PROSPECTUS SUPPLEMENT
(To Prospectus Dated August 23, 1996)
$203,426,604 (APPROXIMATE)
MORSERV, INC.
DEPOSITOR
MULTI-CLASS MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-2
<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C>
$ 114,282,033 Adjustable Rate(1) Class IA-1 Certificates $ 36,521,592 7.25% Class IIA-1 Certificates
$ 0 Adjustable Rate(2) Class IA-2 Certificates $ 501,860 (3) Class IIA-P Certificates
$ 27,585,318 (3) Class IA-3 Certificates $ 4,658,626 7.25% Class M Certificates
$ 15,763,039 7.25% Class IA-4 Certificates $ 2,070,499 7.25% Class B-1 Certificates
$ 490,762 (3) Class IA-P Certificates $ 1,552,875 7.25% Class B-2 Certificates
</TABLE>
- ------------
(1) The Class IA-1 Certificates will accrue interest at a per annum rate of
6.2875% through September 24, 1996. Thereafter, the Class IA-1 Certificates
will accrue interest during each succeeding Floating Rate Interest Accrual
Period (defined herein) at a per annum rate equal to LIBOR (defined herein)
plus 0.85%, subject to a maximum rate of 9.00% per annum and a minimum rate
of 0.85% per annum.
(2) The Class IA-2 Certificates will have no principal balance, but will accrue
interest on the Class IA-2 Notional Amount (defined herein) (initially
$114,282,033). Interest will accrue on the Class IA-2 Notional Amount at a
per annum rate of 2.7125% through September 24, 1996. Thereafter, interest
will accrue on the Class IA-2 Notional Amount during each succeeding
Floating Rate Interest Accrual Period at a per annum rate equal to 8.15%
minus LIBOR, subject to a maximum rate of 8.15% per annum and a minimum rate
of 0.00% per annum.
(3) The Class IA-3, Class IA-P and Class IIA-P Certificates will be entitled to
principal only.
PRINCIPAL AND INTEREST PAYABLE ON THE 25TH DAY OF EACH MONTH
The Series 1996-2 Certificates will consist of the seven Classes of Class A
Certificates set forth above (collectively, the "Class A Certificates"), the
Class M Certificates, the Class B-1, Class B-2, Class B-3, Class B-4 and Class
B-5 Certificates (collectively, the "Class B Certificates") and the Class R
Certificates. The "Certificates" are the Class A, Class M, Class B and Class R
Certificates, referred to collectively. The "Offered Certificates" are the Class
A, Class M, Class B-1 and Class B-2 Certificates, referred to collectively. The
"Non-Offered Class B Certificates" are the Class B-3, Class B-4 and Class B-5
Certificates, referred to collectively. Only the Offered Certificates are
offered hereby.
The Certificates will represent beneficial interests in a pool (the "Mortgage
Pool") of fixed rate one- to four-family first lien mortgage loans originated or
purchased by The Chase Manhattan Bank (the "Mortgage Loans") and certain related
property (together, the "Trust Fund") conveyed by MorServ, Inc. (the "Company").
The Offered Certificates will be issued in the initial principal amounts set
forth above and the Non-Offered Class B Certificates will be issued in the
aggregate initial principal amount of approximately $3,623,376. Chase Manhattan
Mortgage Corporation will serve as Master Servicer (the "Master Servicer") of
the Mortgage Pool. Capitalized terms used and not otherwise defined herein shall
have the respective meanings described to such terms in the Prospectus dated
August 23, 1996 attached hereto (the "Prospectus").
(cover continued on next page)
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PROSPECTIVE INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 15 OF THE PROSPECTUS.
The Offered Certificates will be purchased from the Company by Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") and Chase Securities Inc.
("CSI" and, together with DLJ, the "Underwriters") and will be offered by the
Underwriters from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Offered Certificates will be approximately $196,300,000
plus accrued interest on the Offered Certificates (other than the Class IA-3,
Class IA-P and Class IIA-P Certificates), before deducting expenses payable by
the Company, estimated to be approximately $375,000.
-------------------
The Offered Certificates are offered by the Underwriters subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to certain other conditions. It is expected that delivery of the Class M, Class
B-1 and Class B-2 Certificates will be made at the offices of Donaldson, Lufkin
& Jenrette Securities Corporation, New York, New York and that delivery of the
remaining Classes of Offered Certificates will be made in book-entry form only,
through the Same Day Funds Settlement System of The Depository Trust Company, in
each case on or about August 27, 1996.
