of the Offered
Certificates-Book-Entry Registration of the Offered Certificates"
herein, and Annex III 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"):
<CAPTION>
<S> <C> <C> <C> <C>
Class Moody's Standard Fitch
------- -------- -----
& Poor's
--------
A-1 P-1 A-1+ F-1+
A-2 through A-9 Aaa AAA AAA
A-10 IO Aaa AAAr AAA
B Baa3 BBB- BBB
<CAPTION>
<S> <C>
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 Trust and Class B
Certificates will constitute "regular interests" in a REMIC. See
"Certain Federal Income Tax Consequences" herein.
Owners of the Class A Trust Certificates and Class B 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, Class A-10 IO 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
</TABLE>
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Consequences." See "Prepayment and Yield Considerations" and "Certain
Federal Income Tax Consequences" herein. No representation is made as
to whether the Home Equity Loans will prepay in accordance with the
Prepayment Assumption, or any other rate.
No election will be made to treat the Grantor Trust as a REMIC for
federal income tax purposes. For federal income tax purposes, the
Grantor Trust will be classified as a Grantor Trust under Subpart E,
part I of Subchapter J of the Code, and not as an association taxable
as a corporation. The Class A-2 Floating Certificates represent an
undivided ownership interest in the Grantor Trust. See "Certain
Federal Income Tax Consequences" herein.
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.
</TABLE>
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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. A majority 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 the Adjustable Rate Loans, including the
2/28 Loans and the 3/27 Loans, may differ from the prepayment experience on
the 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 2/28 Loans and the 3/27 Loans may be
subject to higher prepayment rates as they approach their initial Coupon
Change Dates. Because cashflows from both the Fixed Rate Loans and the
Adjustable Rate Loans will be used to make the required distributions on the
Class A Trust Certificates (only Adjustable Rate Pool 2 in the case of the
Class A-9 Certificates) and Class B Certificates, the prepayment experience of
the Class A Trust Certificates (other than the Class A-9 Certificates) and
Class B Certificates, will not reflect solely the prepayment experience of the
Fixed Rate Loans or the Adjustable Rate Loans. The Class A-9 Certificates will
reflect solely the prepayment experience of Adjustable Rate Pool 2. 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 Home Equity Loans will be subordinate to the
rights of the Owners of the Class A Trust Certificates (other than the Class
A-10 IO 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 defaults on the 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 (unless the aggregate
Certificate Principal Balance of the Class A Trust Certificates has been
reduced to zero). In addition, on and after the Stepdown Date, principal
distributions on the Class B Certificates are also subject to the effects of a
Delinquency Trigger Event or a Cumulative Realized Loss Trigger Event. As a
result, the weighted average life of the Class B Certificates will be longer
than would be the case if distributions of principal were to be allocated on a
pro rata basis among the Class A Trust Certificates and the Class B
Certificates. As a result of the longer weighted average life of the Class B
Certificates, the Owners of such Certificates have a greater risk of suffering
a loss on their investments.
S-26
<PAGE>
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 Class A Trust Certificates (other than the Class A-10 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 Class A Trust Certificates (other than
the Class A-10 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. Any such variability in
receipt of principal distributions will result in variability in the yields to
maturity to the Companion Certificates.
Nature of Collateral. Because 4.44% 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 (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 the
Floating Rate Certificates. The calculation of the Pass-Through Rate on the
Floating Rate Certificates is based upon (i) the value of an index (LIBOR)
which is different from the value of the index applicable to the Adjustable
Rate Loans as described under "The Home Equity Loan Pool-Home Equity
Loans-Adjustable Rate Loans" (either as a result of the use of a different
index, rate determination date or rate adjustment date) and (ii) the weighted
average of the Coupon Rates of the Home Equity Loans, including both Fixed
Rate Loans and Adjustable Rate Loans which are subject to periodic adjustment
caps, maximum rate caps and minimum rate floors. The Coupon Rates on the Fixed
Rate Loans will not adjust. Although the Coupon Rates on all but one of the
Adjustable Rate Loans by aggregate Loan Balance as of the Statistical
Calculation Date adjust every six months, (with the exception of the first 2
or 3 years from origination in the case of the 2/28 Loans and the 3/27 Loans),
such adjustments are based on the London interbank offered rate for six-month
United States dollar deposits ("Six-Month LIBOR"), whereas the Pass-Through
Rate on the Floating Rate Certificates adjusts monthly based upon LIBOR as
described under "Description of the Offered Certificates-Calculation of LIBOR"
herein. Consequently, the interest which becomes due on the Home Equity Loans
(net of the Servicing Fee, the Trustee Fee, the Premium Amount and certain
required reductions) during any Remittance Period may not equal the amount of
interest that would accrue at LIBOR plus the applicable margin on the Floating
Rate Certificates. Approximately 70.41 % of Adjustable Rate Pool 1 Loans and
78.49% of Adjustable Rate Pool 2 Loans by aggregate Loan Balance as of the
Statistical Calculation Date are 2/28 Loans that provide for a fixed interest
rate
S-27
<PAGE>
for a period of approximately two years following origination.
Approximately 21.51% of Adjustable Rate Pool 2 Loans by aggregate Loan Balance
as of the Statistical Calculation Date are Six-Month LIBOR Loans. 29.59% of
Adjustable Pool 1 Loans by aggregate Loan Balance as of the Statistical
Calculation Date are 3/27 Loans that provide for a fixed interest rate for a
period of approximately three years following origination. Thereafter, such
Home Equity Loans provide for interest rate and payment adjustments in a
manner similar to the Six-Month LIBOR Loans. In particular, the Pass-Through
Rate on the Floating Rate Certificates adjusts monthly, while the interest
rates of the Adjustable Rate Loans adjust less frequently with the result that
the applicable Available Funds Cap may limit increases in the Pass-Through
Rate on the Floating Rate Certificates for extended periods in a rising
interest rate environment. In addition, LIBOR and Six-Month LIBOR may respond
to different economic and market factors, and there is not necessarily a
correlation between them. Thus, it is possible, for example, that LIBOR may
rise during periods in which Six-Month LIBOR is stable or is falling or that,
even if both LIBOR and Six-Month LIBOR rise during the same period, LIBOR may
rise more rapidly than Six-Month LIBOR. Furthermore, if the applicable
Available Funds Cap determines the Pass-Through Rate on the Floating Rate
Certificates for a Payment Date, the value of the Floating Rate Certificates
will be temporarily or permanently reduced. There is no mechanism to
compensate the Owners of the Floating Rate Certificates if the applicable
Pass-Through Rate is limited by the applicable Available Funds Cap.
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:
(i) 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;
(ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis
of age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit; and
(iii) 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
S-28
<PAGE>
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 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 44.35% 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 Home Equity Loans in Adjustable Rate Pool 1 or Adjustable Rate
Pool 2 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 Trust Certificates and Class A-2 Floating
Certificates. The ratings assigned to the Class A Trust 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 Trust Certificates and Class
A-2 Floating Certificates. Any such reduction in the ratings assigned to the
Class A Trust Certificates and Class A-2 Floating Certificates could adversely
affect the liquidity and market value of such Certificates.
S-29
<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 is acceptable to the Certificate Insurer
and which shall assume all of the responsibilities, duties or liabilities of
the Servicer.
S-30
<PAGE>
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%. 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 be reasonable. The
maximum loan-to-value ratio generally may not exceed 75% for the non-income
verifier program. Non-income 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%.
S-31
<PAGE>
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.
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 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-32
<PAGE>
<TABLE>
<CAPTION>
Delinquency and Foreclosure Experience of the
Servicer's Servicing Portfolio of Home Equity Loans
(Dollars in Thousands)(1)
As of December 31,
----------------------------------------------------------------------
As of March 31, 1998 1997 1996 1995
--------------------- ---------------------- -------------------- -----------------------
Number Dollar Number of Dollar Number Dollar Number of Dollar
of Loans Amount Loans Amount of Loans Amount Loans Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio At 157,365 $10,135,785 143,944 $9,122,792 93,372 $5,699,145 58,459 $3,427,190
Delinquency
Percentage (2)
- ---------------
30-59 days 1.71% 1.50% 2.69% 2.37% 3.31% 3.09% 2.32% 2.02%
60-89 days 0.53% 0.50% 0.77% 0.74% 0.74% 0.72% 0.69% 0.70%
90 days and over 0.34% 0.35% 0.34% 0.31% 0.33% 0.36% 0.95% 1.01%
----- ----- ----- ----- ----- ----- ----- -----
Total Delinquency 2.59% 2.36% 3.80% 3.42% 4.38% 4.17% 3.96% 3.73%
Total Delinquency 4,069 $239,015 5,463 $311,821 4,088 $237,642 2,316 $128,063
Amount
Default
Percentage (3)
- ---------------
Foreclosure 2.26% 2.31% 2.66% 2.78% 2.51% 2.62% 1.17% 1.15%
Bankruptcy 1.72% 1.70% 1.58% 1.53% 1.12% 1.12% 0.68% 0.69%
Real Estate Owned 0.82% 0.83% 0.63% 0.65% 0.43% 0.49% 0.07% 0.08%
Forbearance (4) 0.66% 0.74% 0.51% 0.59% 0.14% 0.15% 0.10% 0.12%
----- ----- ----- ----- ----- ----- ----- -----
Total Default 5.45% 5.58% 5.38% 5.55% 4.20% 4.38% 2.02% 2.04%
Total Default Amount 8,580 $565,238 7,736 $506,774 3,926 $249,714 1,182 $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 number and 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
number or dollar value of the total portfolio.
(3) The default percentage represents the ratio of the number and dollar
value of delinquent home equity loans in foreclosure, bankruptcy, real
estate owned or forbearance to the total number or dollar value of the
total portfolio.
(4) As a result of a reporting change, this category now includes home
equity loans in loss mitigation in addition to home equity loans in
forbearance. Accordingly, this category now includes some home equity
loans that previously would have been reported in one of the three
Delinquency categories or in the Foreclosure category.
S-33
<PAGE>
<TABLE>
<CAPTION>
Loan Loss Experience on the
Servicer's Servicing Portfolio
of Home Equity Loans
(Dollars in Thousands)(1)
Year Ending December 31,
------------------------------------------------------------------
Three Months
Ending
March 31, 1998 1997 1996 1995 1994
-------------- ------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Average Amount Outstanding (2) $9,633,902 $7,248,686 $4,261,983 $2,641,686 $1,400,163
Gross Losses (3) 12,428 30,146 9,487 2,754 1,203
Recoveries (4) 310 116 77 65 0
Net Losses (5) 12,118 30,030 9,410 2,689 1,203
Net Losses as a Percentage of
Average Amount
Outstanding(6):
REMICs and loans held
pending securitization 0.50% 0.41% 0.22% 0.10% 0.09%
Loans and properties
purchased out of 0.17% 0.29% 0.00% 0.00% 0.00%
REMICs
TOTAL 0.67% 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 Losses" are actual losses incurred on liquidated properties
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 Losses" means "Gross Losses" minus "Recoveries".
(6) For the 3 months ending March 31, 1998, "Net Losses as a Percentage
of Average Amount Outstanding" was annualized by multiplying "Net
Losses" by 4 before calculating the percentage of "Average Annual
Outstanding".
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.
S-34
<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 LOAN POOL
General
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 $926,542,627.44 with respect to the Fixed Rate Pool,
$139,243,615.76 with respect to Adjustable Rate Pool 1 and $139,383,140.71
with respect to Adjustable Rate Pool 2 as of the Statistical Calculation Date.
The Depositor expects that the actual pools as of the Closing Date will
represent approximately $1,350,000,000 in Fixed Rate Loans and approximately
$400,000,000 in Adjustable Rate Loans: $235,000,000 in Adjustable Rate Pool 1
and $165,000,000 in Adjustable Rate Pool 2. 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 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.
S-35
<PAGE>
Home Equity Loans-Fixed Rate Pool
As of the Statistical Calculation Date, the average Loan Balance of
the Fixed Rate Pool was $68,223.45; the Coupon Rates of such Home Equity Loans
ranged from 6.75% to 17.99%; the weighted average Loan-to-Value Ratio of the
Fixed Rate Pool was 75.56%; the weighted average Combined Loan-to-Value Ratio
of the Fixed Rate Pool was 77.72%; the weighted average Coupon Rate of the
Fixed Rate Pool was 10.47%; the weighted average remaining term to maturity of
the Fixed Rate Pool was 237.14 months; and the weighted average original term
to maturity of the Fixed Rate Pool was 238.90 months. The remaining terms to
maturity as of the Statistical Calculation Date of the Fixed Rate Pool ranged
from 21 months to 360 months. The minimum and maximum Loan Balances of the
Fixed Rate Pool as of the Statistical Calculation Date were $3,057.47 and
$449,480.29 respectively. Home Equity Loans in the Fixed Rate Pool containing
"balloon" payments represent 44.35% of the Loan Balance of the Fixed Rate
Pool. No Home Equity Loans in the Fixed Rate Pool will mature later than June
1, 2028. 12,401 of the Home Equity Loans in the Fixed Rate Pool are secured by
first mortgages representing 95.56% of the Loan Balance of the Home Equity
Loans in the Fixed Rate Pool and 1,180 of the Home Equity Loans in the Fixed
Rate Pool are secured by second lien mortgages representing in the aggregate
4.44% of the Loan Balance of the Fixed Rate Loans.
S-36
<PAGE>
Geographic Distribution of Mortgaged Properties - Fixed Rate Pool
The geographic distribution of Home Equity Loans in the Fixed Rate
Pool 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>
Alabama 1 $ 35,855 0.00%
Arizona 153 11,338,593 1.22
Arkansas 72 5,070,424 0.55
California 417 46,221,907 4.99
Colorado 125 10,642,491 1.15
Connecticut 125 11,983,321 1.29
Delaware 18 1,286,458 0.14
District of Columbia 59 4,442,842 0.48
Florida 860 54,132,223 5.84
Georgia 453 31,148,371 3.36
Hawaii 7 1,010,092 0.11
Idaho 40 2,693,711 0.29
Illinois 1,002 71,578,939 7.73
Indiana 712 37,499,174 4.05
Iowa 55 2,554,318 0.28
Kansas 55 2,979,447 0.32
Kentucky 274 15,348,516 1.66
Louisiana 134 8,113,229 0.88
Maine 19 1,245,164 0.13
Maryland 325 27,946,953 3.02
Massachusetts 268 24,305,418 2.62
Michigan 1,921 112,604,843 12.15
Minnesota 155 12,110,381 1.31
Mississippi 82 4,190,608 0.45
Missouri 278 14,981,134 1.62
Montana 13 937,064 0.10
Nebraska 41 2,844,876 0.31
Nevada 47 4,139,889 0.45
New Hampshire 36 2,837,005 0.31
New Jersey 329 32,656,839 3.52
New Mexico 112 8,130,464 0.88
New York 594 51,841,923 5.60
North Carolina 891 57,020,717 6.15
Ohio 1,400 89,782,499 9.69
Oklahoma 38 2,395,473 0.26
Oregon 71 6,134,088 0.66
Pennsylvania 884 52,838,112 5.70
Rhode Island 43 3,048,075 0.33
South Carolina 323 17,761,281 1.92
South Dakota 5 209,260 0.02
Tennessee 279 17,538,298 1.89
Texas 202 13,774,024 1.49
Utah 78 6,312,932 0.68
Vermont 3 200,915 0.02
Virginia 255 18,741,578 2.02
Washington 101 8,608,002 0.93
West Virginia 81 4,153,461 0.45
Wisconsin 136 8,647,931 0.93
Wyoming 9 523,509 0.06
--- ------------- ----
Total: 13,581 $ 926,542,627 100.00%
====== ============= ======
S-37
<PAGE>
Original Loan-to-Value Ratios - Fixed Rate Pool
The original loan-to-value ratios as of the date of origination of
Home Equity Loans in the Fixed Rate Pool (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>
<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 to 5.00% 1 $ 13,250 0.00%
5.01 to 10.00 50 959,106 0.10
10.01 to 15.00 231 5,382,217 0.58
15.01 to 20.00 314 9,048,421 0.98
20.01 to 25.00 275 8,566,444 0.92
25.01 to 30.00 225 8,269,821 0.89
30.01 to 35.00 209 8,172,959 0.88
35.01 to 40.00 193 7,356,708 0.79
40.01 to 45.00 209 9,476,724 1.02
45.01 to 50.00 358 15,452,761 1.67
50.01 to 55.00 327 16,397,610 1.77
55.01 to 60.00 470 23,943,273 2.58
60.01 to 65.00 692 38,407,387 4.15
65.01 to 70.00 1,040 63,930,076 6.90
70.01 to 75.00 1,405 96,140,396 10.38
75.01 to 80.00 3,489 261,292,481 28.20
80.01 to 85.00 2,481 203,944,983 22.01
85.01 to 90.00 1,601 148,352,900 16.01
90.01 to 95.00 11 1,435,110 0.15
-- --------- ----
Total: 13,581 $ 926,542,627 100.00%
====== ============== =======
</TABLE>
S-38
<PAGE>
Combined Loan-to-Value Ratios - Fixed Rate Pool
The original combined loan-to-value ratios as of the dates of
origination of Home Equity Loans in the Fixed Rate Pool (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
CLTV's Home Equity Loans Loan Balance Loan Balance
------------------------- ------------------------ ------------------ -----------------
<S> <C> <C> <C>
10.01 - 15.00% 14 $ 241,984 0.03%
15.01 - 20.00 35 863,069 0.09
20.01 - 25.00 55 1,453,386 0.16
25.01 - 30.00 85 2,389,303 0.26
30.01 - 35.00 115 4,073,378 0.44
35.01 - 40.00 145 5,171,295 0.56
40.01 - 45.00 173 7,055,402 0.76
45.01 - 50.00 352 14,787,503 1.60
50.01 - 55.00 328 16,078,043 1.74
55.01 - 60.00 493 24,449,354 2.64
60.01 - 65.00 739 39,736,565 4.29
65.01 - 70.00 1,116 66,824,022 7.21
70.01 - 75.00 1,539 101,227,595 10.93
75.01 - 80.00 3,804 273,115,385 29.48
80.01 - 85.00 2,828 215,338,228 23.24
85.01 - 90.00 1,720 151,771,467 16.38
90.01 - 95.00 25 1,675,331 0.18
95.01 - 100.00 15 291,317 0.03
-- ------- ----
Total: 13,581 $ 926,542,627 100.00%
====== ============= ======
</TABLE>
Statistical Calculation Date Coupon Rates - Fixed Rate Pool
The Coupon Rates borne by the Notes relating to the Fixed Rate Pool
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>
6.01 - 7.00% 5 $ 343,890 0.04%
7.01 - 8.00 263 24,652,281 2.66
8.01 - 9.00 1,625 134,876,702 14.56
9.01 - 10.00 3,374 259,822,026 28.04
10.01 - 11.00 3,513 242,436,228 26.17
11.01 - 12.00 2,237 138,410,679 14.94
12.01 - 13.00 1,271 67,881,013 7.33
13.01 - 14.00 780 36,262,950 3.91
14.01 - 15.00 330 14,425,982 1.56
15.01 - 16.00 85 4,032,349 0.44
16.01 - 17.00 84 2,772,927 0.30
17.01 - 18.00 14 625,600 0.07
-- ------- ----
Total: 13,581 $ 926,542,627 100.00%
====== =============== =======
</TABLE>
S-39
<PAGE>
Statistical Calculation Date Loan Balances - Fixed Rate Pool
The distribution of the outstanding principal amounts of Home Equity
Loans in the Fixed Rate Pool as of the Statistical Calculation Date was as
follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Range of Loan Balances Home Equity Loans Loan Balance Loan Balance
-------------------------------------- --------------------------- ---------------------- -------------------
<S> <C> <C> <C>
$0.01 - 25,000.00 1,303 $ 25,024,944 2.70%
25,000.01 - 50,000.00 4,187 159,272,611 17.19
50,000.01 - 75,000.00 3,855 237,632,297 25.65
75,000.01 - 100,000.00 1,882 162,717,193 17.56
100,000.01 - 125,000.00 1,071 119,349,558 12.88
125,000.01 - 150,000.00 552 75,162,832 8.11
150,000.01 - 175,000.00 297 48,135,617 5.20
175,000.01 - 200,000.00 165 30,930,295 3.34
200,000.01 - 225,000.00 93 19,790,794 2.14
225,000.01 - 250,000.00 59 13,901,493 1.50
250,000.01 - 275,000.00 45 11,797,720 1.27
275,000.01 - 300,000.00 36 10,355,921 1.12
300,000.01 - 325,000.00 16 5,026,455 0.54
325,000.01 - 350,000.00 7 2,378,541 0.26
350,000.01 - 375,000.00 4 1,445,961 0.16
375,000.01 - 400,000.00 6 2,354,389 0.25
400,000.01 - 425,000.00 2 816,526 0.09
425,000.01 - 450,000.00 1 449,480 0.05
------- ----
Total: 13,581 $ 926,542,627 100.00%
====== ============== =======
</TABLE>
Types of Mortgaged Properties - Fixed Rate Pool
The Properties securing Home Equity Loans in the Fixed Rate Pool 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 Detached 11,809 $ 803,217,374 86.69%
Single Family Attached 352 18,503,880 2.00
Two to Four- Family Residence 760 59,472,741 6.42
Manufactured Housing 392 21,198,836 2.29
Planned Unit Development 139 15,172,540 1.64
Condominium 103 6,530,035 0.70
Mixed Use 26 2,447,220 0.26
------- ------------ -------
Total: 13,581 $ 926,542,627 100.00%
======= ============ =======
</TABLE>
S-40
<PAGE>
Distribution of Months of Seasoning - Fixed Rate Pool
The distribution of the number of months of seasoning of Home Equity
Loans in the Fixed Rate Pool 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 5,610 $ 377,441,530 40.74%
2 - 12 7,956 548,167,685 59.16
13 or more 15 933,412 0.10
------- ------------ -------
Total: 13,581 $ 926,542,627 100.00%
======= ============ =======
<CAPTION>
Distribution of Remaining Terms to Maturity - Fixed Rate Pool
The distribution of the number of months remaining to maturity of
Home Equity Loans in the Fixed Rate Pool as of the Statistical Calculation
Date was as follows:
Range of Months Remaining Number of Aggregate % of Aggregate
to Maturity Home Equity Loans Loan Balance Loan Balance
--------------------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C>
0 - 60 51 $ 1,122,212 0.12%
61 - 120 478 15,548,592 1.68
121 - 180 7,820 515,304,891 55.62
181 - 240 1,960 118,741,691 12.82
241 - 300 224 16,036,674 1.73
301 - 360 3,048 259,788,569 28.04
------- ------------ -------
Total: 13,581 $ 926,542,627 100.00%
======= ============ =======
<CAPTION>
Occupancy Status - Fixed Rate Pool
The occupancy status of the Properties securing Home Equity Loans in
the Fixed Rate Pool as of the Statistical Calculation Date was as follows:
Number of Aggregate % of Aggregate
Occupancy Status Home Equity Loans Loan Balance Loan Balance
------------------------------- ----------------------- --------------------- --------------------
<S> <C> <C> <C>
Investor Owned 835 $ 43,277,218 4.67%
Owner Occupied 12,746 883,265,409 95.33
------- ------------ -------
Total: 13,581 $ 926,542,627 100.00%
======= ============ =======
</TABLE>
S-41
<PAGE>
Home Equity Loans - Adjustable Rate Pool 1
As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans in Adjustable Rate Pool 1 was $113,298.30; the Coupon
Rates of Home Equity Loans in Adjustable Rate Pool 1 ranged from 7.14% to
14.99%; the weighted average Loan-to-Value Ratio of Adjustable Rate Pool 1 was
80.89%; the weighted average Coupon Rate of the Home Equity Loans in
Adjustable Rate Pool 1 was 10.029%; the weighted average remaining term to
maturity of the Home Equity Loans in Adjustable Rate Pool 1 was 358.13 months;
and the weighted average original term to maturity of the Home Equity Loans in
Adjustable Rate Pool 1 was 359.67 months. The remaining terms to maturity of
the Home Equity Loans in Adjustable Rate Pool 1 as of the Statistical
Calculation Date ranged from 177 months to 360 months. The minimum and maximum
Loan Balances of the Home Equity Loans in Adjustable Rate Pool 1 as of the
Statistical Calculation Date were $14,996.24 and $430,000.00, respectively.