-------------------
DONALDSON, LUFKIN & JENRETTE CHASE SECURITIES INC.
SECURITIES
CORPORATION
The date of this Prospectus Supplement is August 23, 1996
<PAGE>
(cover continued from previous page)
Initially, the Class A Certificates will evidence a beneficial interest of
approximately 94.25% in the Trust Fund, the Class M Certificates will evidence a
beneficial interest of approximately 2.25% in the Trust Fund, the Class B-1
Certificates will evidence a beneficial interest of approximately 1.00% in the
Trust Fund, the Class B-2 Certificates will evidence a beneficial interest of
approximately 0.75% in the Trust Fund and the Non-Offered Class B Certificates
will evidence the remaining approximate 1.75% beneficial interest in the Trust
Fund. The Mortgage Pool will be divided into two groups (each, a "Mortgage
Group"), "Mortgage Group One" and "Mortgage Group Two." Mortgage Group One will
consist primarily of Mortgage Loans with approximate original terms to stated
maturity of 30 years. Mortgage Group Two will consist primarily of Mortgage
Loans with approximate original terms to stated maturity of 15 years. See "The
Mortgage Pool." Distributions with respect to the Class IA Certificates
generally will be made based upon payments received on the Mortgage Loans in
Mortgage Group One. Distributions with respect to the Class IIA Certificates
generally will be made based upon payments received on the Mortgage Loans in
Mortgage Group Two. Distributions with respect to the Class M and Class B
Certificates will be made from payments received on the Mortgage Loans in both
Mortgage Groups. See "Description of the Certificates--Distributions of
Principal and Interest." Initially, the Class IA Percentage (defined herein)
will be approximately 94.25% and the Class IIA Percentage (defined herein) will
be approximately 94.25%. The rights of the Class M Certificateholders to receive
distributions with respect to the Mortgage Loans will be subordinated to the
rights of the Class A Certificateholders to the extent described herein. The
rights of the Class B-1 Certificateholders to receive distributions with respect
to the Mortgage Loans will be subordinated to the rights of the Class A and
Class M Certificateholders to the extent described herein. The rights of the
Class B-2 Certificateholders to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the Class A, Class M and
Class B-1 Certificateholders to the extent described herein. The rights of the
Non-Offered Class B Certificateholders to receive distributions with respect to
the Mortgage Loans will be subordinated to the rights of the Class A, Class M,
Class B-1 and Class B-2 Certificateholders to the extent described herein. The
percentage interest of the Class A, Class M, Class B-1 and Class B-2
Certificates in the Mortgage Pool (and in the related Mortgage Group, in the
case of the Class IA and Class IIA Certificates) on each Remittance Date will
vary to the extent that the Class A, Class M, Class B-1 or Class B-2
Certificateholders, as the case may be, do not receive amounts due to them on
such date, losses are realized on the Mortgage Loans or there are principal
prepayments of, or certain other unscheduled amounts of principal are received
with respect to, the Mortgage Loans. Realized Losses (defined herein) on the
Mortgage Loans will be allocated first to the Non-Offered Class B Certificates,
then to the Class B-2 Certificates, then to the Class B-1 Certificates and then
to the Class M Certificates as described herein, in each case until their
principal balances have been reduced to zero. Thereafter, Realized Losses on the
Mortgage Loans in Mortgage Group One will be allocated pro rata among the
outstanding Class IA Certificates, and Realized Losses on the Mortgage Loans in
Mortgage Group Two will be allocated pro rata among the outstanding Class IIA
Certificates. See "Description of the Certificates--Subordinated Certificates
and Shifting Interests."
The Company's only obligation with respect to the Certificates will be to
obtain from The Chase Manhattan Bank, as seller of the Mortgage Loans to the
Company, certain representations and warranties relating to the Mortgage Loans.
The Chase Manhattan Bank will have the obligation to repurchase any Mortgage
Loan as to which a material breach of certain representations and warranties has
occurred. The Master Servicer is obligated under certain circumstances to make
Advances (defined herein) to the Certificateholders. See "Servicing--Advances"
herein and "Description of the Certificates--Distributions on Certificates" in
the Prospectus.