None of the Home Equity Loans in Adjustable Rate Pool 1 contain "balloon"
payments. No Home Equity Loan in Adjustable Rate Pool 1 will mature later than
June 1, 2028. All of the Home Equity Loans in Adjustable Rate Pool 1 are
secured by first mortgages.
All of the Home Equity Loans in Adjustable Rate Pool 1 have maximum
Coupon Rates. The weighted average maximum Coupon Rate of the Home Equity
Loans in Adjustable Rate Pool 1 was 16.24% with maximum Coupon Rates that
range from 13.14% to 21.99%. The Home Equity Loans in Adjustable Rate Pool 1
have a weighted average gross margin as of the Statistical Calculation Date of
6.12%. The gross margin for the Home Equity Loans in Adjustable Rate Pool 1
range from 3.60% to 10.25%.
Approximately $98,041,122.00 or 70.41% of the Home Equity Loans in
the Adjustable Rate Pool 1 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 3.00%.
Approximately $41,202,493.76 or 29.59% of the Home Equity Loans in
Adjustable Rate Pool 1 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 3.00%.
S-42
<PAGE>
Geographic Distribution of Mortgaged Properties--Adjustable Rate Pool 1
The geographic distribution of the Home Equity Loans in Adjustable
Rate Pool 1 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 63 $ 5,637,077 4.05%
Arkansas 1 84,000 0.06
California 179 29,760,870 21.37
Colorado 62 7,187,371 5.16
Connecticut 3 438,815 0.32
District of Columbia 2 397,679 0.29
Florida 108 10,915,808 7.84
Georgia 55 5,990,774 4.30
Hawaii 5 1,193,085 0.86
Idaho 7 601,609 0.43
Illinois 52 6,630,260 4.76
Indiana 25 1,936,816 1.39
Iowa 3 141,866 0.10
Kansas 11 851,610 0.61
Kentucky 8 654,923 0.47
Louisiana 9 884,675 0.64
Maryland 23 2,503,104 1.80
Massachusetts 25 3,377,414 2.43
Michigan 166 15,932,303 11.44
Minnesota 18 1,896,014 1.36
Missouri 32 2,448,588 1.76
Montana 6 584,659 0.42
Nebraska 4 207,108 0.15
Nevada 11 1,478,812 1.06
New Hampshire 4 419,279 0.30
New Jersey 6 740,752 0.53
New Mexico 22 2,335,819 1.68
New York 4 359,397 0.26
North Carolina 5 378,223 0.27
Ohio 50 4,509,737 3.24
Oklahoma 12 967,747 0.70
Oregon 29 3,211,532 2.31
Pennsylvania 55 5,082,608 3.65
Rhode Island 4 493,866 0.35
South Dakota 2 71,991 0.05
Tennessee 2 141,400 0.10
Texas 32 3,662,809 2.63
Utah 71 8,577,631 6.16
Virginia 6 930,093 0.67
Washington 35 4,543,145 3.26
West Virginia 2 57,650 0.04
Wisconsin 10 1,024,702 0.74
------ -------------- ------
Total: 1,229 $ 139,243,616 100.00%
====== ============= =======
</TABLE>
S-43
<PAGE>
Original Loan-to-Value Ratios--Adjustable Rate Pool 1
The original Loan-to-Value Ratios of Home Equity Loans in Adjustable
Rate Pool 1 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>
15.01 - 20.00% 1 $ 150,000 0.11%
25.01 - 30.00 1 74,937 0.05
30.01 - 35.00 1 90,000 0.06
35.01 - 40.00 3 150,422 0.11
40.01 - 45.00 4 238,945 0.17
45.01 - 50.00 14 1,019,916 0.73
50.01 - 55.00 10 1,219,818 0.88
55.01 - 60.00 25 2,270,098 1.63
60.01 - 65.00 35 3,218,054 2.31
65.01 - 70.00 88 8,182,527 5.88
70.01 - 75.00 152 15,148,296 10.88
75.01 - 80.00 327 36,788,202 26.42
80.01 - 85.00 274 33,170,949 23.82
85.01 - 90.00 291 37,167,232 26.69
90.01 - 95.00 3 354,220 0.25
----- ------------- -------
Total: 1,229 $ 139,243,616 100.00%
===== ============ =======
<CAPTION>
Statistical Calculation Date Current Coupon Rates--Adjustable Rate Pool 1
The Coupon Rates borne by the Notes relating to Home Equity Loans in
Adjustable Rate Pool 1 were distributed as follows as of the Statistical
Calculation Date:
Range of Current Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
----------------------------- ------------------------ -------------------------- ------------------------
<S> <C> <C> <C>
7.01 - 8.00 15 $ 2,753,152 1.98%
8.01 - 9.00 126 18,364,197 13.19
9.01 - 10.00 433 52,743,257 37.88
10.01 - 11.00 472 50,464,279 36.24
11.01 - 12.00 147 12,870,380 9.24
12.01 - 13.00 24 1,436,948 1.03
13.01 - 14.00 9 473,697 0.34
14.01 - 15.00 3 137,706 0.10
------ -------------- ------
Total: 1,229 $ 139,243,616 100.00%
====== ============= ======
</TABLE>
S-44
<PAGE>
Statistical Calculation Date Loan Balances--Adjustable Rate Pool 1
The distribution of the outstanding principal amounts of the Home
Equity Loans in Adjustable Rate Pool 1 as of the Statistical Calculation Date
was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Range of Loan Balances Home Equity Loans Loan Balance Loan Balance
------------------------------------ ---------------------- --------------------- -------------------
<S> <C> <C> <C>
$0.01 - 25,000.00 10 $ 204,251 0.15%
25,000.01 - 50,000.00 159 6,382,554 4.58
50,000.01 - 75,000.00 217 13,799,927 9.91
75,000.01 - 100,000.00 187 16,464,294 11.82
100,000.01 - 125,000.00 246 27,451,185 19.71
125,000.01 - 150,000.00 157 21,568,903 15.49
150,000.01 - 175,000.00 85 13,588,642 9.76
175,000.01 - 200,000.00 60 11,177,098 8.03
200,000.01 - 225,000.00 34 7,278,957 5.23
225,000.01 - 250,000.00 25 5,922,983 4.25
250,000.01 - 275,000.00 11 2,892,677 2.08
275,000.01 - 300,000.00 11 3,173,986 2.28
300,000.01 - 325,000.00 10 3,118,744 2.24
325,000.01 - 350,000.00 8 2,714,012 1.95
350,000.01 - 375,000.00 3 1,077,700 0.77
375,000.01 - 400,000.00 3 1,176,424 0.84
400,000.01 - 425,000.00 2 821,280 0.59
425,000.01 - 450,000.00 1 430,000 0.31
------ ------------- -------
Total: 1,229 $ 139,243,616 100.00%
====== ============= =======
<CAPTION>
Types of Mortgaged Properties--Adjustable Rate Pool 1
The Properties securing the Home Equity Loans in Adjustable Rate Pool
1 as of the Statistical Calculation Date were of the property types as
follows:
Number of Aggregate % of Aggregate
Property Types Home Equity Loans Loan Balance Loan Balance
--------------------------------------- ------------------------- ---------------------- ------------------
<S> <C> <C> <C>
Single Family Detached 1,046 $ 120,289,309 86.39%
Single Family Attached 17 1,302,982 0.94
Two to Four-Family Residence 49 5,120,969 3.68
Manufactured Housing 38 3,082,535 2.21
Planned Unit Development 56 7,537,944 5.41
Condominium 22 1,869,875 1.34
Mixed Use 1 40,000 0.03
----- ------------- -------
Total: 1,229 $ 139,243,616 100.00%
===== ============= =======
</TABLE>
S-45
<PAGE>
Distribution of Months of Seasoning--Adjustable Rate Pool 1
The distribution of the number of months of seasoning of the Home
Equity Loans in Adjustable Rate Pool 1 as of the Statistical Calculation Date
was as follows:
<TABLE>
<CAPTION>
Range of Months of Number of Aggregate % of Aggregate
Seasoning Home Equity Loans Loan Balance Loan Balance
-------------------------- ------------------------ ------------------------- ---------------------
<S> <C> <C> <C>
0 - 1 725 $ 72,369,331 51.97%
2 - 12 504 66,874,284 48.03
------ -------------- --------
Total: 1,229 $ 139,243,616 100.00%
====== ============= =========
<CAPTION>
Distribution of Remaining Terms to Maturity--Adjustable Rate Pool 1
The distribution of the number of months remaining to maturity of the
Home Equity Loans in Adjustable Rate Pool 1 as of the Statistical Calculation
Date was as follows:
Range of Months Remaining Number of Aggregate % of Aggregate
to Maturity Home Equity Loans Loan Balance Loan Balance
--------------------------------- --------------------- ----------------------- ------------------
<S> <C> <C> <C>
121 - 180 2 $ 132,609 0.10%
181 - 240 1 184,000 0.13
301 - 360 1,226 138,927,006 99.77
------ ------------- -------
Total: 1,229 $ 139,243,616 100.00%
====== =========== =======
<CAPTION>
Occupancy Status--Adjustable Rate Pool 1
The occupancy status of the Properties securing the Home Equity Loans
in Adjustable Rate Pool 1 as of the Statistical Calculation Date was as
follows:
Number of Aggregate % of Aggregate
Occupancy Status Home Equity Loans Loan Balance Loan Balance
-------------------------------- --------------------- ------------------------- -------------------
<S> <C> <C> <C>
Investor Owned 53 $ 4,398,054 3.16%
Owner Occupied 1,176 134,845,561 96.84
----- ---------------- -------
Total: 1,229 $ 139,243,616 100.00%
===== =============== =======
</TABLE>
S-46
<PAGE>
Distribution of Margins--Adjustable Rate Pool 1
The margins borne by the Notes relating to the Home Equity Loans in
Adjustable Rate Pool 1 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% 7 $ 1,085,306 0.78%
4.01 - 5.00 79 11,011,872 7.91
5.01 - 6.00 464 54,661,575 39.26
6.01 - 7.00 493 54,646,641 39.25
7.01 - 8.00 153 15,151,644 10.88
8.01 - 9.00 27 2,111,309 1.52
9.01 - 10.00 5 506,520 0.36
10.01 - 11.00 1 68,750 0.05
----- -------------- -------
Total: 1,229 $ 139,243,616 100.00%
===== ============= =======
<CAPTION>
Distribution of Maximum Coupon Rates--Adjustable Rate Pool 1
The maximum Coupon Rates borne by the Notes relating to the Home
Equity Loans in Adjustable Rate Pool 1 as of the Statistical Calculation Date
were as follows:
Range of Number of Aggregate % of Aggregate
Maximum Rates Home Equity Loans Loan Balance Loan Balance
---------------------------- ---------------------- ----------------------- ------------------------
<S> <C> <C> <C>
13.01 - 14.00% 9 $ 1,460,179 1.05%
14.01 - 15.00 90 13,919,717 10.00
15.01 - 16.00 389 47,914,640 34.41
16.01 - 17.00 479 51,598,438 37.06
17.01 - 18.00 202 20,232,126 14.53
18.01 - 19.00 38 2,965,782 2.13
19.01 - 20.00 16 892,036 0.64
20.01 - 21.00 5 234,197 0.17
21.01 - 22.00 1 26,500 0.02
----- -------------- --------
Total: 1,229 $ 139,243,616 100.00%
===== ============= ========
</TABLE>
S-47
<PAGE>
Month of Next Coupon Rate Change--Adjustable Rate Pool 1
The month of the next Coupon Rate change for each of the Notes
relating to the Home Equity Loans in Adjustable Rate Pool 1 as of the
Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Month of Next Coupon Number of Aggregate % of Aggregate
Rate Change Home Equity Loans Loan Balance Loan Balance
----------------------------- ----------------------- ----------------- ------------------
<S> <C> <C> <C>
March, 2000 7 $ 938,999 0.67%
April, 2000 358 53,529,376 38.44
May, 2000 453 42,964,655 30.86
June, 2000 6 608,092 0.44
July, 2000 1 35,866 0.03
September, 2000 1 29,956 0.02
October, 2000 1 86,215 0.06
November, 2000 1 76,382 0.05
December, 2000 1 49,899 0.04
January, 2001 5 1,073,747 0.77
February, 2001 9 934,155 0.67
March, 2001 86 8,401,932 6.03
April, 2001 177 18,503,065 13.29
May, 2001 121 11,732,277 8.43
June, 2001 2 279,000 0.20
----- --------------- -------
Total: 1,229 $ 139,243,616 100.00%
===== =============== =======
</TABLE>
Home Equity Loans - Fixed Rate Pool and Adjustable Rate Pool 1
As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans was $71,963.96; the Coupon Rates of the Home Equity
Loans ranged from 6.75% to 17.99%; the weighted average Loan-to-Value Ratio of
the Home Equity Loans was 76.25%; the weighted average Combined Loan-to-Value
Ratio of the Home Equity Loans was 78.14%; the weighted average Coupon Rate of
the Home Equity Loans was 10.41%; the weighted average remaining term to
maturity of the Home Equity Loans was 253 months; and the weighted average
original term to maturity of the Home Equity Loans was 255 months. The
remaining terms to maturity as of the Statistical Calculation Date of the Home
Equity Loans ranged from 21 months to 360 months. The minimum and maximum Loan
Balances of the Home Equity Loans as of the Statistical Calculation Date were
$3,057.47 and $449,480.29, respectively.
Home Equity Loans - Adjustable Rate Pool 2
As of the Statistical Calculation Date, the average Loan Balance of
the Home Equity Loans in Adjustable Rate Pool 2 was $82,966.16; the Coupon
Rates of the Home Equity Loans in Adjustable Rate Pool 2 ranged from 6.88% to
15.30%; the weighted average Loan-to-Value Ratio of Adjustable Rate Pool 2 was
80.02%; the weighted average Coupon Rate Home Equity Loans in Adjustable Rate
Pool 2 was 10.079%; the weighted average remaining term to maturity of the
Home Equity Loans in Adjustable Rate Pool 2 was 357.20 months; and the
weighted average original term to maturity of the Home Equity Loans in the
Adjustable Rate Pool 2 was 359.64 months. The remaining terms to maturity of
the Home Equity Loans in Adjustable Rate Pool 2 as of the Statistical
Calculation Date ranged from 119 months to 360 months. The minimum and maximum
Loan Balances of the Home Equity Loans in Adjustable Rate Pool 2 as of the
Statistical Calculation Date were $11,996.78 and $400,143.13, respectively.
None of the Home Equity Loans in Adjustable Rate Pool 2 contains "balloon"
payments. No Home
S-48
<PAGE>
Equity Loan in Adjustable Rate Pool 2 will mature later than May 15, 2028. All
of the Home Equity Loans in the Adjustable Rate Pool 2 are secured by first
mortgages.
All of the Home Equity Loans in Adjustable Rate Pool 2 have maximum
Coupon Rates. The weighted average maximum Coupon Rate of the Home Equity
Loans in Adjustable Rate Pool 2 was 16.38%, with maximum Coupon Rates that
range from 9.49% to 22.30%. The Home Equity Loans in Adjustable Rate Pool 2
have a weighted average gross margin as of the Statistical Calculation Date of
6.25%. The gross margin for the Home Equity Loans in Adjustable Rate Pool 2
range from 1.30% to 10.65%.
Approximately $29,976,002.84 or 21.51% of the Home Equity Loans in
Adjustable Rate Pool 2 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 1.00%.
Approximately $109,407,137.87 or 78.49% of the Home Equity Loans in
Adjustable Rate Pool 2 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 3.00%.