The Offered Certificates will not represent an interest in or obligation of
the Company, The Chase Manhattan Corporation, The Chase Manhattan Bank, or any
of their affiliates. The Offered Certificates will not be savings accounts or
deposits and neither the Offered Certificates nor the underlying Mortgage Loans
will be insured or guaranteed by the Federal Deposit Insurance Corporation or
any other governmental agency nor has the Federal Deposit Insurance Corporation
or any other governmental agency passed upon the accuracy of the information
contained in this Prospectus Supplement or in the Prospectus.
Based on certain assumptions set forth herein under "Prepayment and Yield
Considerations," the weighted average life of each Class of Offered Certificates
has been calculated at various constant percentages of the Prepayment Model
(defined herein) and is shown in the tables beginning on page S-44. The weighted
average lives of the Offered Certificates will depend on the rate and timing of
principal payments (including prepayments and defaults) on the Mortgage Loans.
NO ASSURANCE CAN BE GIVEN AS TO THE RATE OR TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS AND DEFAULTS) ON ANY OF THE MORTGAGE LOANS. See
"Prepayment and Yield Considerations" herein and "Yield Considerations" in the
Prospectus.
THE YIELD TO MATURITY OF THE CLASS IA-2 CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS,
DEFAULTS AND REPURCHASES) ON THE MORTGAGE LOANS IN MORTGAGE GROUP ONE, WHICH MAY
FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. A RAPID RATE OF PRINCIPAL PREPAYMENTS
ON THE MORTGAGE LOANS IN MORTGAGE GROUP ONE WILL HAVE A MATERIAL NEGATIVE EFFECT
ON THE YIELD TO MATURITY OF THE CLASS IA-2 CERTIFICATES. PROSPECTIVE INVESTORS
IN THE CLASS IA-2 CERTIFICATES SHOULD FULLY CONSIDER THE ASSOCIATED RISKS,
INCLUDING THE RISK THAT A RAPID RATE OF PRINCIPAL PREPAYMENTS ON THE MORTGAGE
LOANS IN MORTGAGE GROUP ONE COULD RESULT IN THE FAILURE OF INVESTORS IN THE
CLASS IA-2 CERTIFICATES TO FULLY RECOUP THEIR INITIAL INVESTMENT. IN ADDITION,
THE YIELD TO MATURITY OF THE CLASS IA-1 AND CLASS IA-2 CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO FLUCTUATIONS IN THE LEVEL OF LIBOR. SEE "PREPAYMENT AND
YIELD CONSIDERATIONS--YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS IA-2
CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS IA-3 CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS,
DEFAULTS AND REPURCHASES) ON THE MORTGAGE LOANS IN MORTGAGE GROUP ONE, WHICH MAY
FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. SEE "PREPAYMENT AND YIELD
CONSIDERATIONS--YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS IA-3
CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS IA-P CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS,
DEFAULTS AND REPURCHASES) ON THE DISCOUNT MORTGAGE LOANS (DEFINED HEREIN) IN
MORTGAGE GROUP ONE, WHICH MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. SEE
"PREPAYMENT AND YIELD CONSIDERATIONS--YIELD CONSIDERATIONS WITH RESPECT TO THE
CLASS IA-P CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS IIA-P CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS,
DEFAULTS AND REPURCHASES) ON THE DISCOUNT MORTGAGE LOANS IN MORTGAGE GROUP TWO,
WHICH MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. SEE "PREPAYMENT AND YIELD
CONSIDERATIONS--YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS IIA-P
CERTIFICATES."
The yield to maturity on the Class B-2 Certificates will be extremely
sensitive to losses on the Mortgage Loans (and the timing thereof), to the
extent such losses are not covered by the Non-Offered Class B Certificates,
because the entire amount of any such losses which occur after the aggregate
principal balance of the Non-Offered Class B Certificates has been reduced to
zero will be allocable to the Class B-2 Certificates until their principal
balance is reduced to zero. See "Prepayment and Yield Considerations."