S-49
<PAGE>
Geographic Distribution of Mortgaged Properties --Adjustable Rate Pool 2
The geographic distribution of the Home Equity Loans in Adjustable
Rate Pool 2 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 57 $ 4,887,535 3.51%
Arkansas 4 574,283 0.41
California 117 15,873,671 11.39
Colorado 29 2,707,707 1.94
Connecticut 15 1,394,009 1.00
Delaware 2 212,340 0.15
Florida 86 6,263,821 4.49
Georgia 42 3,851,775 2.76
Idaho 16 1,384,769 0.99
Illinois 95 9,087,986 6.52
Indiana 62 3,574,265 2.56
Iowa 3 155,590 0.11
Kansas 14 904,629 0.65
Kentucky 21 1,237,304 0.89
Louisiana 4 279,853 0.20
Maryland 25 2,127,900 1.53
Massachusetts 10 1,244,939 0.89
Michigan 475 34,409,377 24.69
Minnesota 23 1,800,696 1.29
Mississippi 12 586,016 0.42
Missouri 45 2,630,700 1.89
Montana 6 579,805 0.42
Nebraska 1 68,808 0.05
Nevada 10 809,287 0.58
New Hampshire 5 616,336 0.44
New Jersey 7 901,165 0.65
New Mexico 18 1,447,651 1.04
New York 16 1,860,087 1.33
North Carolina 31 2,541,218 1.82
North Dakota 1 71,965 0.05
Ohio 120 7,951,971 5.71
Oklahoma 14 979,279 0.70
Oregon 8 761,545 0.55
Pennsylvania 57 4,188,705 3.01
Rhode Island 1 86,200 0.06
South Carolina 9 770,912 0.55
South Dakota 2 103,135 0.07
Tennessee 14 1,440,340 1.03
Texas 75 7,205,739 5.17
Utah 45 4,543,149 3.26
Virginia 10 663,340 0.48
Washington 37 4,159,619 2.98
West Virginia 4 224,462 0.16
Wisconsin 30 2,076,376 1.49
Wyoming 2 142,879 0.10
----- ----------- -------
Total: 1,680 $ 139,383,141 100.00%
===== ============ =======
</TABLE>
S-50
<PAGE>
Original Loan-to-Value Ratios--Adjustable Rate Pool 2
The original Loan-to-Value Ratios of Home Equity Loans in Adjustable
Rate Pool 2 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>
15.01 - 20.00% 3 $ 136,365 0.10%
20.01 - 25.00 3 127,031 0.09
25.01 - 30.00 1 25,989 0.02
30.01 - 35.00 7 268,282 0.19
35.01 - 40.00 10 537,261 0.39
40.01 - 45.00 10 566,652 0.41
45.01 - 50.00 25 1,274,582 0.91
50.01 - 55.00 13 804,650 0.58
55.01 - 60.00 47 2,295,535 1.65
60.01 - 65.00 70 5,208,841 3.74
65.01 - 70.00 135 9,155,881 6.57
70.01 - 75.00 216 17,584,586 12.62
75.01 - 80.00 449 36,016,840 25.84
80.01 - 85.00 339 29,885,181 21.44
85.01 - 90.00 348 35,119,151 25.20
90.01 - 95.00 4 376,315 0.27
----- ------------ ------
Total: 1,680 $ 139,383,141 100.00%
===== =========== ======
<CAPTION>
Statistical Calculation Date Current Coupon Rates--Adjustable Rate Pool 2
The Coupon Rates borne by the Notes relating to Home Equity Loans in
Adjustable Rate Pool 2 were distributed as follows as of the Statistical
Calculation Date:
Range of Current Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
------------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C>
6.01 - 7.00% 2 $171,942 0.12%
7.01 - 8.00 37 4,836,677 3.47
8.01 - 9.00 192 20,321,152 14.58
9.01 - 10.00 499 45,097,238 32.35
10.01 - 11.00 591 46,169,876 33.12
11.01 - 12.00 259 17,826,879 12.79
12.01 - 13.00 56 3,329,050 2.39
13.01 - 14.00 31 1,149,122 0.82
14.01 - 15.00 11 431,957 0.31
15.01 - 16.00 2 49,248 0.04
- ------ ----
Total: 1,680 $ 139,383,141 100.00%
====== ============ =======
</TABLE>
S-51
<PAGE>
Statistical Calculation Date Loan Balances--Adjustable Rate Pool 2
The distribution of the outstanding principal amounts of the Home
Equity Loans in Adjustable Rate Pool 2 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 51 $ 1,030,510 0.74%
25,000.01 - 50,000.00 361 14,152,877 10.15
50,000.01 - 75,000.00 512 32,060,982 23.00
75,000.01 - 100,000.00 371 32,240,014 23.13
100,000.01 - 125,000.00 155 17,299,443 12.41
125,000.01 - 150,000.00 82 11,249,220 8.07
150,000.01 - 175,000.00 53 8,498,694 6.10
175,000.01 - 200,000.00 32 5,960,960 4.28
200,000.01 - 225,000.00 16 3,409,976 2.45
225,000.01 - 250,000.00 12 2,894,249 2.08
250,000.01 - 275,000.00 11 2,873,892 2.06
275,000.01 - 300,000.00 11 3,201,956 2.30
300,000.01 - 325,000.00 5 1,567,833 1.12
325,000.01 - 350,000.00 2 697,328 0.50
350,000.01 - 375,000.00 4 1,445,482 1.04
375,000.01 - 400,000.00 1 399,584 0.29
400,000.01 - 425,000.00 1 400,143 0.29
----- ------------ -------
Total: 1,680 $ 139,383,141 100.00%
===== =========== =======
<CAPTION>
Types of Mortgaged Properties--Adjustable Rate Pool 2
The Properties securing the Home Equity Loans in Adjustable Rate Pool
2 as of the Statistical Calculation Date were of the property types as
follows:
Range of Number of Aggregate % of Aggregate
Property Types Home Equity Loans Loan Balance Loan Balance
---------------------------------- -------------------- -------------------------- ----------------------
<S> <C> <C> <C>
Single Family Detached 1,456 $ 121,258,031 87.00%
Single Family Attached 27 1,537,704 1.10
Two to Four- Family Residence 83 6,929,689 4.97
Manufactured Housing 51 3,639,822 2.89
Planned Unit Development 37 4,022,091 2.61
Condominium 25 1,960,818 1.41
Mixed Use 1 34,985 0.03
----- ------------ -------
Total: 1,680 $ 139,383,141 100.00%
===== =========== =======
</TABLE>
S-52
<PAGE>
Distribution of Months of Seasoning--Adjustable Rate Pool 2
The distribution of the number of months of seasoning of the Home
Equity Loans in Adjustable Rate Pool 2 as of the Statistical Calculation Date
was as follows:
<TABLE>
<CAPTION>
Range of Months of Number of Aggregate % of Aggregate
Seasoning Home Equity Loans Loan Balance Loan Balance
------------------------ ---------------------- ---------------------- ------------
<S> <C> <C> <C>
0 - 1 208 $ 15,589,248 11.18%
2 - 12 1,472 123,793,893 88.82
----- ----------- --------
Total: 1,680 $ 139,383,141 100.00%
===== =========== ========
<CAPTION>
Distribution of Remaining Terms to Maturity--Adjustable Rate Pool 2
The distribution of the number of months remaining to maturity of the
Home Equity Loans in Adjustable Rate Pool 2 as of the Statistical Calculation
Date was as follows:
Range of Months Remaining Number of Aggregate % of Aggregate
to Maturity Home Equity Loans Loan Balance Loan Balance
----------------------------- ----------------------- ------------------------- ------------------------
<S> <C> <C> <C>
61 - 120 1 $ 104,499 0.07%
121 - 180 1 34,787 0.02
181 - 240 2 153,085 0.11
301 - 360 1,676 139,090,770 99.79
----- ------------ ------
Total: 1,680 $139,383,141 100.00%
===== ============ =======
<CAPTION>
Occupancy Status--Adjustable Rate Pool 2
The occupancy status of the Properties securing the Home Equity Loans
in Adjustable Rate Pool 2 as of the Statistical Calculation Date was as
follows:
Number of Aggregate % of Aggregate
Occupancy Status Home Equity Loans Loan Balance Loan Balance
----------------------------- ------------------------- --------------------- ----------------------
<S> <C> <C> <C>
Investor Owned 129 $ 8,017,835 5.75%
Owner Occupied 1,551 131,365,306 94.25
----- ------------- -------
Total: 1,680 $ 139,383,141 100.00%
===== =========== =======
</TABLE>
S-53
<PAGE>
Distribution of Margins--Adjustable Rate Pool 2
The margins borne by the Notes relating to the Home Equity Loans in
Adjustable Rate Pool 2 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>
1.01 - 2.00% 1 $ 83,795 0.06%
3.01 - 4.00 12 1,129,445 0.81
4.01 - 5.00 125 11,911,326 8.55
5.01 - 6.00 533 48,362,518 34.70
6.01 - 7.00 619 50,354,087 36.13
7.01 - 8.00 300 22,375,545 16.05
8.01 - 9.00 63 4,256,814 3.05
9.01 - 10.00 22 734,964 0.53
10.01 - 11.00 5 174,647 0.13
----- -------------- --------
Total: 1,680 $ 139,383,141 100.00%
===== ============= ========
<CAPTION>
Distribution of Maximum Coupon Rates--Adjustable Rate Pool 2
The maximum Coupon Rates borne by the Notes relating to the Home
Equity Loans in Adjustable Rate Pool 2 as of the Statistical Calculation Date
were as follows:
Range of Maximum Number of Aggregate % of Aggregate
Rates Home Equity Loans Loan Balance Loan Balance
------------------------- ---------------------- ------------------------- ---------------------
<S> <C> <C> <C>
9.01 - 10.00% 1 $ 133,468 0.10%
10.01 - 11.00 2 159,292 0.11
12.01 - 13.00 1 102,000 0.07
13.01 - 14.00 22 2,877,168 2.06
14.01 - 15.00 140 16,080,908 11.54
15.01 - 16.00 431 38,060,739 27.31
16.01 - 17.00 571 46,904,413 33.65
17.01 - 18.00 319 23,193,111 16.64
18.01 - 19.00 120 8,349,083 5.99
19.01 - 20.00 45 2,448,958 1.76
20.01 - 21.00 19 803,470 0.58
21.01 - 22.00 7 221,283 0.16
22.01 - 23.00 2 49,248 0.04
----- ------------ -------
Total: 1,680 $ 139,383,141 100.00%
===== ============ =======
</TABLE>
S-54
<PAGE>
Month of Next Coupon Rate Change--Adjustable Rate Pool 2
The month of the next Coupon Rate change for each of the Notes
relating to the Home Equity Loans in Adjustable Rate Pool 2 as of the
Statistical Calculation Date was as follows:
<TABLE>
<CAPTION>
Month of Next Coupon Number of Aggregate % of Aggregate
Rate Change Home Equity Loans Loan Balance Loan Balance
------------------------- ------------------------- ------------------------- -------------------
<S> <C> <C> <C>
June, 1998 10 $ 931,313 0.67%
July, 1998 6 507,965 0.36
August, 1998 21 1,515,820 1.09
September, 1998 97 9,747,478 6.99
October, 1998 130 12,514,336 8.98
November, 1998 39 4,759,090 3.41
August, 1999 2 137,398 0.10
October, 1999 5 698,042 0.50
November, 1999 14 819,724 0.59
December, 1999 20 1,759,036 1.26
January, 2000 47 4,713,720 3.38
February, 2000 129 12,831,798 9.21
March, 2000 558 51,128,055 36.68
April, 2000 601 37,228,416 26.71
May, 2000 1 90,950 0.07
------ -------------- -------
Total: 1,680 $ 139,383,141 100.00%
====== =========== =======
</TABLE>
S-55
<PAGE>
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. The
actual rate of principal prepayments on pools of mortgage loans is influenced
by a variety of economic, tax, geographic, demographic, social, legal and
other factors and has fluctuated considerably in recent years. In addition,
the rate of principal prepayments may differ among pools of mortgage loans at
any time because of specific factors relating to the mortgage loans in the
particular pool, including, among other things, the age of the mortgage loans,
the geographic locations of the properties securing the loans 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 Home Equity Loans in
the Fixed Rate Pool is 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,
S-56
<PAGE>
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, 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 the Adjustable Rate Loans may differ from that on the Fixed Rate
Loans because the amount of the monthly payments on the Adjustable Rate Loans
are subject to adjustment on each adjustment date. Because the cashflows from
both the Fixed Rate Loans and Adjustable Rate Loans will be used to make the
required distributions on the Class A Trust Certificates (other than the Class
A-9 Certificates) and Class B Certificates, the prepayment experience of the
Class A Trust Certificates and Class B Certificates will not reflect solely
the prepayment experience of either the Fixed Rate Loans or Adjustable Rate
Loans. The Class A-9 Certificates will reflect solely the prepayment
experience of Adjustable Pool 2.
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
Trust Certificates relative to the amortization of the Home Equity Loans in
the related Loan Group in early months of the transaction (but after the first
six months). The accelerated amortization is achieved by the application of
the Monthly Excess Interest Amount to the payment of the Certificate Principal
Balance of the related Classes of Class A Trust Certificates then entitled to
distributions of principal. This creates overcollateralization which results
from the excess of the aggregate Loan Balances of the Home Equity Loans over
the Aggregate Trust Certificate Principal Balance. Once the Targeted
Overcollateralization Amount is reached, the application of the Monthly Excess
Interest Amount to pay down principal will cease, unless necessary to maintain
the Overcollateralization Amount at the Targeted Overcollateralization Amount.
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 I
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. There is a range of
prepayment rates (the "Effective Range") at which the PAC Certificates would
adhere to their schedules of Planned Principal Balances. The Effective Range
at any time depends on the actual or assumed characteristics of Home Equity
Loans in Loan Group I at that time. Based on the Modeling Assumptions, the PAC
Certificates would adhere to their Planned Principal Balances schedules if the
Fixed Rate Loans were to prepay anywhere between 125% Fixed Prepayment
Assumption and 175% Fixed Prepayment Assumption and the Home Equity Loans in
Adjustable Rate Pool 1 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 the above stated prepayments assumptions) until the PAC
Certificates are retired.
The Home Equity Loans in Loan Group I will have characteristics that
differ from those of the Modeling Assumptions. The initial Effective Range, if
calculated using the actual characteristics of the Home Equity Loans in Loan
Group I, could differ from that shown. Therefore, even if Home Equity Loans
were to prepay at a constant
S-57
<PAGE>
rate within the initial Effective Range 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 I 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 Effective
Range. The Effective Range 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 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 no longer have an
Effective Range and will become more sensitive to Home Equity Loan prepayments
in Loan Group I.
If the Home Equity Loans in Loan Group I prepay at rates that are
generally below the Effective Range, the Class A Principal Distribution Amount
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 Effective Range, the weighted average life of one or more
Classes of PAC Certificates may be shortened, perhaps significantly. However,
the weighted average lives of one or more Classes of PAC Certificates could be
extended under certain scenarios involving Home Equity Loan prepayments in
Loan Group I at rates that are generally above the Effective Range. The entire
Class A Principal Distribution Amount will be distributed monthly on each
Payment Date and will not be retained for distribution on subsequent Payment
Dates. Thus, the likelihood that the PAC Certificates will adhere to their
Planned Principal Balances schedules will not be enhanced by averaging high
and low principal payments in different months.
Companion Certificates
The Class of Companion Certificates will support the principal
payment stability of the PAC Certificates. Thus, the Class of Companion
Certificates is likely to be much more sensitive to Home Equity Loan
prepayments in Loan Group I than is any Class it supports. 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 I may significantly
shorten, and relatively slow Home Equity Loan prepayments in Loan Group I may
significantly extend, the weighted average lives of the Companion
Certificates.
Interest-Only Certificates
Because amounts distributable to the Owners of the Class A-10 IO
Certificates consist entirely of interest, the yield to maturity of the Class
A-10 IO Certificates will be sensitive to the repurchase, prepayment and
default experience of the Home Equity Loans in Loan Group I, and prospective
investors should fully consider the associated risks, including the risk that
such investors may not fully recover their initial investment. In addition,
the Notional Principal Amount applicable to interest calculations on the Class
A-10 IO Certificates is (x) through the 30th Payment Date, the sum of the
Class A-6 and Class-7 Certificate Principal Balance and (y) thereafter, zero.
Since the Class A-6 and Class A-7 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 and through the
Companion Certificates, the performance of the Class A-10 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 I directly,
and consequently, the yield sensitivity of such Certificates will only be
impacted at extremely high rates of prepayment.
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.
S-58
<PAGE>
The "Final Scheduled Payment Date" for each Class of the Offered
Certificates is as set forth in the Summary of Terms hereof. Such dates 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 are made to the Owners of the Offered Certificates. The
Final Scheduled Payment Date for 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.
The final Payment Date for the Class A-1 Certificates will be June
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
Principal Remittance Amount with respect to Loan Group I 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 Class A Trust
Certificates in the amount of such shortfall.
The final Payment Date for the Class A-8 and the Class A-9
Certificates will be June 15, 2028, at which time the remaining Certificate
Principal Balance, if any then outstanding, of the Class A-8 and the Class A-9
Certificates will be paid in full. If the related Principal Remittance Amounts
with respect to such Payment Date are not sufficient to pay in full the
remaining Certificate Principal Balance of the Class A-8 and the Class A-9
Certificates on such final Payment Date, a draw will be made on the
Certificate Insurance Policy with respect to the Class A Trust 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.
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.
S-59
<PAGE>
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 June
29, 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 July 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 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 5.78125%) 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 Floating Rate
Certificates remains constant at its initial rate (the assumed level of
one-month LIBOR is 5.64844%) 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 and (xi) no Delinquency Trigger Event or Cumulative Realized Loss
Trigger Event occurs.
S-60
<PAGE>
<TABLE>
<CAPTION>
PREPAYMENT SCENARIOS
Scenario Scenario Scenario Scenario Scenario Scenario Scenario Scenario
I II III IV V VI VII VIII
---------- ---------- ------------ ---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate 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.
S-61
<PAGE>
REPRESENTATIVE LOAN POOLS
FIXED RATE POOL
<TABLE>
<CAPTION>
Gross Net Original Remaining Orig.
Coupon Coupon Term to Term to Amortization
Pool # Principal Balance Rate Rate Maturity Maturity Term Amort. Method
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $305,440.78 11.104% 10.604% 180 177 240 Balloon
2 598,446,101.55 10.804 10.304 180 177 360 Balloon
3 1,635,095.77 10.837 10.337 60 57 60 Fully Amortizing
4 22,605,218.87 10.692 10.192 117 114 117 Fully Amortizing
5 152,112,456.94 10.370 9.870 180 177 180 Fully Amortizing
6 196,376,061.20 10.040 9.540 247 244 247 Fully Amortizing
7 378,519,624.89 10.183 9.683 360 357 360 Fully Amortizing
--------------
Total $1,350,000,00.00
</TABLE>
ADJUSTABLE RATE POOL 1
<TABLE>
<CAPTION>
Current Next
Gross Net Coupon Months to Gross Periodic Rate Periodic Life Rate Life
Pool # Principal Balance Coupon Rate Rate Rate Change Margin Cap Rate Cap Floor Rate Cap
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $165,462,980.70 9.913% 9.413% 22 6.000% 2.816% 1.061% 9.910% 16.171%
2 69,537,019.30 10.304 9.804 33 6.393 3.422 1.013 10.297 16.411
---------------
Total $235,000,000.00
<CAPTION>
Original Remaining
Term to Term to Orig. Amortization
Pool # Maturity Maturity Term Amort. Method
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 360 357 360 Fully Amortizing
2 360 357 360 Fully Amortizing
</TABLE>
ADJUSTABLE RATE POOL 2
<TABLE>
<CAPTION>
Current Next Life
Principal Gross Net Coupon Months to Gross Periodic Rate Periodic Rate Life
Pool # Balance Coupon Rate Rate Rate Change Margin Cap Rate Cap Floor Rate Cap
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $491,794.08 9.743% 9.243% 1 5.827% 1.000% 1.000% 9.743% 15.993%
2 6,148,800.23 9.264 8.764 2 6.398 1.000 1.000 9.264 15.521
3 18,330,947.23 9.424 8.924 3 6.369 1.000 1.000 9.424 15.677
4 3,255,501.77 9.499 8.999 4 6.182 1.000 1.000 9.499 15.928
5 5,633,750.62 8.937 8.437 5 6.124 1.000 1.000 8.937 15.213
6 1,624,419.57 10.752 10.252 6 6.564 1.000 1.000 10.014 16.185
7 129,514,786.50 10.277 9.777 20 6.226 2.956 1.040 10.268 16.584
---------------
Total $165,000,000.00
<CAPTION>
Original Remaining Orig.