The yield to maturity on the Class B-1 Certificates will be extremely
sensitive to losses on the Mortgage Loans (and the timing thereof), to the
extent such losses are not covered by the Class B-2 Certificates and the
Non-Offered Class B Certificates, because the entire amount of any such losses
which occur after the aggregate principal balance of the Class B-2 Certificates
and the Non-Offered Class B Certificates has been reduced to zero will be
allocable to the Class B-1 Certificates until their principal balance is reduced
to zero. See "Prepayment and Yield Considerations."
The yield to maturity on the Class M Certificates will be extremely sensitive
to losses on the Mortgage Loans (and the timing thereof), to the extent such
losses are not covered by the Class B Certificates, because the entire amount of
any such losses which occur after the aggregate principal balance of the Class B
Certificates has been reduced to zero will be allocable to the Class M
Certificates until their principal balance is reduced to zero. See "Prepayment
and Yield Considerations."
The Company intends to cause an election to be made to treat the Trust Fund
(the "Subsidiary REMIC") as a real estate mortgage investment conduit (a
"REMIC") for federal income tax purposes. The Company also intends to cause an
election to be made to treat the pool of assets represented by the "regular
interests" in the Subsidiary REMIC as a separate REMIC (the "Master REMIC"). The
Offered Certificates will constitute "regular interests" in the Master REMIC.
The Class R Certificates, which are not offered hereby, will represent the sole
class of "residual interests" in each of the Master REMIC and the Subsidiary
REMIC. See "Federal Income Tax Considerations" herein and "Certain Federal
Income Tax Consequences" in the Prospectus.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") intends to make a
secondary market in the Offered Certificates (other than the Class IIA-1
Certificates) and Chase Securities Inc. ("CSI") intends to make a secondary
market in the Class IIA-1 Certificates, but neither DLJ nor CSI has any
obligation to do so. There can be no assurance that a secondary market for the
Offered Certificates will develop or, if it does develop, that it will continue.
-------------------
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus and purchasers are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Offered Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
-------------------
UNTIL NOVEMBER 21, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-------------------
S-2
<PAGE>
TERMS OF THE CERTIFICATES
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein and not otherwise defined
shall have the respective meanings assigned them in the Prospectus.
<TABLE>
<S> <C>
Securities Offered......... Multi-Class Mortgage Pass-Through Certificates, Series
1996-2, Class A (the "Class A Certificates"), Class M, Class
B-1 and Class B-2. The Class A, Class M, Class B-1 and
Class B-2 Certificates are sometimes collectively referred
to herein as the "Offered Certificates." Only the Offered
Certificates are offered hereby.
The Class A Certificates will consist of the Class IA-1,
Class IA-2, Class IA-3, Class IA-4, Class IA-P, Class
IIA-1 and Class IIA-P Certificates.
The Class A Certificates (exclusive of the Class IA-P and
Class IIA-P Certificates) are sometimes collectively
referred to herein as the "Non-PO Class A Certificates."
"Class IA Certificates" means the Class IA-1, Class IA-2,
Class IA-3, Class IA-4 and Class IA-P Certificates.
"Class IIA Certificates" means the Class IIA-1 and Class
IIA-P Certificates.
The Class IA Certificates (exclusive of the Class IA-P
Certificates) are sometimes collectively referred to
herein as the "Non-PO Class IA Certificates."
The Class IIA Certificates (exclusive of the Class IIA-P
Certificates) are sometimes collectively referred to
herein as the "Non-PO Class IIA Certificates."
The Class IA-3, Class IA-P and Class IIA-P Certificates are
principal only Certificates and will not be entitled to
payments of interest.
The "Class B Certificates" will consist of the Class B-l,
Class B-2, Class B-3, Class B-4 and Class B-5
Certificates.
The Class M and Class B Certificates are sometimes
collectively referred to herein as the "Subordinated
Certificates."
The Class B-3, Class B-4, Class B-5 and Class R Certificates
are not offered hereby.
Depositor.................. MorServ, Inc. (the "Company"), a wholly-owned, limited
purpose subsidiary of The Chase Manhattan Bank ("Chase").
Neither The Chase Manhattan Corporation nor any of its
affiliates, including the Company and Chase, has
guaranteed or is otherwise obligated with respect to the
Certificates. See "Risk Factors" in the Prospectus.
Seller..................... The Chase Manhattan Bank, a New York banking corporation.