Term to Term to Amortization
Pool # Maturity Maturity Term Amort. Method
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 360 356 360 Fully Amortizing
2 360 356 360 Fully Amortizing
3 358 355 358 Fully Amortizing
4 351 349 351 Fully Amortizing
5 360 358 360 Fully Amortizing
6 360 354 360 Fully Amortizing
7 360 356 360 Fully Amortizing
</TABLE>
S-62
<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 I II III IV V VI VII VIII
Date - -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percent 100% 100% 100% 100% 100% 100% 100% 100%
June-1999 67% 0% 0% 0% 0% 0% 0% 0%
June-2000 51% 0% 0% 0% 0% 0% 0% 0%
June-2001 35% 0% 0% 0% 0% 0% 0% 0%
June-2002 16% 0% 0% 0% 0% 0% 0% 0%
June-2003 0% 0% 0% 0% 0% 0% 0% 0%
June-2004 0% 0% 0% 0% 0% 0% 0% 0%
June-2005 0% 0% 0% 0% 0% 0% 0% 0%
June-2006 0% 0% 0% 0% 0% 0% 0% 0%
June-2007 0% 0% 0% 0% 0% 0% 0% 0%
June-2008 0% 0% 0% 0% 0% 0% 0% 0%
June-2009 0% 0% 0% 0% 0% 0% 0% 0%
June-2010 0% 0% 0% 0% 0% 0% 0% 0%
June-2011 0% 0% 0% 0% 0% 0% 0% 0%
June-2012 0% 0% 0% 0% 0% 0% 0% 0%
June-2013 0% 0% 0% 0% 0% 0% 0% 0%
June-2014 0% 0% 0% 0% 0% 0% 0% 0%
June-2015 0% 0% 0% 0% 0% 0% 0% 0%
June-2016 0% 0% 0% 0% 0% 0% 0% 0%
June-2017 0% 0% 0% 0% 0% 0% 0% 0%
June-2018 0% 0% 0% 0% 0% 0% 0% 0%
June-2019 0% 0% 0% 0% 0% 0% 0% 0%
June-2020 0% 0% 0% 0% 0% 0% 0% 0%
June-2021 0% 0% 0% 0% 0% 0% 0% 0%
June-2022 0% 0% 0% 0% 0% 0% 0% 0%
June-2023 0% 0% 0% 0% 0% 0% 0% 0%
June-2024 0% 0% 0% 0% 0% 0% 0% 0%
June-2025 0% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life
Years(1) 2.24 0.60 0.43 0.33 0.28 0.25 0.23 0.20
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-2 Floating
Scenario
---------------------------------------------------------------------
Payment I II III IV V VI VII VIII
Date - -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percent 100% 100% 100% 100% 100% 100% 100% 100%
June-1999 100% 99% 82% 62% 50% 50% 50% 50%
June-2000 100% 69% 33% 0% 0% 0% 0% 0%
June-2001 100% 43% 0% 0% 0% 0% 0% 0%
June-2002 100% 17% 0% 0% 0% 0% 0% 0%
June-2003 99% 0% 0% 0% 0% 0% 0% 0%
June-2004 93% 0% 0% 0% 0% 0% 0% 0%
June-2005 86% 0% 0% 0% 0% 0% 0% 0%
June-2006 79% 0% 0% 0% 0% 0% 0% 0%
June-2007 71% 0% 0% 0% 0% 0% 0% 0%
June-2008 62% 0% 0% 0% 0% 0% 0% 0%
June-2009 53% 0% 0% 0% 0% 0% 0% 0%
June-2010 43% 0% 0% 0% 0% 0% 0% 0%
June-2011 32% 0% 0% 0% 0% 0% 0% 0%
June-2012 19% 0% 0% 0% 0% 0% 0% 0%
June-2013 0% 0% 0% 0% 0% 0% 0% 0%
June-2014 0% 0% 0% 0% 0% 0% 0% 0%
June-2015 0% 0% 0% 0% 0% 0% 0% 0%
June-2016 0% 0% 0% 0% 0% 0% 0% 0%
June-2017 0% 0% 0% 0% 0% 0% 0% 0%
June-2018 0% 0% 0% 0% 0% 0% 0% 0%
June-2019 0% 0% 0% 0% 0% 0% 0% 0%
June-2020 0% 0% 0% 0% 0% 0% 0% 0%
June-2021 0% 0% 0% 0% 0% 0% 0% 0%
June-2022 0% 0% 0% 0% 0% 0% 0% 0%
June-2023 0% 0% 0% 0% 0% 0% 0% 0%
June-2024 0% 0% 0% 0% 0% 0% 0% 0%
June-2025 0% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life
Years(1) 10.89 2.76 1.66 1.18 1.01 1.01 1.01 0.99
</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.
S-63
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-2 Fixed
Scenario
----------------------------------------------------------------------
Payment I II III IV V VI VII VIII
Date - -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percent 100% 100% 100% 100% 100% 100% 100% 100%
June-1999 100% 99% 82% 62% 50% 50% 50% 50%
June-2000 100% 69% 33% 0% 0% 0% 0% 0%
June-2001 100% 43% 0% 0% 0% 0% 0% 0%
June-2002 100% 17% 0% 0% 0% 0% 0% 0%
June-2003 99% 0% 0% 0% 0% 0% 0% 0%
June-2004 93% 0% 0% 0% 0% 0% 0% 0%
June-2005 86% 0% 0% 0% 0% 0% 0% 0%
June-2006 79% 0% 0% 0% 0% 0% 0% 0%
June-2007 71% 0% 0% 0% 0% 0% 0% 0%
June-2008 62% 0% 0% 0% 0% 0% 0% 0%
June-2009 53% 0% 0% 0% 0% 0% 0% 0%
June-2010 43% 0% 0% 0% 0% 0% 0% 0%
June-2011 32% 0% 0% 0% 0% 0% 0% 0%
June-2012 19% 0% 0% 0% 0% 0% 0% 0%
June-2013 0% 0% 0% 0% 0% 0% 0% 0%
June-2014 0% 0% 0% 0% 0% 0% 0% 0%
June-2015 0% 0% 0% 0% 0% 0% 0% 0%
June-2016 0% 0% 0% 0% 0% 0% 0% 0%
June-2017 0% 0% 0% 0% 0% 0% 0% 0%
June-2018 0% 0% 0% 0% 0% 0% 0% 0%
June-2019 0% 0% 0% 0% 0% 0% 0% 0%
June-2020 0% 0% 0% 0% 0% 0% 0% 0%
June-2021 0% 0% 0% 0% 0% 0% 0% 0%
June-2022 0% 0% 0% 0% 0% 0% 0% 0%
June-2023 0% 0% 0% 0% 0% 0% 0% 0%
June-2024 0% 0% 0% 0% 0% 0% 0% 0%
June-2025 0% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life
Years(1) 10.89 2.76 1.66 1.18 1.01 1.01 1.01 0.99
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-3
Scenario
---------------------------------------------------------------------
Payment I II III IV V VI VII VIII
Date - -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percent 100% 100% 100% 100% 100% 100% 100% 100%
June-1999 100% 100% 100% 100% 100% 100% 100% 100%
June-2000 100% 100% 100% 90% 51% 51% 51% 17%
June-2001 100% 100% 86% 7% 0% 0% 0% 0%
June-2002 100% 100% 30% 0% 0% 0% 0% 0%
June-2003 100% 91% 0% 0% 0% 0% 0% 0%
June-2004 100% 57% 0% 0% 0% 0% 0% 0%
June-2005 100% 26% 0% 0% 0% 0% 0% 0%
June-2006 100% 0% 0% 0% 0% 0% 0% 0%
June-2007 100% 0% 0% 0% 0% 0% 0% 0%
June-2008 100% 0% 0% 0% 0% 0% 0% 0%
June-2009 100% 0% 0% 0% 0% 0% 0% 0%
June-2010 100% 0% 0% 0% 0% 0% 0% 0%
June-2011 100% 0% 0% 0% 0% 0% 0% 0%
June-2012 100% 0% 0% 0% 0% 0% 0% 0%
June-2013 0% 0% 0% 0% 0% 0% 0% 0%
June-2014 0% 0% 0% 0% 0% 0% 0% 0%
June-2015 0% 0% 0% 0% 0% 0% 0% 0%
June-2016 0% 0% 0% 0% 0% 0% 0% 0%
June-2017 0% 0% 0% 0% 0% 0% 0% 0%
June-2018 0% 0% 0% 0% 0% 0% 0% 0%
June-2019 0% 0% 0% 0% 0% 0% 0% 0%
June-2020 0% 0% 0% 0% 0% 0% 0% 0%
June-2021 0% 0% 0% 0% 0% 0% 0% 0%
June-2022 0% 0% 0% 0% 0% 0% 0% 0%
June-2023 0% 0% 0% 0% 0% 0% 0% 0%
June-2024 0% 0% 0% 0% 0% 0% 0% 0%
June-2025 0% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life
Years(1) 14.71 6.26 3.65 2.47 2.02 2.02 2.02 1.77
</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.
S-64
<PAGE>
<TABLE>
<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
Percent 100% 100% 100% 100% 100% 100% 100% 100%
June-1999 100% 100% 100% 100% 100% 100% 100% 100%
June-2000 100% 100% 100% 100% 100% 100% 100% 100%
June-2001 100% 100% 100% 100% 40% 40% 35% 0%
June-2002 100% 100% 100% 20% 0% 0% 0% 0%
June-2003 100% 100% 74% 0% 0% 0% 0% 0%
June-2004 100% 100% 20% 0% 0% 0% 0% 0%
June-2005 100% 100% 0% 0% 0% 0% 0% 0%
June-2006 100% 95% 0% 0% 0% 0% 0% 0%
June-2007 100% 56% 0% 0% 0% 0% 0% 0%
June-2008 100% 23% 0% 0% 0% 0% 0% 0%
June-2009 100% 0% 0% 0% 0% 0% 0% 0%
June-2010 100% 0% 0% 0% 0% 0% 0% 0%
June-2011 100% 0% 0% 0% 0% 0% 0% 0%
June-2012 100% 0% 0% 0% 0% 0% 0% 0%
June-2013 5% 0% 0% 0% 0% 0% 0% 0%
June-2014 0% 0% 0% 0% 0% 0% 0% 0%
June-2015 0% 0% 0% 0% 0% 0% 0% 0%
June-2016 0% 0% 0% 0% 0% 0% 0% 0%
June-2017 0% 0% 0% 0% 0% 0% 0% 0%
June-2018 0% 0% 0% 0% 0% 0% 0% 0%
June-2019 0% 0% 0% 0% 0% 0% 0% 0%
June-2020 0% 0% 0% 0% 0% 0% 0% 0%
June-2021 0% 0% 0% 0% 0% 0% 0% 0%
June-2022 0% 0% 0% 0% 0% 0% 0% 0%
June-2023 0% 0% 0% 0% 0% 0% 0% 0%
June-2024 0% 0% 0% 0% 0% 0% 0% 0%
June-2025 0% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average Life
Years(1) 14.74 9.23 5.45 3.65 3.02 3.02 2.97 2.48
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-5
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%
June-1999 100% 100% 100% 100% 100% 100% 100% 100%
June-2000 100% 100% 100% 100% 100% 100% 100% 100%
June-2001 100% 100% 100% 100% 100% 100% 100% 69%
June-2002 100% 100% 100% 100% 55% 55% 49% 0%
June-2003 100% 100% 100% 5% 0% 0% 0% 0%
June-2004 100% 100% 100% 0% 0% 0% 0% 0%
June-2005 100% 100% 46% 0% 0% 0% 0% 0%
June-2006 100% 100% 0% 0% 0% 0% 0% 0%
June-2007 100% 100% 0% 0% 0% 0% 0% 0%
June-2008 100% 100% 0% 0% 0% 0% 0% 0%
June-2009 100% 85% 0% 0% 0% 0% 0% 0%
June-2010 100% 26% 0% 0% 0% 0% 0% 0%
June-2011 100% 0% 0% 0% 0% 0% 0% 0%
June-2012 100% 0% 0% 0% 0% 0% 0% 0%
June-2013 100% 0% 0% 0% 0% 0% 0% 0%
June-2014 81% 0% 0% 0% 0% 0% 0% 0%
June-2015 50% 0% 0% 0% 0% 0% 0% 0%
June-2016 15% 0% 0% 0% 0% 0% 0% 0%
June-2017 0% 0% 0% 0% 0% 0% 0% 0%
June-2018 0% 0% 0% 0% 0% 0% 0% 0%
June-2019 0% 0% 0% 0% 0% 0% 0% 0%
June-2020 0% 0% 0% 0% 0% 0% 0% 0%
June-2021 0% 0% 0% 0% 0% 0% 0% 0%
June-2022 0% 0% 0% 0% 0% 0% 0% 0%
June-2023 0% 0% 0% 0% 0% 0% 0% 0%
June-2024 0% 0% 0% 0% 0% 0% 0% 0%
June-2025 0% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average Life
Years(1) 16.96 11.60 6.97 4.65 4.05 4.05 4.01 3.35
</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.
S-65
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-6
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%
June-1999 100% 100% 100% 100% 100% 100% 100% 100%
June-2000 100% 100% 100% 100% 100% 100% 100% 100%
June-2001 100% 100% 100% 100% 100% 100% 100% 100%
June-2002 100% 100% 100% 100% 100% 100% 100% 78%
June-2003 100% 100% 100% 100% 55% 55% 53% 2%
June-2004 100% 100% 100% 5% 0% 0% 0% 0%
June-2005 100% 100% 100% 0% 0% 0% 0% 0%
June-2006 100% 100% 67% 0% 0% 0% 0% 0%
June-2007 100% 100% 2% 0% 0% 0% 0% 0%
June-2008 100% 100% 0% 0% 0% 0% 0% 0%
June-2009 100% 100% 0% 0% 0% 0% 0% 0%
June-2010 100% 100% 0% 0% 0% 0% 0% 0%
June-2011 100% 73% 0% 0% 0% 0% 0% 0%
June-2012 100% 26% 0% 0% 0% 0% 0% 0%
June-2013 100% 0% 0% 0% 0% 0% 0% 0%
June-2014 100% 0% 0% 0% 0% 0% 0% 0%
June-2015 100% 0% 0% 0% 0% 0% 0% 0%
June-2016 100% 0% 0% 0% 0% 0% 0% 0%
June-2017 78% 0% 0% 0% 0% 0% 0% 0%
June-2018 39% 0% 0% 0% 0% 0% 0% 0%
June-2019 9% 0% 0% 0% 0% 0% 0% 0%
June-2020 0% 0% 0% 0% 0% 0% 0% 0%
June-2021 0% 0% 0% 0% 0% 0% 0% 0%
June-2022 0% 0% 0% 0% 0% 0% 0% 0%
June-2023 0% 0% 0% 0% 0% 0% 0% 0%
June-2024 0% 0% 0% 0% 0% 0% 0% 0%
June-2025 0% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average Life
Years(1) 19.76 13.50 8.27 5.53 5.10 5.10 5.09 4.34
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-7
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%
June-1999 100% 100% 100% 100% 100% 100% 100% 100%
June-2000 100% 100% 100% 100% 100% 100% 100% 100%
June-2001 100% 100% 100% 100% 100% 100% 100% 100%
June-2002 100% 100% 100% 100% 100% 100% 100% 100%
June-2003 100% 100% 100% 100% 100% 100% 100% 100%
June-2004 100% 100% 100% 100% 95% 95% 95% 59%
June-2005 100% 100% 100% 58% 58% 58% 59% 31%
June-2006 100% 100% 100% 31% 31% 31% 34% 14%
June-2007 100% 100% 100% 15% 15% 15% 18% 5%
June-2008 100% 100% 49% 4% 4% 4% 8% 0%
June-2009 100% 100% 3% 0% 0% 0% 2% 0%
June-2010 100% 100% 0% 0% 0% 0% 0% 0%
June-2011 100% 100% 0% 0% 0% 0% 0% 0%
June-2012 100% 100% 0% 0% 0% 0% 0% 0%
June-2013 100% 0% 0% 0% 0% 0% 0% 0%
June-2014 100% 0% 0% 0% 0% 0% 0% 0%
June-2015 100% 0% 0% 0% 0% 0% 0% 0%
June-2016 100% 0% 0% 0% 0% 0% 0% 0%
June-2017 100% 0% 0% 0% 0% 0% 0% 0%
June-2018 100% 0% 0% 0% 0% 0% 0% 0%
June-2019 100% 0% 0% 0% 0% 0% 0% 0%
June-2020 84% 0% 0% 0% 0% 0% 0% 0%
June-2021 56% 0% 0% 0% 0% 0% 0% 0%
June-2022 25% 0% 0% 0% 0% 0% 0% 0%
June-2023 0% 0% 0% 0% 0% 0% 0% 0%
June-2024 0% 0% 0% 0% 0% 0% 0% 0%
June-2025 0% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average Life
Years(1) 23.16 14.71 10.00 7.53 7.51 7.51 7.66 6.54
</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.
S-66
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-8 (To Call)
Scenario
----------------------------------------------------------------------
Payment I II III IV V VI VII VIII
Date - -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percent 100% 100% 100% 100% 100% 100% 100% 100%
June-1999 100% 100% 100% 100% 92% 69% 42% 15%
June-2000 100% 100% 100% 100% 87% 47% 2% 0%
June-2001 100% 100% 100% 100% 86% 42% 0% 0%
June-2002 100% 100% 100% 100% 70% 34% 0% 0%
June-2003 100% 100% 100% 100% 61% 29% 0% 0%
June-2004 100% 100% 100% 100% 50% 23% 0% 0%
June-2005 100% 100% 100% 88% 40% 0% 0% 0%
June-2006 100% 100% 100% 74% 0% 0% 0% 0%
June-2007 100% 100% 100% 61% 0% 0% 0% 0%
June-2008 100% 100% 100% 0% 0% 0% 0% 0%
June-2009 100% 100% 100% 0% 0% 0% 0% 0%
June-2010 100% 100% 85% 0% 0% 0% 0% 0%
June-2011 100% 100% 70% 0% 0% 0% 0% 0%
June-2012 100% 100% 0% 0% 0% 0% 0% 0%
June-2013 100% 72% 0% 0% 0% 0% 0% 0%
June-2014 100% 63% 0% 0% 0% 0% 0% 0%
June-2015 100% 0% 0% 0% 0% 0% 0% 0%
June-2016 100% 0% 0% 0% 0% 0% 0% 0%
June-2017 100% 0% 0% 0% 0% 0% 0% 0%
June-2018 100% 0% 0% 0% 0% 0% 0% 0%
June-2019 100% 0% 0% 0% 0% 0% 0% 0%
June-2020 100% 0% 0% 0% 0% 0% 0% 0%
June-2021 100% 0% 0% 0% 0% 0% 0% 0%
June-2022 100% 0% 0% 0% 0% 0% 0% 0%
June-2023 96% 0% 0% 0% 0% 0% 0% 0%
June-2024 80% 0% 0% 0% 0% 0% 0% 0%
June-2025 62% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life
Years(1) 26.89 16.16 13.17 8.66 5.18 2.82 0.96 0.68
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-8 (To Maturity)
Scenario
----------------------------------------------------------------------
Payment I II III IV V VI VII VIII
Date - -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percent 100% 100% 100% 100% 100% 100% 100% 100%
June-1999 100% 100% 100% 100% 92% 69% 42% 15%
June-2000 100% 100% 100% 100% 87% 47% 2% 0%
June-2001 100% 100% 100% 100% 86% 42% 0% 0%
June-2002 100% 100% 100% 100% 70% 34% 0% 0%
June-2003 100% 100% 100% 100% 61% 29% 0% 0%
June-2004 100% 100% 100% 100% 50% 23% 0% 0%
June-2005 100% 100% 100% 88% 40% 18% 0% 0%
June-2006 100% 100% 100% 74% 33% 16% 0% 0%
June-2007 100% 100% 100% 61% 27% 12% 0% 0%
June-2008 100% 100% 100% 50% 21% 10% 0% 0%
June-2009 100% 100% 100% 40% 15% 7% 0% 0%
June-2010 100% 100% 85% 31% 10% 3% 0% 0%
June-2011 100% 100% 70% 23% 6% 1% 0% 0%
June-2012 100% 100% 58% 17% 3% 0% 0% 0%
June-2013 100% 72% 24% 4% 0% 0% 0% 0%
June-2014 100% 63% 19% 2% 0% 0% 0% 0%
June-2015 100% 55% 15% 1% 0% 0% 0% 0%
June-2016 100% 47% 11% 0% 0% 0% 0% 0%
June-2017 100% 40% 8% 0% 0% 0% 0% 0%
June-2018 100% 33% 5% 0% 0% 0% 0% 0%
June-2019 100% 28% 4% 0% 0% 0% 0% 0%
June-2020 100% 24% 2% 0% 0% 0% 0% 0%
June-2021 100% 20% 1% 0% 0% 0% 0% 0%
June-2022 100% 16% 0% 0% 0% 0% 0% 0%
June-2023 96% 12% 0% 0% 0% 0% 0% 0%
June-2024 80% 9% 0% 0% 0% 0% 0% 0%
June-2025 62% 5% 0% 0% 0% 0% 0% 0%
June-2026 41% 2% 0% 0% 0% 0% 0% 0%
June-2027 18% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life
Years(1) 27.46 18.84 14.56 10.43 6.48 3.59 0.96 0.68
</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.