See "The Chase Manhattan Bank." The Mortgage Loans were
originated by Chase and will be acquired by the Company on
the Closing Date (defined herein). Chase will make certain
representations and warranties respecting the Mortgage
Loans as described herein. Neither the Company nor Chase
has guaranteed, or is otherwise obligated with respect to,
the Certificates.
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Master Servicer............ Chase Manhattan Mortgage Corporation (the "Master
Servicer"). See "Servicing."
Trustee.................... Citibank, N.A., a national banking association (the
"Trustee").
Initial Principal Amount of
Offered Certificates......... $203,426,604
Denominations and
Registration of the
Certificates................. The Offered Certificates (other than the Class IA-2
Certificates) generally will be issuable in fully registered
form in denominations of $1,000 principal amount (or
integral multiples thereof). The Class IA-2 Certificates
generally will be issuable in fully registered form in
denominations of $100,000 (or integral multiples of $1,000
in excess thereof) of the Class IA-2 Notional Amount
(defined herein). The Class A Certificates (such Classes
of Offered Certificates, the "Book-Entry Certificates")
initially will be issued in book-entry form and initially
will be represented by one or more physical certificates
registered in the name of Cede & Co., as the nominee of
The Depository Trust Company ("DTC"). No person acquiring
an interest in any Book-Entry Certificate (a "Certificate
Owner") will be entitled to receive a Definitive
Certificate (defined herein) representing such person's
interest in the Trust Fund, except in the event that
Definitive Certificates are issued under the limited
circumstances described herein. The Class M, Class B-1 and
Class B-2 Certificates will be issued in definitive form.
All references herein to holders of Certificates
("Certificateholders") and their rights shall mean and
include the rights of Certificate Owners, as such rights
may be exercised through DTC and its participating
organizations, except as otherwise specified herein. See
"Description of the Certificates--Book-Entry Registration"
and "--Definitive Certificates."
Cut-off Date............... August 1, 1996.
Agreement.................. The Pooling and Servicing Agreement, to be dated as of
August 1, 1996 (the "Agreement"), among the Company, the
Master Servicer, and the Trustee, relating to the
Certificates.
The Mortgage Loans......... Fixed rate, first lien mortgage loans secured by one- to
four-family residential properties, having an aggregate
unpaid principal balance on the Cut-off Date of
approximately $207,049,981 (the "Mortgage Loans"). The
Mortgage Loans were originated or purchased by The Chase
Manhattan Bank. Monthly payments of principal of and
interest on the Mortgage Loans ("Monthly Payments") will
be due on the first day of each month (each, a "Due
Date").
The Company expects the Mortgage Loans to have the
characteristics described below. References herein to
percentages of the Mortgage Loans refer to the percentage
of the aggregate principal balance of the Mortgage Loans
(or, where so indicated, such percentage of the Mortgage
Loans in the related Mortgage Group) as of the Cut-off
Date, after giving effect to Monthly Payments due on or
prior to the Cut-off Date, whether or not received. The
Mortgage Pool will be divided into two groups (each, a
"Mortgage Group"): "Mortgage Group One" (constituting
approximately 81.03% of the Mortgage Pool) and "Mortgage
Group Two" (constituting approximately 18.97% of the
Mortgage Pool). See "The Mortgage Pool."
</TABLE>
S-4
<PAGE>
SELECTED MORTGAGE LOAN DATA
(APPROXIMATE AS OF THE CUT-OFF DATE)
MORTGAGE GROUP ONE
<TABLE>
<S> <C>
Number of Mortgage Loans........................................... 541
Aggregate Unpaid Principal Balance................................. $167,767,803
Range of Unpaid Principal Balances................................. $144,357-$1,251,278
Average Unpaid Principal Balance................................... $310,107
Range of Mortgage Rates (defined herein)........................... 6.750%-10.000%
Weighted Average Mortgage Rate..................................... 8.204%
Weighted Average Mortgage Rate of Discount Mortgage Loans (defined
herein)............................................................ 7.272%
Range of Remaining Terms to Stated Maturity........................ 200 months-351 months
Weighted Average Remaining Term to Stated Maturity................. 320 months
Range of Remaining Terms to Expected Maturity(1)................... 200 months-351 months
Weighted Average Remaining Term to Expected Maturity(1)............ 318 months
Weighted Average Loan Age(2)....................................... 40 months
Range of Original Loan-to-Value Ratios............................. 19.55%-95.00%
Weighted Average Original Loan-to-Value Ratio...................... 73.40%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF MORTGAGE GROUP ONE
BY AGGREGATE PRINCIPAL BALANCE
AS OF THE CUT-OFF DATE
--------------------------------
<S> <C>
Original Term
20 years to 30 years....................................... 100%
</TABLE>
- ------------
(1) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan in Mortgage Group One as of the Cut-off Date.
(2) Based on the number of months from and including the first Monthly Payment
to and including the Cut-off Date.
MORTGAGE GROUP TWO
<TABLE>
<S> <C>
Number of Mortgage Loans........................................... 129
Aggregate Unpaid Principal Balance................................. $39,282,178
Range of Unpaid Principal Balances................................. $176,270-$1,042,047
Average Unpaid Principal Balance................................... $304,513
Range of Mortgage Rates............................................ 6.625%-9.750%
Weighted Average Mortgage Rate..................................... 7.868%
Weighted Average Mortgage Rate of Discount Mortgage Loans.......... 7.199%
Range of Remaining Terms to Stated Maturity........................ 81 months-161 months
Weighted Average Remaining Term to Stated Maturity................. 140 months
Range of Remaining Terms to Expected Maturity(1)................... 81 months-161 months
Weighted Average Remaining Term to Expected Maturity(1)............ 139 months
Weighted Average Loan Age(2)....................................... 38 months
Range of Original Loan-to-Value Ratios............................. 21.14%-88.99%
Weighted Average Original Loan-to-Value Ratio...................... 65.73%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF MORTGAGE GROUP TWO
BY AGGREGATE PRINCIPAL BALANCE
AS OF THE CUT-OFF DATE
--------------------------------
<S> <C>
Original Term
10 years to 15 years....................................... 100%
</TABLE>
- ------------
(1) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan in Mortgage Group Two as of the Cut-off Date.
(2) Based on the number of months from and including the first Monthly Payment
to and including the Cut-off Date.
S-5
<PAGE>
MORTGAGE POOL
<TABLE>
<S> <C>
Number of Mortgage Loans........................................... 670
Aggregate Unpaid Principal Balance................................. $207,049,981
Range of Unpaid Principal Balances................................. $144,357-$1,251,278
Average Unpaid Principal Balance................................... $309,030
Range of Mortgage Rates............................................ 6.625%-10.000%
Weighted Average Mortgage Rate..................................... 8.140%
Weighted Average Mortgage Rate of Discount Mortgage Loans.......... 7.241%
Range of Remaining Terms to Stated Maturity........................ 81 months-351 months
Weighted Average Remaining Term to Stated Maturity................. 286 months
Range of Remaining Terms to Expected Maturity(1)................... 81 months-351 months
Weighted Average Remaining Term to Expected Maturity(1)............ 284 months
Weighted Average Loan Age(2)....................................... 39 months
Range of Original Loan-to-Value Ratios............................. 19.55%-95.00%
Weighted Average Original Loan-to-Value Ratio...................... 71.94%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF MORTGAGE POOL
BY AGGREGATE PRINCIPAL BALANCE
AS OF THE CUT-OFF DATE
------------------------------
<S> <C>
Original Term
10 years to 15 years.......................................... 18.97%
20 years to 30 years.......................................... 81.03%
</TABLE>
- ------------
(1) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan as of the Cut-off Date.
(2) Based on the number of months from and including the first Monthly Payment
to and including the Cut-off Date.
<TABLE>
<S> <C>
Prepayment and Yield
Considerations................ The rate of principal payments and the yields to maturity of
the Offered Certificates are related to the rate and timing of
payments of principal, including prepayments, on the
underlying Mortgage Loans. Any prepayments will result in
distributions to Certificateholders of principal amounts
which would otherwise be distributed over the remaining
terms of the related Mortgage Loans.
The rate of prepayments with respect to mortgage loans secured
by one- to four-family residences has fluctuated
significantly in recent years. The Company believes that a
predominant factor affecting the prepayment rate on a large
pool of mortgage loans is the difference between the
interest rates on the mortgage loans (giving consideration
to the cost of any refinancing) and prevailing mortgage
rates. In general, if mortgage interest rates were to fall
below (or rise above) the interest rates on the Mortgage
Loans, the rate of prepayment would be expected to increase
(or decrease). Other factors affecting the prepayment rate
of the Mortgage Loans may include changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions.