S-67
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-9* (To Call)
Scenario
----------------------------------------------------------------------
Payment I II III IV V VI VII VIII
Date - -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percent 100% 100% 100% 100% 100% 100% 100% 100%
June-1999 98% 93% 87% 82% 76% 71% 65% 60%
June-2000 97% 84% 71% 59% 48% 37% 28% 20%
June-2001 97% 75% 57% 42% 29% 18% 10% 4%
June-2002 96% 68% 46% 31% 20% 12% 7% 3%
June-2003 96% 61% 37% 22% 13% 7% 3% 0%
June-2004 95% 55% 31% 16% 8% 4% 0% 0%
June-2005 94% 49% 25% 12% 5% 0% 0% 0%
June-2006 93% 44% 20% 9% 0% 0% 0% 0%
June-2007 92% 39% 17% 6% 0% 0% 0% 0%
June-2008 91% 36% 14% 0% 0% 0% 0% 0%
June-2009 90% 32% 11% 0% 0% 0% 0% 0%
June-2010 88% 29% 9% 0% 0% 0% 0% 0%
June-2011 87% 26% 7% 0% 0% 0% 0% 0%
June-2012 85% 23% 0% 0% 0% 0% 0% 0%
June-2013 78% 21% 0% 0% 0% 0% 0% 0%
June-2014 76% 18% 0% 0% 0% 0% 0% 0%
June-2015 74% 0% 0% 0% 0% 0% 0% 0%
June-2016 71% 0% 0% 0% 0% 0% 0% 0%
June-2017 68% 0% 0% 0% 0% 0% 0% 0%
June-2018 65% 0% 0% 0% 0% 0% 0% 0%
June-2019 61% 0% 0% 0% 0% 0% 0% 0%
June-2020 57% 0% 0% 0% 0% 0% 0% 0%
June-2021 52% 0% 0% 0% 0% 0% 0% 0%
June-2022 46% 0% 0% 0% 0% 0% 0% 0%
June-2023 40% 0% 0% 0% 0% 0% 0% 0%
June-2024 33% 0% 0% 0% 0% 0% 0% 0%
June-2025 26% 0% 0% 0% 0% 0% 0% 0%
June-2026 0% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life
Years(1) 20.99 8.1 4.83 3.28 2.47 1.98 1.63 1.36
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-9* (To Maturity)
Scenario
----------------------------------------------------------------------
Payment I II III IV V VI VII VIII
Date - -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percent 100% 100% 100% 100% 100% 100% 100% 100%
June-1999 98% 93% 87% 82% 76% 71% 65% 60%
June-2000 97% 84% 71% 59% 48% 37% 28% 20%
June-2001 97% 75% 57% 42% 29% 18% 10% 4%
June-2002 96% 68% 46% 31% 20% 12% 7% 3%
June-2003 96% 61% 37% 22% 13% 7% 3% 1%
June-2004 95% 55% 31% 16% 8% 4% 1% 0%
June-2005 94% 49% 25% 12% 5% 2% 1% 0%
June-2006 93% 44% 20% 9% 3% 1% 0% 0%
June-2007 92% 39% 17% 6% 2% 1% 0% 0%
June-2008 91% 36% 14% 5% 1% 0% 0% 0%
June-2009 90% 32% 11% 3% 1% 0% 0% 0%
June-2010 88% 29% 9% 2% 0% 0% 0% 0%
June-2011 87% 26% 7% 2% 0% 0% 0% 0%
June-2012 85% 23% 6% 1% 0% 0% 0% 0%
June-2013 78% 21% 5% 1% 0% 0% 0% 0%
June-2014 76% 18% 4% 0% 0% 0% 0% 0%
June-2015 74% 16% 3% 0% 0% 0% 0% 0%
June-2016 71% 14% 2% 0% 0% 0% 0% 0%
June-2017 68% 12% 2% 0% 0% 0% 0% 0%
June-2018 65% 11% 1% 0% 0% 0% 0% 0%
June-2019 61% 9% 1% 0% 0% 0% 0% 0%
June-2020 57% 8% 0% 0% 0% 0% 0% 0%
June-2021 52% 7% 0% 0% 0% 0% 0% 0%
June-2022 46% 5% 0% 0% 0% 0% 0% 0%
June-2023 40% 4% 0% 0% 0% 0% 0% 0%
June-2024 33% 3% 0% 0% 0% 0% 0% 0%
June-2025 26% 2% 0% 0% 0% 0% 0% 0%
June-2026 17% 1% 0% 0% 0% 0% 0% 0%
June-2027 7% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life
Years(1) 21.22 8.93 5.05 3.43 2.58 2.04 1.67 1.39
</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.
* Scenario only applies to the Adjustable Prepayment Assumption.
S-68
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class B
Scenario
----------------------------------------------------------------------
Payment I II III IV V VI VII VIII
Date - -- --- -- - -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100% 100% 100% 100% 100% 100% 100% 100%
Percent
June-1999 100% 100% 100% 100% 100% 100% 100% 100%
June-2000 100% 100% 100% 100% 100% 100% 100% 100%
June-2001 100% 100% 100% 100% 100% 100% 100% 100%
June-2002 100% 100% 100% 85% 62% 48% 35% 22%
June-2003 100% 100% 100% 66% 44% 31% 17% 7%
June-2004 100% 100% 85% 51% 30% 17% 6% 0%
June-2005 100% 100% 71% 39% 18% 7% 0% 0%
June-2006 100% 100% 60% 29% 9% 1% 0% 0%
June-2007 100% 96% 51% 20% 3% 0% 0% 0%
June-2008 100% 87% 43% 12% 0% 0% 0% 0%
June-2009 100% 78% 36% 6% 0% 0% 0% 0%
June-2010 100% 70% 28% 2% 0% 0% 0% 0%
June-2011 100% 62% 21% 0% 0% 0% 0% 0%
June-2012 100% 55% 15% 0% 0% 0% 0% 0%
June-2013 91% 26% 0% 0% 0% 0% 0% 0%
June-2014 87% 21% 0% 0% 0% 0% 0% 0%
June-2015 83% 17% 0% 0% 0% 0% 0% 0%
June-2016 78% 13% 0% 0% 0% 0% 0% 0%
June-2017 72% 9% 0% 0% 0% 0% 0% 0%
June-2018 66% 6% 0% 0% 0% 0% 0% 0%
June-2019 61% 3% 0% 0% 0% 0% 0% 0%
June-2020 57% 1% 0% 0% 0% 0% 0% 0%
June-2021 52% 0% 0% 0% 0% 0% 0% 0%
June-2022 46% 0% 0% 0% 0% 0% 0% 0%
June-2023 40% 0% 0% 0% 0% 0% 0% 0%
June-2024 33% 0% 0% 0% 0% 0% 0% 0%
June-2025 23% 0% 0% 0% 0% 0% 0% 0%
June-2026 11% 0% 0% 0% 0% 0% 0% 0%
June-2027 0% 0% 0% 0% 0% 0% 0% 0%
June-2028 0% 0% 0% 0% 0% 0% 0% 0%
Weighted
Average
Life
Years(1) 22.53 13.98 9.60 6.61 5.08 4.41 3.91 3.61
</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.
S-69
<PAGE>
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 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
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 Certificates) in respect of any given
month will not be made until on or after the 15th day of the following month.
FORMATION OF THE TRUST AND TRUST PROPERTY
ContiMortgage Home Equity Loan Trust 1998-2 (the "Trust") will be
created and established pursuant to the Pooling and Servicing Agreement. The
Trust will consist of two subtrusts, one of which consists of Loan Group I and
the other of which consists of Loan Group II. The Depositor will convey
without recourse the Home Equity Loans to the Trust and the Trust will issue
the Trust Certificates.
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 Policy related to the Class A Trust
Certificates 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 Trust
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 Trust 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 Trust Certificates. As the
Trust does not have any operating history and will not engage in any business
activity other than issuing the Trust 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.
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FORMATION OF THE GRANTOR TRUST AND GRANTOR TRUST PROPERTY
ContiMortgage Grantor Trust 1998-A will be created and established
pursuant to the Grantor Trust Agreement. The Depositor will deposit into the
Grantor Trust without recourse $175,000,000 of Class A-2 Internal Certificates
issued by the Trust, and the Grantor Trust will issue the Class A-2 Floating
Certificates.
The property of the Grantor Trust will include (a) the Class A-2
Internal Certificates issued by the Trust and all payments thereon and
proceeds of the conversion, voluntary or involuntary of such Certificates, (b)
such amounts as may be held by the Grantor Trustee in the Grantor Trust
Account and any other accounts held by the Grantor Trustee for the benefit of
the Owners of the Class A-2 Floating Certificates and the Certificate Insurer,
(c) the rights of the Grantor Trustee under the Certificate Insurance Policy
related to the Class A-2 Floating Certificates, (d) the Swap Agreement and all
payments received thereunder and (e) proceeds of all of the foregoing
(including, but not by way of limitation, cash proceeds, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to
payments 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 Class A-2 Floating Certificates and to make
payments to the Swap Counterparty as specified in the Grantor Trust Agreement.
Prior to its formation the Grantor Trust will have had no assets or
obligations. Upon formation, the Grantor Trust will not engage in any business
activity other than acquiring, holding and collecting payments on the Class
A-2 Internal Certificates, receiving and making payments under the Swap
Agreement, terminating and replacing the Swap Agreement, as necessary, issuing
the Class A-2 Floating Certificates and distributing payments thereon. The
Grantor Trust will not acquire any receivables or assets other than the Class
A-2 Internal Certificates, the Swap Agreement, the Certificate Insurance
Policy related to the Class A-2 Floating Certificates and the rights
appurtenant thereto and will not have any need for additional capital
resources. To the extent that payments are made on the Class A-2 Internal
Certificates, and payments are received by the Grantor Trustee as required
under the Swap Agreement or corresponding amounts are received from the
Certificate Insurer, the Grantor Trust will have sufficient liquidity to make
interest distributions on the Class A-2 Floating Certificates. Principal
distributions on the Class A-2 Floating Certificates are not insured by the
Certificate Insurance Policy issued with respect to the Class A-2 Floating
Certificates, although the principal distributions on the Class A-2 Internal
Certificates are insured by the Certificate Insurance Policy related to the
Trust. As the Grantor Trust does not have any operating history and will not
engage in a business activity other than as described above, there has not
been included any historical or pro forma ratio of earnings to fixed charges
with respect to the Grantor 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.
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DESCRIPTION OF THE OFFERED CERTIFICATES
General
Each Trust Certificate will represent certain undivided, fractional
ownership interests in the Trust Estate created and held pursuant to the
Pooling and Servicing Agreement and each Class A-2 Floating Certificate will
represent certain undivided, fractional ownership interests in the Grantor
Trust Estate created and held pursuant to the Grantor Trust Agreement, 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 Trust 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 Class A-10 IO Certificates) of such Class of Class A Trust 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 Trust 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.
On each Payment Date, the Owners of the Class A-2 Floating
Certificates will be entitled to receive, from amounts then on deposit in the
account established and maintained by the Grantor Trustee in accordance with
the Grantor Trust Agreement (the "Grantor Trust Account"), all distributions
of principal received by the Grantor Trust on such Payment Date with respect
to the Class A-2 Internal Certificates and interest on the Certificate
Principal Balance of the Class A-2 Floating Certificates at the Class A-2
Floating Pass-Through Rate.
Each of the Pooling and Servicing Agreement and the Grantor Trust
Agreement will provide that an Owner, upon receiving the final distribution on
such Owner's Certificate, will be required to send such Certificate to the
Trustee.
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
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.
The Pooling and Servicing Agreement establishes a pass-through rate
on each Class of the Class A Trust and Class B Certificates, and the Grantor
Trust Agreement establishes a pass-through rate on the Class A-2 Floating
Certificates (each, a "Pass-Through Rate") as set forth in the Summary of
Terms herein.
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:
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First, for the payment of certain fees, concurrently, to the Trustee,
the Trustee Fee and to the Certificate Insurer, the Premium Amount,
in each case with respect to such Loan Group;
Second, for the payment of that Loan Group's Class A Trust
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 Trust Certificates related to such Loan Group,
the related Current Interest plus the Interest Carry Forward Amount
with respect to each such Class of related Class A Trust Certificates
without any priority among such Class A Trust 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 Trust Certificates, then such amount will be
distributed among the outstanding Classes of related Class A Trust
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 any shortfall in the other Loan Group's
Class A Trust 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 A Trust Certificates related
to the other Loan Group; the amount of any shortfall on such Payment
Date under priority Second above;
Fourth, for the payment of 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 an amount equal to the product of (a) the Current
Interest for the Class B Certificates and (b) a fraction, the
numerator of which is the outstanding Class A Trust Certificate
Principal Balance related to such Loan Group and the denominator of
which is the sum of the outstanding Class A Trust Certificate
Principal Balances related to both Loan Groups;
Fifth, for the payment of the Reimbursement Amount, if any, then due
to the Certificate Insurer, the lesser of (x) the Reimbursement
Amount then owed to the Certificate Insurer and (y) the Maximum
Insurer Current Reimbursement Amount (as defined below) for such
Payment Date; the amount paid to the Certificate Insurer on account
of any Reimbursement Amount shall be funded from the Available Funds
then remaining on deposit in the Certificate Account with respect to
each Loan Group in an amount equal to the product of (a) the total
amount so to be funded and (b) a fraction, the numerator of which is
the outstanding Class A Trust Certificate Principal Balance related
to such Loan Group and the denominator of which is the sum of the
outstanding Class A Trust Certificate Principal Balances related to
both Loan Groups;
Sixth, for the payment of that Loan Group's Class A Trust Certificate
principal, to the extent of the Available Funds then remaining in the
Certificate Account with respect to such Loan Group, plus the
principal component of any Insured Payment, to the Owners of the
Class A Trust Certificates with respect to such Loan Group, an amount
necessary to reduce the Class A Principal Balance of such related
Class A Trust Certificates to the Class A Optimal Balance for such
Payment Date; provided, that such amount of principal so distributed
with respect to such Loan Group shall be reduced, but not below zero,
by an amount equal to the Overcollateralization Stepdown Amount (as
defined below), if any, for such Payment Date; such amount to be
distributed with respect to specific Classes of the Class A Trust
Certificates in the further priorities described below under
"Principal Allocations with Respect to Class A Trust Certificates";
Seventh, for the payment of the other Loan Group's Class A Trust
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 Trust Certificates related to the other
Loan Group, the amount of any Crossover Overcollateralization
Increase Amount (as defined below);
Eighth, for the payment of Class B Certificate principal, to the
extent of the amount then remaining in the Certificate Account with
respect to both Loan Groups together, an amount necessary to reduce
the Class B Principal Balance to the Class B Optimal Balance for such
Payment Date;
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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:
(f) to fund the Interest Carry Forward Amount, if any,
with respect to the Class B Certificates;
(g) to fund the Class B Realized Loss Amortization
Amount for such Payment Date;
(h) to the Servicer to the extent of any unreimbursed
Delinquency Advances or Servicing Advances and any
other costs and expenses incurred by the Issuer;
(i) to fund a distribution to Owners of the Class C
Certificates; and
(j) 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 Trust Certificates in accordance with priorities
"Sixth" and "Seventh" above on such Payment Date.
"Class B Principal Distribution Amount" means, with respect to any Payment
Date, the actual amount distributed as principal to the Owners of the Class B
Certificates in accordance with priority "Eighth" above on such Payment Date.
Since, prior to the Stepdown Date, the "Class B Optimal Balance" is set at a
level equal to the Class B Initial Certificate Principal Balance, the Owners
of the Class B Certificates will receive no distributions of principal prior
to the Stepdown Date (unless the Certificate Principal Balances of all Class A
Trust Certificates are earlier reduced to zero).
"Crossover Overcollateralization Increase Amount" means, with respect to any
Payment Date and a Loan Group, an increase in such Loan Group's distribution
on account of Class A Trust Certificate principal with respect to the other
Loan Group's Class A Trust Certificates in response to a deficient level of
overcollateralization. Specifically, the "Crossover Overcollateralization
Increase Amount" with respect to a Loan Group and Payment Date is equal to the
lesser of (i) the excess of (a) the aggregate Class A Trust Certificate
Principal Balance with respect to the other Loan Group (after taking into
account the distribution described in clause "Sixth" above) over (b) the Class
A Optimal Balance for such other Loan Group and Payment Date and (ii) the
amount of Available Funds remaining in the Certificate Account with respect to
such Loan Group after taking into account the distribution described in clause
"Sixth" above with respect to such Loan Group.
"Overcollateralization Stepdown Amount" means, with respect to any Payment
Date and a Loan Group, a reduction in such Loan Group's distribution on
account of Class A Trust Certificate principal in response to a surplus level
of overcollateralization with respect to the other Loan Group's Class A Trust
Certificates. After the Stepdown Date, the paydown rules with respect to the
maintenance of the Optimal Balances of the Class A Trust Certificates and of
the Class B Certificates permit the required dollar amount of
overcollateralization to reduce or "step down" (subject to the occurrence of
the trigger events described herein). This stepdown in the required level of
overcollateralization permits the Trust to fund a distribution with respect to
the Retained Certificates in an amount equal to the surplus level of
overcollateralization. In the event that a surplus level of
overcollateralization exists with respect to one Loan Group, but the Available
Funds with respect that Loan Group are insufficient to fund a distribution to
the Retained Certificates to the full extent necessary to release such surplus
overcollateralization, the other Loan Group's Available Funds may be used to
fund such release. Specifically, the "Overcollateralization Stepdown Amount"
with respect to a Loan Group and any Payment Date is equal to the excess, if
any, by which (x) the Class A Optimal Balance for the other Loan Group exceeds
the aggregate Class A Trust Certificate Principal Balance with respect to such
other Loan Group, after taking into account the payment of the Class A
Principal Distribution Amount with respect to such other Loan Group on such
Payment Date.
"Current Interest" with respect to each Class of Class A Trust 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
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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 Class A
Trust Certificates and Class B 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 Policy with
respect to the Class A Trust Certificates is 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 Trust Certificates in the event of an
Insurer Default.
"Maximum Insurer Current Reimbursement Amount" means, with respect to 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 Policies, rather than used
to pay Class A Trust Certificate Principal on such Payment Date, without
causing the Aggregate Class A Trust Certificate Balance to exceed the Total
Loan Balance (i.e., without causing there to be a Class A
Overcollateralization Deficit). 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 both Loan
Groups after taking into account all distributions described in clauses
"First" through "Fourth" above and (y) the excess of (1) the sum of (a) the
Total Loan Balance 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.
Principal Allocations with respect to Class A Trust 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-1 Certificates until the Certificate
Principal Balance thereof has been reduced to zero;
(ii) second, to each Class of PAC Certificates, sequentially in the
order of their numerical Class designations (beginning with the Class A-2
Internal Certificates and the Class A-2 Fixed Certificates, which will receive
principal pro rata) in an amount up to the amount necessary to reduce the
respective Certificate Principal Balances thereof to their Planned Principal
Balances for such Payment Date;
(iii) third, to the Class A-8 Certificates, until the Certificate
Principal Balances thereof have been reduced to zero; and
(iv) fourth, to the PAC Certificates as provided in clause (ii), but
without regard to the Planned Principal Balances and until the respective
Certificate Principal Balances thereof have been reduced to zero.
The Class A Principal Distribution Amount for Loan Group II is
required to be distributed on each Payment Date to the Owners of the Class A-9
Certificates, until the Class A-9 Certificate Principal Balance has been
reduced to zero.
The final Payment Date for the Class A-1 Certificates will be June
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
Principal Remittance Amount with respect to Loan Group I 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 Class A Trust
Certificates in the amount of such shortfall.
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The final Payment Date for the Class A-8 and the Class A-9
Certificates will be June 15, 2028, at which time the remaining Certificate
Principal Balance, if any then outstanding, of the Class A-8 and the Class A-9
Certificates will be paid in full. If the related Principal Remittance Amounts
with respect to such Payment Date are not sufficient to pay in full the
remaining Certificate Principal Balance of the Class A-8 and the Class A-9
Certificates on such final Payment Date, a draw will be made on the
Certificate Insurance Policy with respect to the Class A Trust Certificates in
the amount of such shortfall.
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 amount available for
distributions of principal of the Class A Trust Certificates with respect to
Loan Group I (other than the Class A-10 IO Certificates) 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
amount available for distributions of principal of the Class A Trust
Certificates (other than the Class A-10 IO Certificates) 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 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
Trust Certificates (other than the Class A-10 IO Certificates) 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 or Grantor Trustee, 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 and
the Grantor Trust 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 or Grantor Trustee, 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 and the
Grantor Trust Agreement, but only from the sources and in the manner provided
in the Pooling and Servicing Agreement and in the Grantor Trust Agreement for
the payment of amounts distributable to Owners of Class A 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 or the Grantor 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 or
the Grantor 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
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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 second London business day
preceding the commencement of such 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. Except as described below, no Beneficial Owner
will be entitled to receive a physical certificate representing such
Certificate (a "Definitive Certificate"). Unless and until definitive
Certificates are issued, it is anticipated that the only "Owner" of such
Book-Entry Certificates will be Cede, as nominee of DTC. Beneficial Owners
will not be Owners as that term is used in the Pooling and Servicing
Agreement. Beneficial Owners are only permitted to exercise their rights
indirectly through Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on
the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the records
of DTC, if the Beneficial Owner's Financial Intermediary is not a DTC
Participant, and on the records of Cedel or Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While such Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required
to make book-entry transfers among Participants on whose behalf it acts with
respect to such Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Certificates.
Participants and indirect participants with whom Beneficial Owners have
accounts with respect to Book-Entry Certificates are similarly required to
make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not possess certificates, the Rules provide a mechanism by which
Beneficial Owners will receive distributions and will be able to transfer
their 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
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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 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
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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 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.
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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.
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
General
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 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 Trust Certificates
will be provided by both the subordination of the Class B Certificates, as
well as by the Certificate Insurance Policy relating to the Class A Trust
Certificates.
"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 Trust 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
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respect to the Trust Certificates, which results in the Aggregate Trust
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 shall be initially
increased to, and thereafter maintained at, the Targeted Overcollateralization
Amount. With respect to the Class A Trust Certificates in the aggregate, the
paydown rules require that, on and after the seventh Payment Date and prior to
the Stepdown Date, there be a principal amount subordinate to the Class A
Trust Certificates equal to 5.45% of the Original Total Loan Balance (i.e.,
$95,375,000; subject to the occurrence of a Delinquency Trigger Event or a
Cumulative Realized Loss Trigger Event, the 5.45% overcollateralization level
is allowed to reduce after the Stepdown Date); this subordinate amount is
represented by the Class B Certificate Principal Balance (originally equal to
4.00% of the Original Total Loan Balance), together with the
Overcollateralization Amount; with respect to the Class B Certificates, the
overcollateralization is required to be maintained at the level of the
Targeted Overcollateralization Amount. These rules result in the application
of the amounts which would otherwise be distributed to the Owners of the
Retained Certificates to be distributed as principal on the Class A Trust
Certificates or Class B Certificates.
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 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 and third, with respect to the Class A Trust Certificates, to the
extent that a Class A Overcollateralization Deficit would occur, by a payment
under the Certificate Insurance Policies.
A "Liquidated Home Equity Loan" is, in general, a defaulted Home
Equity Loan as to which the Servicer has determined that all amounts that it
expects to recover on such Home Equity Loan have been recovered (exclusive of
any possibility of a deficiency judgment).
To the extent that Realized Losses occur, such Realized Losses will
reduce the aggregate outstanding Total Loan Balance of the Home Equity Loans
(i.e., a reduction in the collateral balance will occur). Since the aggregate
Overcollateralization Amount is the excess, if any, of the outstanding Total
Loan Balance over the Aggregate Trust Certificate Principal Balance (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.
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 will be subordinated, to
the extent described herein, to such rights of the Owners of the Class A Trust
Certificates. This subordination is intended to enhance the likelihood of
regular receipt by the Owners of the Class A Trust 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 Trust
Certificates by means of the subordination of the Class B Certificates will be
accomplished by the preferential right of the Owners of the Class A Trust
Certificates to receive, on each Payment Date, full payment of the interest
then due with respect to the Class A Trust Certificates prior to the payment
of Class B Certificate interest, and the full payment of the principal then
due with respect to the Class A Trust Certificates prior to the payment of
Class B Certificate principal. The rights of the Retained Certificates to
receive distributions are subordinate to the rights of the Class A Trust
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 Trust Certificates and the Class B
Certificates. This subordination is intended to enhance the likelihood of
regular receipt by the Owners of the
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Class A Trust 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 during the prior Remittance Period and after taking into account
the distribution of principal with respect to the Class A Trust Certificates
or Class B Certificates on such Payment Date, the Aggregate Trust Certificate
Principal Balance exceeds the Total Loan Balance (i.e., if the level of
overcollateralization is negative), then the Certificate Principal Balance of
the Class B Certificates will be reduced (in effect, "written down") such that
the level of overcollateralization 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 Class B Certificates. The Pooling and Servicing Agreement does not permit
the "write down" of the Certificate Principal Balance of any Class A Trust
Certificate.
Once the Certificate Principal Balance of the Class B Certificates
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 the 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.
The required level of overcollateralization for any Payment Date
after the sixth Payment Date is the Targeted Overcollateralization Amount for
such Payment Date. The aggregate Targeted Overcollateralization Amount is
initially (i.e., prior to the Stepdown Date) $25,375,000. Since the actual
level of the aggregate Overcollateralization Amount with respect to each Loan
Group is essentially zero as of the Closing Date and through the sixth Payment
Date, subject to the availability of amounts otherwise distributable with
respect to the Retained Certificates will be paid commencing on the seventh
Payment Date, with the result that the Overcollateralization Amount will
increase to the level of the Targeted Overcollateralization Amount.
On and after the Stepdown Date and assuming that neither a Cumulative
Realized Loss Trigger Event nor a Delinquency Trigger Event is in effect, the
Targeted Overcollateralization Amount is permitted to decrease or "step-down"
below the initial level to a level equal to 3.1175% of the then current
aggregate outstanding Loan Balance of the Home Equity Loans (subject to the
Overcollateralization Floor).
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.
"Class B Applied Realized Loss Amount" means, as of any Payment Date,
the lesser of (x) the Class B Certificate Principal Balance (after taking into
account the distribution of the Class B Principal Distribution Amount on such
Payment Date, but prior to the application of the Class B Applied Realized
Loss Amount, if any, on such Payment Date) and (y) the excess of (i) the
Aggregate Class A Trust Balance and the Class B Certificate Principal Balance
over (ii) the Total Loan Balance.
"Class B Certificate Principal Balance" means, as of any date of
determination, the Original Class B Certificate Principal Balance as reduced
by the sum of (x) all amounts actually distributed to the Owners of the 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 on all
prior Payment Dates.
"Class B Realized Loss Amortization Amount" means, as of any Payment
Date, the lesser of (x) the Class B Unpaid Realized Loss Amount as of such
Payment Date and (y) the excess of (i) the Monthly Excess Cashflow Amount over
(ii) the Interest Carry Forward Amount for the Class B Certificates, in each
case for such Payment Date.
"Class B Unpaid Realized Loss Amount" means for the Class B
Certificates and as to any Payment Date, the excess of (x) the aggregate
cumulative amount of Class B Applied Realized Loss Amounts with respect to
such
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Class for all prior Payment Dates over (y) the aggregate, cumulative amount of
Class B Realized Loss Amortization Amounts with respect to for all prior
Payment Dates.
The Certificate Insurance Policies
The Certificate Insurance Policy for the Class A Trust Certificates.
The Certificate Insurer, in consideration of the payment of the premium and
subject to the terms of the Certificate Insurance Policy, thereby
unconditionally and irrevocably guarantees to any Owner of a Class A Trust
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 Trust Certificates, on behalf of the Owners from the
Certificate Insurer, for distribution by the Trustee to each Owner of a Class
A Trust 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 Policy and no accelerated Insured Payments shall be made regardless
of any acceleration of the Class A Trust Certificates, unless such
acceleration is at the sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policy does 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
Trust 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 Trust 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 the
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 the Certificate Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the Trustee
on behalf of Owners of Class A Trust 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.
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 Policy.
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As used in the Certificate Insurance Policy, the following terms
shall have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated
as of June 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.
"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 Class A Trust Certificates related
to both Loan Groups and the then existing Aggregate
Overcollateralization Deficit, if any, over (II) the Aggregate Total
Available Funds after taking into account the portion of any
Aggregate 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
Class A Trust Certificates related to both Loan Groups, plus (C) on
the June 15, 1999 Payment Date only, the excess, if any, of (i) the
Certificate Principal Balance of the Class A-1 Certificates, over
(ii) the Principal Remittance Amount for such Payment Date, plus (D)
on the June 15, 2028 Payment Date only, the excess, if any, of (i)
the Certificate Principal Balance of the Class A-8 Certificates over
(ii) the Principal Remittance Amount for Loan Group I with respect to
such Payment Date, plus (E) on the June 15, 2028 Payment Date only,
the excess, if any, of (i) the Certificate Principal Balance of the
Class A-9 Certificates over (ii) the Principal Remittance Amount for
Loan Group II with respect to 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 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 Trust Certificate to payment thereunder.
"Preference Amount" means any amount previously distributed
to an Owner on the Class A Trust 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.
Capitalized terms used in the Certificate Insurance Policy and not
otherwise defined therein shall have the respective meanings set forth in the
Agreement as of the date of execution of the Certificate Insurance Policy,
without giving effect to any subsequent amendment or modification to the
Agreement unless the amendment or modification has been approved in writing by
the Certificate Insurer.
Any notice under the Certificate Insurance Policy 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 Policy is being issued under and pursuant
to, and shall be construed under, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof.
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The insurance provided by the Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security Fund specified in Article
76 of the New York Insurance Law.
The Certificate Insurance Policy is not cancelable for any reason.
The premium on the Certificate Insurance Policy is not refundable for any
reason including payment, or provision being made for payment, prior to the
maturity of the Class A Trust Certificates.
The Certificate Insurance Policy for the Class A-2 Floating
Certificates. The Certificate Insurer, in consideration of the payment of the
premium and subject to the terms of the Certificate Insurance Policy, thereby
unconditionally and irrevocably guarantees to any Owner of a Class A-2
Floating Certificate that an amount equal to each full and complete Insured
Payment will be received by the Grantor Trustee, or its successor, as trustee
for the Owners of the Class A-2 Floating Certificates, on behalf of the Owners
from the Certificate Insurer, for distribution by the Grantor Trustee, to each
Owner of a Class A-2 Floating 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 Grantor Trustee, whether or not such funds are
properly applied by the Grantor Trustee. Insured Payments shall be made only
at the time set forth in the Certificate Insurance Policy and no accelerated
Insured Payments shall be made regardless of any acceleration of the Class A-2
Floating Certificates, unless such acceleration is at the sole option of the
Certificate Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policy does not cover shortfalls, if any, attributable to the liability of the
Grantor Trust or the Grantor 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-2
Floating 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-2 Floating 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 the
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 Grantor
Trustee, and the Grantor Trustee may submit an amended Notice.
Insured Payments due under the Certificate Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the Grantor
Trustee on behalf of Owners of Class A-2 Floating 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 Grantor 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 Policy.
As used in the Certificate Insurance Policy, the following terms
shall have the following meanings:
"Agreement" means the Grantor Trust Agreement dated as of
June 1, 1998 among ContiSecurities Asset Funding Corp., as Depositor,
ContiMortgage Corporation, as Servicer and Manufacturers and Traders
Trust Company, as Grantor 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 Grantor Trustee under the Agreement is located are authorized or
obligated by law or executive order to close.
"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 Class A-2 Floating Certificates at
the Class A-2 Floating Pass-Through Rate over (ii) amounts available
to the Grantor Trustee for distribution of Current Interest on the
Class A-2 Floating Certificates plus (B) an amount equal to the
Preference Amount with respect to the Class A-2 Floating
Certificates.
"Notice" means the telephonic or telegraphic notice,
promptly confirmed in writing by telecopy substantially in the form
of Exhibit A attached to the 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-2 Floating Certificate to payment thereunder.
"Preference Amount" means any amount previously distributed
to an Owner on the Class A-2 Floating 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.
Capitalized terms used in the Certificate Insurance Policy and not
otherwise defined therein shall have the respective meanings set forth in the
Agreement as of the date of execution of the Certificate Insurance Policy,
without giving effect to any subsequent amendment or modification to the
Agreement unless such amendment or modification has been approved in writing
by the Certificate Insurer.
Any notice under the Certificate Insurance Policy 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 Grantor 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 Policy is 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 Policy is not
covered by the Property/Casualty Insurance Security Fund specified in Article
76 of the New York Insurance Law.
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The Certificate Insurance Policy is not cancelable for any reason.
The premium on the Certificate Insurance Policy is not refundable for any
reason including payment, or provision being made for payment, prior to the
maturity of the Class A-2 Floating 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 (the "Company"). The Company 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, the Company acquired all of the
outstanding stock of Capital Markets Assurance Corporation ("CMAC"), a New
York domiciled financial guarantee insurance company, through a merger with
its parent CapMAC Holdings Inc. The Company then contributed the common stock
of CMAC to the Certificate Insurer. Pursuant to a reinsurance agreement CMAC
has ceded all of its net insured risks, as well as its unearned premiums and
contingency reserves, to the Certificate Insurer and the Certificate Insurer
has reinsured CMAC's net outstanding exposure. The Company 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 the Company, and its subsidiaries as of December
31, 1997 and December 31, 1996 and for the three years ended December 31,
1997, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of the Company for the year ended
December 31, 1997 and the consolidated financial statements of the Certificate
Insurer and its subsidiaries for the three months ended March 31, 1998 and for
the periods ending March 31, 1998 and March 31, 1997 included in the Quarterly
Report on Form 10-Q of the Company for the period ending March 31, 1998, are
hereby incorporated by reference into this Prospectus Supplement and shall be
deemed to be a part 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 the Company 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"):
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SAP
---
December 31, March 31,
1997 1998
------------ -----------
(Audited) (Unaudited)
(in millions)
Admitted Assets $5,256 $5,475
Liabilities 3,496 3,658
Capital and Surplus 1,760 1,817
GAAP
----
December 31, March 31,
1997 1998
------------ -----------
(Audited) (Unaudited)
(in millions)
Assets $5,988 $6,196
Liabilities 2,624 2,725
Shareholder's Equity 3,364 3,471
Copies of the financial statements of the Certificate Insurer
incorporated by reference herein and copies of the Certificate Insurer's 1996
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 Policy
under the heading "CREDIT ENHANCEMENT--The Certificate Insurance Policy" and
the information regarding the Certificate Insurer under the heading "THE
CERTIFICATE INSURER." Additionally, the Certificate Insurer makes no
representations regarding the Class A Trust Certificates or the Class A-2
Floating Certificates or the advisability of investing in the Class A Trust
Certificates or the Class A-2 Floating Certificates.
Moody's Investors Service, Inc. rates the claims paying ability of
the Certificate Insurer and CMAC "Aaa".
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the claims paying ability of the Certificate Insurer and
CMAC "AAA".
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.)
rates the claims paying ability of the Certificate Insurer "AAA". (CMAC has
not requested a rating from Fitch IBCA, Inc.)
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 Trust Certificates or the Class A-2 Floating 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 Trust Certificates
or the Class A-2 Floating Certificates. The Certificate Insurer does not
guaranty the market price of the Class A Trust Certificates or the Class A-2
Floating Certificates nor does it guaranty that the ratings on the Class A
Trust Certificates or the Class A-2 Floating Certificates will not be reversed
or withdrawn.
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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 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
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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 1998-2
under the Pooling and Servicing Agreement dated as of June 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).
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
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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
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:
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(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 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).
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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.
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.
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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 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
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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, 14240 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 Trust 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 each Loan Group, separately identifying
the aggregate amount of any Prepayments or other recoveries of
principal included therein and any Extra Principal Distribution
Amount;
(iii) the amount of such distribution allocable to interest
on the Home Equity Loans in each Loan Group (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
each Loan Group as of the last day of the related Remittance Period;
(vii) the aggregate Loan Balance of the Fixed Rate Pool as
of the last day of the related Remittance Period;
(viii) the aggregate Loan Balance of each of Adjustable Rate
Pool 1 and Adjustable Rate Pool 2 as of the last day of the related
Remittance Period;
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(ix) 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;
(x) the total of any Substitution Amounts or Loan Purchase
Price amounts included in such distribution with respect to each Loan
Group;
(xi) the weighted average Coupon Rate of the Home Equity
Loans;
(xii) the weighted average Coupon Rate of the Fixed Rate
Pool;
(xiii) the weighted average Coupon Rate of each of
Adjustable Rate Pool 1 and Adjustable Rate Pool 2;
(xiv) whether a Delinquency Trigger Event, Cumulative
Realized Loss Trigger Event and/or the Servicer Termination Event has
occurred;
(xv) the Overcollateralization Amount for each Loan Group;
(xvi) the amount of any Applied Realized Loss Amount,
Realized Loss Amortization Amount and Unpaid Realized Loss Amount for
the Class B Certificates as of the close of such Payment Date;
(xvii) the Pass-Through Rate for the Floating Rate
Certificates applicable to the related Accrual Period and if the
Pass-Through Rate was based on the Available Funds Cap, that such
Pass-Through Rate would have been in the absence thereof;
(xviii) the Available Funds Cap for each Loan Group for such
Payment Date;
(xix) the amount of any Insured Payment included in the
distribution to Owners of Class A Trust Certificates for each Loan
Group; and
(xx) any Reimbursement Amount paid on such Payment Date and
any Reimbursement Amount remaining unpaid.
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 in the Fixed Rate Pool, Adjustable Rate Pool 1 and
Adjustable Rate Pool 2 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 in the Fixed Rate Pool, Adjustable Rate Pool 1 and
Adjustable Rate Pool 2 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, the Fixed Rate Pool,
Adjustable Rate Pool 1 and Adjustable Rate Pool 2 involved in
bankruptcy proceedings as of the close of business on the last
business day of the calendar month next preceding such Payment Date;
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(d) the existence and status of any Properties for all Home
Equity Loans, the Fixed Rate Pool, Adjustable Rate Pool 1 and
Adjustable Rate Pool 2 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, the Fixed Rate Pool, Adjustable Rate Pool 1 and
Adjustable Rate Pool 2 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, the Fixed Rate Pool, Adjustable Rate Pool 1 and
Adjustable Rate Pool 2; and
(g) the Three-Month Rolling Average 60+ Delinquency Rate for
all Home Equity Loans, the Fixed Rate Pool, Adjustable Rate Pool 1
and Adjustable Rate Pool 2.
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.
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 Policy. Notwithstanding anything
to the contrary, no such amendment shall (a) change in any manner the amount
of, or delay the timing of, payments which are required to be distributed to
any Owner without the consent of the Owner of such Certificate 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.
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Termination of the Trust
The Pooling and Servicing Agreement provides that the Trust will
terminate upon the payment to the Owners of all Trust Certificates from
amounts other than those available under the Certificate Insurance Policy 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 Trust 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 Aggregate 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 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.
THE GRANTOR TRUST AGREEMENT
In addition to the provisions of the Grantor Trust Agreement
summarized elsewhere in this Prospectus Supplement, there is set forth below a
summary of certain other provisions of the Grantor Trust Agreement.
Assignment of Class A-2 Internal Certificates
Pursuant to the Grantor Trust Agreement, the Depositor on the Closing
Date will transfer, assign, set over and otherwise convey without recourse to
the Grantor Trustee in trust all of its respective right, title and interest
in and to the Class A-2 Internal Certificates and all its respective right,
title and interest in and to principal and interest due on each such Class A-2
Internal Certificates (together with the Swap Agreement, the amounts on
deposit in the Grantor Trust Account and the related Certificate Insurance
Policy, the "Grantor Trust Estate"). Purely as a
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protective measure and not to be construed as contrary to the parties' intent
that the transfer on the Closing Date is a sale, the Depositor has been deemed
to have granted to the Grantor Trustee a security interest in the Grantor
Trust Estate in the event that the transfer of the Grantor Trust Estate is
deemed to be a loan and not a sale.
In connection with the transfer and assignment of the Class A-2
Internal Certificates on the Closing Date, the Depositor will deliver to the
Grantor Trustee without recourse the Class A-2 Internal Certificates.
Servicing
The Servicer will be required to pay all "out of pocket" costs and
expenses incurred in the performance of its servicing obligations.
The Servicer (except Manufacturers and Traders Trust Company if it is
required to succeed the Servicer under the Grantor Trust Agreement) agrees to
indemnify and hold the Grantor Trustee, the Certificate Insurer and each Owner
of a Class A-2 Floating Certificate 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 Grantor Trustee,
the Certificate Insurer and any Owner of a Class A-2 Floating Certificate may
sustain in any way related to the failure of the Servicer to perform its
duties. The Servicer shall immediately notify the Grantor Trustee, the
Certificate Insurer and each Owner if a claim is made by a third party with
respect to the Grantor Trust Agreement, and the Servicer shall assume (with
the consent of the Grantor 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 Grantor Trustee, the Certificate Insurer
and/or Owner in respect of such claim.
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 under the Pooling and Servicing Agreement
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 removal of the Servicer pursuant to the Pooling and Servicing
Agreement shall also constitute a removal of the Servicer under the Grantor
Trust Agreement.