In general, rapid rates of prepayments on the Mortgage Loans
are likely to coincide with periods of low prevailing
interest rates. During such periods, the yields at which an
investor may be able to reinvest amounts received as
principal payments on the investor's Class of Offered
Certificates may be lower than the Certificate
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Rate on that Class. Conversely, in general, slow rates of
prepayments on the Mortgage Loans are likely to coincide
with periods of high prevailing interest rates. During such
periods, the amount of principal payments available to an
investor for reinvestment at such high rates may be
relatively low.
The table set forth herein under "Prepayment and Yield
Considerations" illustrates the effect of various constant
prepayment rates on the weighted average lives of each Class
of Offered Certificates based on certain assumptions
described therein (the "Modeling Assumptions").
THE YIELD TO MATURITY OF THE CLASS IA-2 CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND REPURCHASES)
ON THE MORTGAGE LOANS IN MORTGAGE GROUP ONE, WHICH MAY
FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. A RAPID RATE OF
PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOANS IN MORTGAGE
GROUP ONE WILL HAVE A MATERIAL NEGATIVE EFFECT ON THE YIELD
TO MATURITY OF THE CLASS IA-2 CERTIFICATES. PROSPECTIVE
INVESTORS IN THE CLASS IA-2 CERTIFICATES SHOULD FULLY
CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK THAT A
RAPID RATE OF PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOANS IN
MORTGAGE GROUP ONE COULD RESULT IN THE FAILURE OF INVESTORS
IN THE CLASS IA-2 CERTIFICATES TO FULLY RECOUP THEIR INITIAL
INVESTMENT. IN ADDITION, THE YIELD TO MATURITY OF THE CLASS
IA-1 AND CLASS IA-2 CERTIFICATES WILL BE EXTREMELY SENSITIVE
TO FLUCTUATIONS IN THE LEVEL OF LIBOR. SEE "PREPAYMENT AND
YIELD CONSIDERATIONS--YIELD CONSIDERATIONS WITH RESPECT TO
THE CLASS IA-2 CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS IA-3 CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND REPURCHASES)
ON THE MORTGAGE LOANS IN MORTGAGE GROUP ONE, WHICH MAY
FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. SEE "PREPAYMENT
AND YIELD CONSIDERATIONS--YIELD CONSIDERATIONS WITH RESPECT
TO THE CLASS IA-3 CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS IA-P CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND REPURCHASES)
ON THE DISCOUNT MORTGAGE LOANS (DEFINED HEREIN) IN MORTGAGE
GROUP ONE, WHICH MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO
TIME. SEE "PREPAYMENT AND YIELD CONSIDERATIONS--YIELD
CONSIDERATIONS WITH RESPECT TO THE CLASS IA-P CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS IIA-P CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND REPURCHASES)
ON THE DISCOUNT MORTGAGE LOANS IN MORTGAGE GROUP TWO, WHICH
MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. SEE
"PREPAYMENT AND YIELD CONSIDERATIONS-- YIELD CONSIDERATIONS
WITH RESPECT TO THE CLASS IIA-P CERTIFICATES."
THE YIELD TO MATURITY ON THE CLASS B-2 CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO LOSSES ON THE MORTGAGE LOANS (AND THE
TIMING THEREOF), TO THE EXTENT SUCH LOSSES ARE NOT COVERED
BY THE NON-OFFERED CLASS B CERTIFICATES, BECAUSE THE ENTIRE
AMOUNT OF ANY SUCH LOSSES WHICH OCCUR AFTER THE AGGREGATE
PRINCIPAL BALANCE OF THE NON-OFFERED CLASS B CERTIFICATES
HAS BEEN REDUCED TO ZERO WILL BE ALLOCABLE TO THE CLASS B-2
CERTIFICATES UNTIL THEIR BALANCE IS REDUCED TO ZERO.