The Servicer is not permitted to resign from the obligations and
duties imposed on it under the Grantor Trust 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 Grantor Trust 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 Grantor Trustee and the
Certificate Insurer by the Servicer at its expense (provided that if the
Certificate Insurer and such Owners of the Class A-2 Floating Certificates
cannot agree as to the acceptability of such successor Servicer, the decision
of the Certificate Insurer shall control).
The successor servicer appointed pursuant to the Pooling and
Servicing Agreement shall become the successor servicer under the Grantor
Trust Agreement.
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.
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The Grantor 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 Grantor Trustee under the Grantor
Trust Agreement.
Reporting Requirements
On each Payment Date the Grantor Trustee is required to report in
writing to each Owner of a Class A-2 Floating Certificate, each Rating Agency
and the Certificate Insurer the same information with respect to the Home
Equity Loans required to be reported by the Trustee as described under "The
Pooling and Servicing Agreement--Reporting Requirements" clauses (i) through
(xxi) and with respect to the Class A-2 Floating Certificates, the following
information:
(i) the amount of the distribution with respect to the each
Class A-2 Floating Certificates (based on a Certificate in the
original principal amount of $1,000);
(ii) the principal amount and the Planned Principal
Balance, if any, of the Class A-2 Floating 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;
(iii) 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;
(iv) the Pass-Through Rate for the Class A-2 Floating
Certificates; and
(v) the amount of any Insured Payment included in the
distribution to Owners of Class A-2 Floating Trust Certificates.
Certain obligations of the Grantor Trustee to provide information to
the Owners are conditioned upon such information being received from the
Servicer.
In addition, on each Payment Date the Grantor Trustee will be
required to distribute to each Owner and the Certificate Insurer, together
with the information described above, the same information distributed to
Owners by the Trustee under the Pooling and Servicing Agreement as described
under paragraph (a) through (g) above under "The Pooling and Servicing
Agreement--Reporting Requirements."
Removal of Grantor Trustee for Cause
The Grantor 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 Grantor Trustee:
(1) failure to make distributions of available amounts; (2) certain breaches
of covenants and representations by the Grantor Trustee; (3) certain acts of
bankruptcy or insolvency on the part of the Grantor Trustee; and (4) failure
to meet the standards of Grantor Trustee eligibility as set forth in the
Grantor Trustee 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), the Owners
of a majority of the Percentage Interests represented by the Class A-2
Floating Certificates may appoint a successor trustee.
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Governing Law
The Grantor Trust Agreement and each Class-A-2 Floating 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 Grantor Trustee, the Depositor, 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 Grantor Trust Agreement, and
the Grantor Trustee and the Certificate Insurer will be required to consent to
such amendment, for the purposes of (i) curing any ambiguity, (ii) correcting
or supplementing any provisions therein which are inconsistent with any other
provisions therein or (iii) for any other purpose; provided that in the case
of clause (iii), such amendment shall not adversely affect in any material
respect any Owner of a Class A-2 Floating Certificate. Any such amendment
shall be deemed not to adversely affect in any material respect any Owner of a
Class A-2 Floating Certificate 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 the Class A-2
Floating Certificates without regard to the related Certificate Insurance
Policy and an opinion of counsel is delivered to the Grantor Trustee
indicating that such amendment will not cause the Grantor Trust Estate to fail
to be treated as a Grantor Trust for federal income tax purposes under Subpart
E, Part I of Subchapter J of the Code. 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 of a Class A-2 Floating Certificate 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 affected then outstanding.
Termination of the Trust
The Grantor Trust Agreement provides that the Grantor Trust will
terminate upon the payment to the Owners of all Class A-2 Floating
Certificates from amounts other than those available under the related
Certificate Insurance Policy of all amounts required to be paid to such Owners
upon the final payment of the Class A-2 Internal Certificate.
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 Class A Trust Certificates and Class B 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 Class A Trust Certificates, Class B Certificates and
Class C Certificates will be treated as "regular interests" in a REMIC, and
the Class R Certificates will be "residual interests" in a REMIC. Except as
indicated below and in the Prospectus, for federal income tax
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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 Class A Trust
Certificates and Class B Certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to
such Class A Trust Certificates and Class B 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 Class A-10 IO 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
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 Class A Trust
Certificates and Class B Certificates as regular interests in a REMIC, the
Class A Trust Certificates and Class B 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 Class A Trust Certificates and Class B 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.
Grantor Trust
Dewey Ballantine LLP, special tax counsel, is of the opinion that for
federal income tax purposes, assuming compliance with the terms of the Grantor
Trust Agreement, the Grantor Trust created pursuant to the Grantor Trust
Agreement 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 Class A-2 Floating Certificate issued by the
Grantor Trust will be treated as the owner of an undivided interest in the
Class A-2 Internal Certificates (which as described above are "regular
interests" in a REMIC), the Swap Agreement, the related Certificate Insurance
Policy 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 Class A-2 Floating 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 Class A-2 Floating 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 Class A-2 Floating 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 Class A-2 Floating 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
Class A-2 Floating Certificate. No representation is or will be made as to
such relative fair market values and holders of Class A-2 Floating
Certificates should consult their tax advisors concerning the determination of
such fair market values and the taxation of the
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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 Class A-2 Floating Certificate must report on its
federal income tax return ordinary income equal to its share of the interest
payable with respect to the Class A-2 Internal Certificates 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 Class A-2 Floating
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 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 Trust Certificates
The DOL has granted an administrative exemption to Merrill Lynch &
Co. (Prohibited Transaction Exemption 90-29) (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 which any Underwriter
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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 Trust Certificates are the following:
(i) the acquisition of the Class A Trust 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;
(ii) the rights and interests evidenced by the Class A Trust
Certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust;
(iii) the Class A Trust 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 Plans acquisition of the Class A Trust
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, 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 Trust
Certificates represents not more than reasonable compensation for
underwriting the Class A Trust 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 Trust 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 Trust 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 Trust 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 Trust
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
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Class A Trust Certificates does not exceed 25% of all such Class of Class A
Trust 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.
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
Trust Certificates.
Before purchasing a Class A Trust 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 Trust Certificate.
The Class A-2 Floating Certificates
The Exemption does not apply to the purchase, holding or subsequent
resale of the Class A-2 Floating 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 Class A-2 Floating
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 Class A-2 Floating
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 Class A-2 Floating Certificate by a Plan is
deemed for purposes of ERISA to be a purchase of an interest in the Class A-2
Fixed Certificates, the Exemption should be applicable to the purchase,
holding or subsequent resale of such interest. Before purchasing a Class A-2
Floating 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.
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 Class A
Trust Certificates, Class B Certificates or Class A-2 Floating 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
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Life Insurance Co. v. Harris Trust and Savings Bank 114 S.Ct. 517 (1993). In
John Hancock, the Supreme Court ruled that assets held in an insurance
company's general account may be deemed to be "plan assets" for ERISA purposes
under certain circumstances. Prospective purchasers using insurance company
general account assets should determine whether the decision 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 Class A Trust Certificates and Class A-2 Floating
Certificates.
Any fiduciary of a Plan considering whether to purchase a Class A
Trust Certificate or a Class A-2 Floating Certificate or a Class B 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 the Class A Trust
Certificate, Class A-2 Floating Certificate or Class B Certificate is
appropriate for the Plan, taking into account the overall investment of the
Plan and the composition of the Plan's investment portfolio.
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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:
Class Moody's Standard & Poor's Fitch
- ---------------- ---------------- ----------------- ----------------
A-1 P-1 A-1+ F-1+
A-2 through A-9 Aaa AAA AAA
A-10 IO Aaa AAAr AAA
B Baa3 BBB- BBB
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 Class A-10 IO 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 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.
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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 to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters has severally agreed to
purchase, the principal amount or Percentage Interest of the Offered
Certificates set forth opposite its name below:
Class A-1 Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $19,000,000
Incorporated
Bear, Stearns & Co. Inc. $19,000,000
Credit Suisse First Boston Corporation $19,000,000
Greenwich Capital Markets, Inc. $19,000,000
Morgan Stanley & Co. Incorporated $19,000,000
Nomura Securities International, Inc. $19,000,000
Class A-2 Fixed Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $41,666,670
Incorporated
Bear, Stearns & Co. Inc. $41,666,666
Credit Suisse First Boston Corporation $41,666,666
Greenwich Capital Markets, Inc. $41,666,666
Morgan Stanley & Co. Incorporated $41,666,666
Nomura Securities International, Inc. $41,666,666
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Class A-2 Floating Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $29,166,670
Incorporated
Bear, Stearns & Co. Inc. $29,166,666
Credit Suisse First Boston Corporation $29,166,666
Greenwich Capital Markets, Inc. $29,166,666
Morgan Stanley & Co. Incorporated $29,166,666
Nomura Securities International, Inc. $29,166,666
Class A-3 Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $45,833,335
Incorporated
Bear, Stearns & Co. Inc. $45,833,333
Credit Suisse First Boston Corporation $45,833,333
Greenwich Capital Markets, Inc. $45,833,333
Morgan Stanley & Co. Incorporated $45,833,333
Nomura Securities International, Inc. $45,833,333
Class A-4 Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $30,833,335
Incorporated
Bear, Stearns & Co. Inc. $30,833,333
Credit Suisse First Boston Corporation $30,833,333
Greenwich Capital Markets, Inc. $30,833,333
Morgan Stanley & Co. Incorporated $30,833,333
Nomura Securities International, Inc. $30,833,333
Class A-5 Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $15,000,000
Incorporated
Bear, Stearns & Co. Inc. $15,000,000
Credit Suisse First Boston Corporation $15,000,000
Greenwich Capital Markets, Inc. $15,000,000
Morgan Stanley & Co. Incorporated $15,000,000
Nomura Securities International, Inc. $15,000,000
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Class A-6 Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $16,166,670
Incorporated
Bear, Stearns & Co. Inc. $16,166,666
Credit Suisse First Boston Corporation $16,166,666
Greenwich Capital Markets, Inc. $16,166,666
Morgan Stanley & Co. Incorporated $16,166,666
Nomura Securities International, Inc. $16,166,666
Class A-7 Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $16,766,670
Incorporated
Bear, Stearns & Co. Inc. $16,766,666
Credit Suisse First Boston Corporation $16,766,666
Greenwich Capital Markets, Inc. $16,766,666
Morgan Stanley & Co. Incorporated $16,766,666
Nomura Securities International, Inc. $16,766,666
Class A-8 Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & $235,000,000
Smith Incorporated
Class A-9 Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $23,900,000
Incorporated
Bear, Stearns & Co. Inc. $23,900,000
ContiFinancial Services Corporation $15,000,000
Credit Suisse First Boston Corporation $23,900,000
Greenwich Capital Markets, Inc. $23,900,000
Morgan Stanley & Co. Incorporated $23,900,000
Nomura Securities International, Inc. $23,900,000
S-110
<PAGE>
Class A-10 IO Certificates
Underwriters Percentage Interest
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith 100%
Incorporated
Class B Certificates
Underwriters Principal Amount
------------------------------------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith $11,666,670
Incorporated
Bear, Stearns & Co. Inc. $11,666,666
Credit Suisse First Boston Corporation $11,666,666
Greenwich Capital Markets, Inc. $11,666,666
Morgan Stanley & Co. Incorporated $11,666,666
Nomura Securities International, Inc. $11,666,666
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 Concession Reallowance Discount
----- ------------------ --------------------
A-1 0.0700% 0.047000%
A-2 Floating 0.0900% 0.054000%
A-2 Fixed 0.0900% 0.054000%
A-3 0.1100% 0.066000%
A-4 0.1500% 0.090000%
A-5 0.1800% 0.108000%
A-6 0.1950% 0.117000%
A-7 0.2100% 0.126000%
A-8 0.1200% 0.072000%
A-9 0.1500% 0.090000%
A-10 IO 0.3000% 0.180000%
B 0.3600% 0.216000%
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
S-111
<PAGE>
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 Merrill Lynch, Pierce, Fenner & Smith 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.
Merrill Lynch, Pierce, Fenner & Smith Incorporated may sell some or
all of the Class A-8 Certificates to one or more trusts with respect to which
Merrill Lynch, Pierce, Fenner & Smith Incorporated, or an affiliate thereof,
will act as depositor.
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 is an affiliate of ContiFinancial Services Corporation.
REPORT OF EXPERTS
The consolidated financial statements of the Certificate Insurer,
MBIA Insurance Corporation and subsidiaries, as of December 31, 1997, and 1996
and for the three years ended December 31, 1997 incorporated by reference into
this Prospectus Supplement, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report thereon incorporated by
reference herein upon the authority of such firm as experts in accounting and
auditing.
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-112
<PAGE>
ANNEX I
PLANNED PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PAC
Schedule
- --------
Class A-2 Class A-2
Period Fixed Internal Class A-3 Class A-4 Class A-5 Class A-6 Class A-7
- -------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 250,000,000.00 175,000,000.00 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
1 250,000,000.00 175,000,000.00 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
2 250,000,000.00 175,000,000.00 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
3 250,000,000.00 175,000,000.00 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
4 250,000,000.00 175,000,000.00 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
5 250,000,000.00 175,000,000.00 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
6 250,000,000.00 175,000,000.00 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
7 230,546,083.12 161,382,258.19 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
8 209,892,956.06 146,925,069.25 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
9 188,041,285.65 131,628,899.96 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
10 166,557,644.95 116,590,351.46 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
11 145,353,542.86 101,747,480.01 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
12 124,218,051.56 86,952,636.09 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
13 103,349,056.05 72,344,339.23 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
14 84,339,772.49 59,037,840.75 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
15 65,925,071.60 46,147,550.12 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
16 47,990,053.15 33,593,037.20 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
17 30,522,068.50 21,365,447.95 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
18 13,508,808.92 9,456,166.24 275,000,000.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
19 0.00 0.00 269,795,103.52 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
20 0.00 0.00 244,358,085.04 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
21 0.00 0.00 215,634,634.67 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
22 0.00 0.00 189,605,984.24 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
23 0.00 0.00 164,270,002.00 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
24 0.00 0.00 139,591,783.66 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
25 0.00 0.00 115,554,073.93 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
26 0.00 0.00 92,140,078.15 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
27 0.00 0.00 69,333,449.73 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
28 0.00 0.00 47,118,277.92 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
29 0.00 0.00 25,479,075.93 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
30 0.00 0.00 4,400,769.38 185,000,000.00 90,000,000.00 97,000,000.00 100,600,000.00
31 0.00 0.00 0.00 168,868,685.06 90,000,000.00 97,000,000.00 100,600,000.00
32 0.00 0.00 0.00 148,868,540.04 90,000,000.00 97,000,000.00 100,600,000.00
33 0.00 0.00 0.00 129,386,431.03 90,000,000.00 97,000,000.00 100,600,000.00
34 0.00 0.00 0.00 110,413,466.24 90,000,000.00 97,000,000.00 100,600,000.00
35 0.00 0.00 0.00 91,931,543.75 90,000,000.00 97,000,000.00 100,600,000.00
36 0.00 0.00 0.00 74,078,082.26 90,000,000.00 97,000,000.00 100,600,000.00
37 0.00 0.00 0.00 74,078,082.26 90,000,000.00 97,000,000.00 100,600,000.00
38 0.00 0.00 0.00 74,078,082.26 90,000,000.00 97,000,000.00 100,600,000.00
39 0.00 0.00 0.00 64,092,163.67 90,000,000.00 97,000,000.00 100,600,000.00
40 0.00 0.00 0.00 50,174,945.22 90,000,000.00 97,000,000.00 100,600,000.00
41 0.00 0.00 0.00 37,197,955.18 90,000,000.00 97,000,000.00 100,600,000.00
42 0.00 0.00 0.00 24,715,174.33 90,000,000.00 97,000,000.00 100,600,000.00
43 0.00 0.00 0.00 12,707,588.81 90,000,000.00 97,000,000.00 100,600,000.00
44 0.00 0.00 0.00 1,156,927.64 90,000,000.00 97,000,000.00 100,600,000.00
45 0.00 0.00 0.00 0.00 80,045,633.13 97,000,000.00 100,600,000.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAC
Schedule
- --------
Class A-2 Class A-2
Period Fixed Internal Class A-3 Class A-4 Class A-5 Class A-6 Class A-7
- -------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
46 0.00 0.00 0.00 0.00 69,356,832.47 97,000,000.00 100,600,000.00
47 0.00 0.00 0.00 0.00 59,074,310.49 97,000,000.00 100,600,000.00
48 0.00 0.00 0.00 0.00 49,182,483.50 97,000,000.00 100,600,000.00
49 0.00 0.00 0.00 0.00 39,666,374.26 97,000,000.00 100,600,000.00
50 0.00 0.00 0.00 0.00 30,511,587.88 97,000,000.00 100,600,000.00
51 0.00 0.00 0.00 0.00 21,704,288.78 97,000,000.00 100,600,000.00
52 0.00 0.00 0.00 0.00 13,231,178.51 97,000,000.00 100,600,000.00
53 0.00 0.00 0.00 0.00 5,079,474.53 97,000,000.00 100,600,000.00
54 0.00 0.00 0.00 0.00 0.00 94,236,889.82 100,600,000.00
55 0.00 0.00 0.00 0.00 0.00 86,691,613.31 100,600,000.00
56 0.00 0.00 0.00 0.00 0.00 79,432,291.11 100,600,000.00
57 0.00 0.00 0.00 0.00 0.00 72,448,008.51 100,600,000.00
58 0.00 0.00 0.00 0.00 0.00 65,732,849.15 100,600,000.00
59 0.00 0.00 0.00 0.00 0.00 59,271,866.10 100,600,000.00
60 0.00 0.00 0.00 0.00 0.00 53,055,374.34 100,600,000.00
61 0.00 0.00 0.00 0.00 0.00 47,074,062.38 100,600,000.00
62 0.00 0.00 0.00 0.00 0.00 41,318,977.59 100,600,000.00
63 0.00 0.00 0.00 0.00 0.00 35,781,512.13 100,600,000.00
64 0.00 0.00 0.00 0.00 0.00 30,453,389.47 100,600,000.00
65 0.00 0.00 0.00 0.00 0.00 25,326,651.39 100,600,000.00
66 0.00 0.00 0.00 0.00 0.00 20,393,645.58 100,600,000.00
67 0.00 0.00 0.00 0.00 0.00 15,647,013.66 100,600,000.00
68 0.00 0.00 0.00 0.00 0.00 11,079,679.71 100,600,000.00
69 0.00 0.00 0.00 0.00 0.00 6,684,839.28 100,600,000.00
70 0.00 0.00 0.00 0.00 0.00 2,455,948.79 100,600,000.00
71 0.00 0.00 0.00 0.00 0.00 0.00 98,986,715.37
72 0.00 0.00 0.00 0.00 0.00 0.00 95,071,087.14
73 0.00 0.00 0.00 0.00 0.00 0.00 91,303,243.80
74 0.00 0.00 0.00 0.00 0.00 0.00 87,677,587.68
75 0.00 0.00 0.00 0.00 0.00 0.00 84,188,735.06
76 0.00 0.00 0.00 0.00 0.00 0.00 80,831,507.91
77 0.00 0.00 0.00 0.00 0.00 0.00 77,600,925.89
78 0.00 0.00 0.00 0.00 0.00 0.00 74,492,198.72
79 0.00 0.00 0.00 0.00 0.00 0.00 71,500,718.81
80 0.00 0.00 0.00 0.00 0.00 0.00 68,622,054.21
81 0.00 0.00 0.00 0.00 0.00 0.00 65,851,941.82
82 0.00 0.00 0.00 0.00 0.00 0.00 63,186,280.88
83 0.00 0.00 0.00 0.00 0.00 0.00 60,621,126.68
84 0.00 0.00 0.00 0.00 0.00 0.00 58,075,880.32
85 0.00 0.00 0.00 0.00 0.00 0.00 55,380,897.81
86 0.00 0.00 0.00 0.00 0.00 0.00 52,787,401.52
87 0.00 0.00 0.00 0.00 0.00 0.00 50,291,564.37
88 0.00 0.00 0.00 0.00 0.00 0.00 47,889,704.57
89 0.00 0.00 0.00 0.00 0.00 0.00 45,578,280.01
90 0.00 0.00 0.00 0.00 0.00 0.00 43,353,882.94
91 0.00 0.00 0.00 0.00 0.00 0.00 41,213,234.80
92 0.00 0.00 0.00 0.00 0.00 0.00 39,153,181.25
93 0.00 0.00 0.00 0.00 0.00 0.00 37,170,687.43
94 0.00 0.00 0.00 0.00 0.00 0.00 35,262,833.38
95 0.00 0.00 0.00 0.00 0.00 0.00 33,426,809.66
96 0.00 0.00 0.00 0.00 0.00 0.00 31,659,913.09
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PAC
Schedule
- --------
Class A-2 Class A-2
Period Fixed Internal Class A-3 Class A-4 Class A-5 Class A-6 Class A-7
- -------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
97 0.00 0.00 0.00 0.00 0.00 0.00 29,959,542.71
98 0.00 0.00 0.00 0.00 0.00 0.00 28,323,195.89
99 0.00 0.00 0.00 0.00 0.00 0.00 26,748,464.55
100 0.00 0.00 0.00 0.00 0.00 0.00 25,233,031.56
101 0.00 0.00 0.00 0.00 0.00 0.00 23,774,667.29
102 0.00 0.00 0.00 0.00 0.00 0.00 22,371,226.25
103 0.00 0.00 0.00 0.00 0.00 0.00 21,020,643.91
104 0.00 0.00 0.00 0.00 0.00 0.00 19,720,933.60
105 0.00 0.00 0.00 0.00 0.00 0.00 18,470,183.57
106 0.00 0.00 0.00 0.00 0.00 0.00 17,266,554.10
107 0.00 0.00 0.00 0.00 0.00 0.00 16,108,274.82
108 0.00 0.00 0.00 0.00 0.00 0.00 14,993,642.03
109 0.00 0.00 0.00 0.00 0.00 0.00 13,921,016.19
110 0.00 0.00 0.00 0.00 0.00 0.00 12,888,819.49
111 0.00 0.00 0.00 0.00 0.00 0.00 11,895,533.49
112 0.00 0.00 0.00 0.00 0.00 0.00 10,939,696.88
113 0.00 0.00 0.00 0.00 0.00 0.00 10,019,903.32
114 0.00 0.00 0.00 0.00 0.00 0.00 9,134,799.36
115 0.00 0.00 0.00 0.00 0.00 0.00 8,288,748.78
116 0.00 0.00 0.00 0.00 0.00 0.00 7,474,477.27
117 0.00 0.00 0.00 0.00 0.00 0.00 6,690,794.91
118 0.00 0.00 0.00 0.00 0.00 0.00 5,936,556.40
119 0.00 0.00 0.00 0.00 0.00 0.00 5,210,659.40
120 0.00 0.00 0.00 0.00 0.00 0.00 4,512,042.89
121 0.00 0.00 0.00 0.00 0.00 0.00 3,839,685.62
122 0.00 0.00 0.00 0.00 0.00 0.00 3,192,604.60
123 0.00 0.00 0.00 0.00 0.00 0.00 2,569,853.68
124 0.00 0.00 0.00 0.00 0.00 0.00 1,970,522.13
125 0.00 0.00 0.00 0.00 0.00 0.00 1,393,733.35
126 0.00 0.00 0.00 0.00 0.00 0.00 838,643.53
127 0.00 0.00 0.00 0.00 0.00 0.00 304,440.47
128 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
I-3
<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 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
<PAGE>
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;
(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.
II-2
<PAGE>
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of
Global Securities that are Non-U.S. Persons (as defined below) can obtain a
complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8 changes,
a new Form W-8 must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income
(Form 4224). A Non-U.S. Person (as defined below), including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity, 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>
INDEX OF TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
2/28 Loans................................................................................................................9
3/27 Loans................................................................................................................9
Accrual Period...........................................................................................................11
Actuarial Loans..........................................................................................................56
Aggregate Certificate Principal Balance...................................................................................5
Aggregate Class A Certificate Principal Balance..........................................................................16
Applied Realized Loss Amount.........................................................................................21, 82
Appraised Values.........................................................................................................35
Average Amount Outstanding...............................................................................................34
Balloon Loans............................................................................................................29
Beneficial Owners....................................................................................................23, 77
Book-Entry Certificates..................................................................................................77
Business Day.............................................................................................................11
Cede.....................................................................................................................23
Cedel....................................................................................................................23
Cedel Participants.......................................................................................................78
Certificate Account......................................................................................................72
Certificate Insurer......................................................................................................22
Certificate Principal Balance.............................................................................................4
Certificates..............................................................................................................6
Chase....................................................................................................................23
Citibank.................................................................................................................23
Class.....................................................................................................................4
Class A Certificates......................................................................................................1
Class A Optimal Balance..................................................................................................15
Class A Overcollateralization Deficit....................................................................................22
Class A Principal Distribution Amount................................................................................13, 74
Class B Applied Realized Loss Amount.....................................................................................82
Class B Certificate Principal Balance....................................................................................82
Class B Certificates......................................................................................................1
Class B Optimal Balance..................................................................................................16
Class B Principal Distribution Amount................................................................................13, 74
Class B Realized Loss Amortization Amount................................................................................82
Class B Unpaid Realized Loss Amount......................................................................................82
Class C Certificates......................................................................................................1
Class Distribution Amount................................................................................................11
Class R Certificates......................................................................................................1
Clean-Up Call Date...................................................................................................23, 98
Code....................................................................................................................102
Combined Loan-to-Value Ratios............................................................................................39
Commission................................................................................................................2
Compensating Interest....................................................................................................93
Cooperative..............................................................................................................79
Coupon Rates..............................................................................................................8
Crossover Overcollateralization Increase Amount......................................................................13, 74
Crossover Overcollateralization Stepdown Amount......................................................................13, 74
Cumulative Realized Loss Trigger Event...................................................................................20
Current Interest.....................................................................................................14, 74
Cut-Off Date..............................................................................................................2
Daily Collections........................................................................................................91
Date-of-Payment Loans....................................................................................................56
Definitive Certificate...................................................................................................77
Delinquency Advances.....................................................................................................92
Delinquency Trigger Event................................................................................................20
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Depositor.................................................................................................................6
DOL.....................................................................................................................103
DTC......................................................................................................................23
DTC Participants.........................................................................................................78
Effective Range..........................................................................................................57
ERISA...................................................................................................................103
Euroclear................................................................................................................23
Euroclear Operator.......................................................................................................79
Euroclear Participants...................................................................................................79
European Depositaries................................................................................................23, 77
Exemptions..............................................................................................................103
FannieMae................................................................................................................95
FannieMae Guide..........................................................................................................91
FHLMC....................................................................................................................95
Final Certification......................................................................................................91
Final Determination......................................................................................................98
Final Scheduled Payment Date.............................................................................................59
Final Scheduled Payment Dates............................................................................................10
Financial Intermediary...................................................................................................77
Fiscal Agent.............................................................................................................83
Fitch....................................................................................................................24
GAAP.....................................................................................................................87
Global Securities.........................................................................................................1
Grantor Trust Account....................................................................................................72
Grantor Trust Agreement...................................................................................................7
Gross Losses.............................................................................................................34
Group I Available Funds Cap...............................................................................................5
Group I Loan Balance.....................................................................................................16
Group II Available Funds Cap..............................................................................................5
Group II Loan Balance....................................................................................................16
Group Loan Balance.......................................................................................................16
Home Equity Loan Group....................................................................................................2
Home Equity Loans......................................................................................................2, 8
IML......................................................................................................................78
Initial Certificate Principal Balance....................................................................................59
Interest Carry Forward Amount........................................................................................14, 75
Interest Remittance Amount...............................................................................................92
LIBOR....................................................................................................................76
LIBOR Determination Date.................................................................................................77
Liquidated Home Equity Home..............................................................................................81
Loan Balance..............................................................................................................8
Loan Purchase Price......................................................................................................89
Loan-to-Value Ratios.....................................................................................................38
Maximum Insurer Current Reimbursement Amount.........................................................................14, 75
Monthly Remittance Date..................................................................................................93
Moody's..................................................................................................................24
Mortgages.................................................................................................................8
Mortgagor................................................................................................................56
Net Liquidation Proceeds.................................................................................................91
Net Losses...............................................................................................................34
Non-U.S. Person...........................................................................................................3
Notes.....................................................................................................................8
Notional Amount...........................................................................................................4
Offered Certificates......................................................................................................7
Original Aggregate Loan Balance...........................................................................................8
Original Group I Loan Balance............................................................................................16
Original Group II Loan Balance...........................................................................................16
Original Loan Balance....................................................................................................16
Original Total Loan Balance..............................................................................................17
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Originator................................................................................................................6
Overcollateralization Amount.............................................................................................19
Participants.............................................................................................................77
Pass-Through Rate.....................................................................................................2, 72
Payment Date.............................................................................................................10
Percentage Interest......................................................................................................72
Plans...................................................................................................................103
Pooling and Servicing Agreement...........................................................................................2
Preference Amount........................................................................................................22
Prepayment Assumption....................................................................................................59
Prepayments..............................................................................................................26
Preservation Expenses....................................................................................................93
Principal and Interest Account...........................................................................................91
Principal Remittance Amount..............................................................................................92
Qualified Replacement Mortgage...........................................................................................90
Rating Agencies.....................................................................................................24, 104
Realized Loss........................................................................................................20, 81
Record Date..............................................................................................................11
Recoveries...............................................................................................................34
Register.................................................................................................................72
Registrar................................................................................................................72
Relevant Depositary......................................................................................................77
REMIC.................................................................................................................2, 24
REMIC Opinion............................................................................................................89
Remittance Period........................................................................................................93
Restricted Group........................................................................................................104
Retained Certificates.....................................................................................................6
Riegle Act...............................................................................................................28
Rules....................................................................................................................77
SAP......................................................................................................................87
Servicer Termination Event...............................................................................................94
Servicing Fee............................................................................................................18
Six-Month LIBOR..........................................................................................................27
Six-Month LIBOR Loans....................................................................................................10
SMMEA....................................................................................................................25
Standard & Poor's........................................................................................................24
Stepdown Date............................................................................................................19
Subordinate Certificates..................................................................................................1
Sub-Servicers............................................................................................................30
Sub-Servicing Agreements.................................................................................................30
Substitution Amount......................................................................................................90
Swap Agreement............................................................................................................7
Swap Counterparty.........................................................................................................7
Targeted Overcollateralization Amount....................................................................................19
Telerate Page 3750.......................................................................................................77
Terms and Conditions.....................................................................................................79
Total Loan Balance.......................................................................................................17
Trust..................................................................................................................2, 4
Trust Estate.............................................................................................................70
U.S. Person...............................................................................................................3
Underwriters............................................................................................................108
Underwriting Agreement..................................................................................................108
Weighted average life....................................................................................................59
</TABLE>
A-3
<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
ProspectusSupplement 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 December 16, 1997
<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............................................9
Classes of Certificates...........................10
Distributions of Principal and Interest...........11
Book Entry Registration...........................13
List of Owners of Certificates....................13
THE TRUSTS...........................................13
Mortgage Loans....................................14
Contracts.........................................17
Mortgage-Backed Securities........................17
Other Mortgage Securities.........................18
CREDIT ENHANCEMENT...................................18
SERVICING OF MORTGAGE LOANS AND CONTRACTS............23
Payments on Mortgage Loans........................23
Advances..........................................24
Collection and Other Servicing Procedures.........24
Primary Mortgage Insurance........................26
Standard Hazard Insurance.........................26
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.............................28
Servicing Compensation and Payment of Expenses....29
Master Servicer...................................29
ADMINISTRATION.......................................30
Assignment of Mortgage Assets.....................30
Evidence as to Compliance.........................32
The Trustee.......................................32
Administration of the Certificate Account.........33
Reports...........................................33
Forward Commitments; Pre-Funding..................34
Servicer Events of Default........................34
Rights Upon Servicer Event of Default.............35
Amendment.........................................35
Termination.......................................35
USE OF PROCEEDS......................................36
THE DEPOSITOR........................................36
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS.........36
General...........................................36
Foreclosure.......................................37
Soldiers' and Sailors' Civil Relief Act...........42
The Contracts.....................................42
The Title I Program...............................45
LEGAL INVESTMENT MATTERS.............................49
ERISA CONSIDERATIONS.................................50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..............51
Federal Income Tax Consequences For
REMIC Certificates............................51
Taxation of Regular Certificates..................53
Taxation of Residual Certificates.................57
Treatment of Certain Items of REMIC
Income and Expense............................59
Tax-Related Restrictions on Transfer of
Residual Certificates.........................60
Sale or Exchange of a Residual Certificate........62
Taxes That May Be Imposed on the REMIC Pool.......62
Liquidation of the REMIC Pool.....................63
Administrative Matters............................63
Limitations on Deduction of Certain Expenses......64
Taxation of Certain Foreign Investors.............64
Backup Withholding................................65
Reporting Requirements............................65
Federal Income Tax Consequences for
Certificates as to Which No REMIC
Election Is Made..............................66
Standard Certificates.............................66
Premium and Discount..............................67
Stripped Certificates.............................68
Reporting Requirements and Backup Withholding.....71
Taxation of Certain Foreign Investors.............71
Taxation of Securities Classified as
Partnership Interests.........................71
<PAGE>
PLAN OF DISTRIBUTION.................................71
LEGAL MATTERS........................................72
FINANCIAL INFORMATION................................72
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS.........73
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 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.
<TABLE>
<S> <C>
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, the District of Columbia or the Commonwealth of Puerto Rico.
See "The Trusts - Mortgage Loans" herein.
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
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 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
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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.
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.
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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.
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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 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.
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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 such warranty that
materially adversely affects any Contract would create an obligation of
the Seller
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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 may be
permitted to reduce, terminate or substitute all or a portion of the
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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.
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
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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.
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
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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 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.
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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 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
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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 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
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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.
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
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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.
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
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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 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
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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 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
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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.
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.
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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
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
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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.
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
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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 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.
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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"-, 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
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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 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
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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.
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.
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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 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
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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, 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
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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 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
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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 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
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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.
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:
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(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.
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.
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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
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
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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.
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.
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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 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.
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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;
(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;
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(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.
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.
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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.
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
sof 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
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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.
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
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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 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
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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 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
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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 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
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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
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.
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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.
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
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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 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
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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 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,
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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 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.
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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 ("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
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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 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
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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 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
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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 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
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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.
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.
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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 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
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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 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 Stroock &
Stroock & Lavan 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, Stroock & Stroock & Lavan 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
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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 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.
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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.
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.
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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 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
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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) 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
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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.
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
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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.
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
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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 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
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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
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")
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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. 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.
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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 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
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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 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
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returns of Residual Certificateholders, but rather will be taxed directly
to the REMIC Pool at a 100% rate. Prohibited transactions generally
include (i) the disposition of a qualified mortgage other than for (a)
substitution within two years of the Startup Day for a defective
(including a defaulted) obligation (or repurchase in lieu of substitution
of a defective (including a defaulted) obligation at any time) or for any
qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC Pool or (d) a qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type
of mortgages or investments that the REMIC Pool is permitted to hold,
(iii) the receipt of compensation for services or (iv) the receipt of
gain from disposition of cash flow investments other than pursuant to a
qualified liquidation. Notwithstanding (i) and (iv), it is not a
prohibited transaction to sell REMIC Pool property to prevent a default
on Regular Certificates as a result of a default on qualified mortgages
or to facilitate a clean-up call (generally, an optional termination to
save administrative costs when no more than a small percentage of the
Certificates is outstanding). The REMIC Regulations indicate that the
modification of a Mortgage Loan generally will not be treated as a
disposition if it is occasioned by a default or reasonably foreseeable
default, an assumption of the Mortgage Loan, the waiver of a due-on-sale
or 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
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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.
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.
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.
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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
Stroock & Stroock & Lavan 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.
Tax Status. Subject to the discussion below,
Stroock & Stroock & Lavan LLP, 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
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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 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.
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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.
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
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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 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
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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.
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.
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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, Stroock & Stroock & Lavan 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, 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
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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
Stroock & Stroock & Lavan 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 Stroock & Stroock & Lavan 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................................................52
1996 Act................................................59
Agreement................................................1
AMTI....................................................60
Annual Reduction........................................47
Applicable Accounting Standards.........................32
Balloon Loans............................................6
Beneficial Owners........................................4
BIF.....................................................33
Book Entry Certificates..................................4
Certificate Account.....................................12
Certificate Interest Rate...............................11
Certificate Principal Balance...........................10
Certificate Register....................................10
Certificate Registrar...................................10
Certificateholder.......................................66
Certificates.............................................1
Clearing Agency..........................................4
Clearing Agency Participants.............................4
Code.....................................................5
Companion Certificates..................................11
Compound Interest Certificates..........................11
Contract Loan Schedule..................................31
Contract Pool...........................................17
Contracts...............................................17
Conventional Multifamily Loans...........................1
Cooperative Loans.......................................14
Cooperatives.............................................1
Credit Enhancement.......................................4
Credit Enhancer..........................................9
Custodial Account.......................................23
Cut-Off Date............................................10
Debt Service Coverage Ratio.............................16
Defective Mortgage Loan.................................32
Delivery Date............................................9
Deposit Date............................................31
Depositor................................................1
Disqualified Organization...............................61
Distribution Date.......................................11
DOL.....................................................50
Due Dates...............................................16
Eligible Investments....................................33
Equity Participation....................................16
ERISA....................................................5
Events of Default.......................................34
FDIC....................................................23
FHA......................................................1
FHA-Insured Multifamily Loans............................1
FHLMC....................................................2
Financial Guaranty Insurance Policy.....................18
Financial Guaranty Insurer..............................18
FNMA.....................................................2
Garn-St. Germain Act....................................41
GNMA.....................................................2
HUD.....................................................45
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
Manufacturer's Invoice Price............................17
Mark to Market Regulations..............................59
Master Servicer..........................................1
MBS......................................................2
MBS Agreement...........................................17
MBS Issuer..............................................17
MBS Servicer............................................17
MBS Trustee.............................................17
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
Mortgaged Properties....................................14
Mortgages...............................................14
Mortgagors..............................................23
Multifamily Loans........................................1
Multifamily Properties..................................14
NCUA....................................................23
Net Leases..............................................17
Net Operating Income....................................16
Noneconomic Residual Interest...........................61
Non-Priority Certificates...............................11
Nonrecoverable Advance..................................24
Non-U.S. Person.........................................64
Notional Principal Balance..............................12
OID Regulations.........................................51
Original Value..........................................15
OTS.....................................................41
Owners..................................................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
73
<PAGE>
Priority Certificates...................................11
Property Improvement Loans..............................45
PTE 83-1................................................50
Record Date.............................................11
Regular Certificateholder...............................53
Regular Certificates....................................51
REIT....................................................52
Relief Act...............................................8
REMIC....................................................5
REMIC Certificates......................................51
REMIC Pool..............................................51
REMIC Regulations.......................................51
Remittance Date.........................................24
Remittance Rate.........................................24
Reserve Fund............................................22
Residual Certificateholders.............................57
Residual Certificates...................................51
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...................................69
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............................................71
VA 2
74
<PAGE>
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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
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms.......................... S-4
Risk Factors.............................. S-26
The Sellers and the Servicer.............. S-30
Use of Proceeds........................... S-34
The Depositor............................. S-35
The Home Equity Loan Pool................. S-35
Prepayment and Yield Considerations....... S-56
Formation of The Trust and Trust
Property................................ S-70
Formation of the Grantor Trust and Grantor
Trust Property.......................... S-71
Additional Information.................... S-71
Description of the Offered Certificates... S-72
Credit Enhancement........................ S-80
The Certificate Insurer................... S-87
The Pooling and Servicing Agreement....... S-89
The Grantor Trust Agreement............... S-98
Certain Federal Income Tax Consequences... S-101
ERISA Considerations...................... S-103
Ratings................................... S-107
Legal Investment Considerations........... S-108
Underwriting.............................. S-108
Report of Experts......................... S-112
Certain Legal Matters..................... S-112
Planned Principal Balances................ Annex I
Global Clearance, Settlement and Tax
Documentation Procedures................ Annex II
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............................ 30
Use of Proceeds........................... 36
The Depositor............................. 36
Certain Legal Aspects of the Mortgage
Assets.................................. 36
Legal Investment Matters.................. 49
ERISA Considerations...................... 50
Certain Federal Income Tax Consequences... 51
Plan of Distribution...................... 71
Legal Matters............................. 72
Financial Information..................... 72
Index to Location of Principal Defined
Terms .................................. 73
</TABLE>
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$1,750,000,000
CONTIMORTGAGE HOME EQUITY LOAN TRUST 1998-2
[ContiMortgage Logo]
SELLER AND SERVICER
CONTIWEST CORPORATION
SELLER
CONTISECURITIES ASSET FUNDING CORP.
DEPOSITOR
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
CONTIFINANCIAL SERVICES
CORPORATION
CREDIT SUISSE FIRST BOSTON
GREENWICH CAPITAL MARKETS, INC.
MORGAN STANLEY DEAN WITTER
NOMURA SECURITIES INTERNATIONAL, INC.
JUNE 9, 1998
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