THE YIELD TO MATURITY ON THE CLASS B-1 CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO LOSSES ON THE MORTGAGE LOANS (AND THE
TIMING THEREOF),
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
TO THE EXTENT SUCH LOSSES ARE NOT COVERED BY THE CLASS B-2
CERTIFICATES AND THE NON-OFFERED CLASS B CERTIFICATES,
BECAUSE THE ENTIRE AMOUNT OF ANY SUCH LOSSES WHICH OCCUR
AFTER THE AGGREGATE PRINCIPAL BALANCE OF THE CLASS B-2
CERTIFICATES AND THE NON-OFFERED CLASS B CERTIFICATES HAS
BEEN REDUCED TO ZERO WILL BE ALLOCABLE TO THE CLASS B-1
CERTIFICATES UNTIL THEIR PRINCIPAL BALANCE IS REDUCED TO
ZERO.
THE YIELD TO MATURITY ON THE CLASS M CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO LOSSES ON THE MORTGAGE LOANS (AND THE
TIMING THEREOF), TO THE EXTENT SUCH LOSSES ARE NOT COVERED
BY THE CLASS B CERTIFICATES, BECAUSE THE ENTIRE AMOUNT OF
ANY SUCH LOSSES WHICH OCCUR AFTER THE AGGREGATE PRINCIPAL
BALANCE OF THE CLASS B CERTIFICATES HAS BEEN REDUCED TO ZERO
WILL BE ALLOCABLE TO THE CLASS M CERTIFICATES UNTIL THEIR
PRINCIPAL BALANCE IS REDUCED TO ZERO.
If an Offered Certificate is purchased at a discount from its
original principal amount and if the purchaser of such
Offered Certificate calculates its yield to maturity based
on a faster assumed rate of payment of principal than that
actually received on such Offered Certificate, its actual
yield to maturity will be lower than that so calculated.
Conversely, if an Offered Certificate is purchased at a
premium to its original principal amount, and if the
purchaser of such Offered Certificate calculates its yield
to maturity based on a slower assumed rate of payment of
principal than that actually received on such Offered
Certificate, its actual yield to maturity will be lower than
that so calculated and, under certain circumstances, such a
purchaser may fail to recoup its initial investment.
See "Prepayment and Yield Considerations" herein and "Yield
Considerations" and "Maturity and Prepayment Considerations"
in the Prospectus.
Description of the
Certificates.................. Initially, the Class A Certificates will evidence in the
aggregate a beneficial interest of approximately 94.25% (the
"Class A Percentage") in the pool of Mortgage Loans (the
"Mortgage Pool") and certain other property held in trust
for the benefit of the Certificateholders (the "Trust
Fund"), generally allocated between the Class IA
Certificates, which will initially represent a beneficial
interest of approximately 94.25% (the "Class IA Percentage")
based upon the Mortgage Loans and other property related to
Mortgage Group One, and the Class IIA Certificates, which
will initially represent a beneficial interest of
approximately 94.25% (the "Class IIA Percentage") based upon
the Mortgage Loans and other property related to Mortgage
Group Two. Initially, the Class M Certificates will evidence
in the aggregate a beneficial interest of approximately
2.25% (the "Class M Percentage") in the Trust Fund, the
Class B-1 Certificates will evidence in the aggregate a
beneficial interest of approximately 1.00% (the "Class B-1
Percentage") in the Trust Fund, the Class B-2 Certificates
will evidence in the aggregate a beneficial interest of
approximately 0.75% (the "Class B-2 Percentage") in the
Trust Fund and the Non-Offered Class B Certificates will
evidence in the aggregate the remaining beneficial interest
of approximately 1.75% (the "Non-Offered Class B
Percentage") in the Trust Fund. The Class A Percentage (both
in the aggregate and with respect to each Mortgage Group),
the Class M Percentage, the Class B-1
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Percentage and the Class B-2 Percentage will vary from time
to time, as described herein, to the extent that the Class
A, Class M, Class B-1 or Class B-2 Certificateholders do not
receive amounts due to them on any Remittance Date, losses
are realized on the Mortgage Loans or there are principal
prepayments of, or certain other unscheduled amounts of
principal are received with respect to, the Mortgage Loans.
The Non-Offered Class B Certificates will have an initial
aggregate principal balance of approximately $3,623,376 and
will be privately placed with a limited number of
institutional investors and are not offered hereby. See
"Description of the Certificates--Distributions of Principal
and Interest" and "--Subordinated Certificates and Shifting
Interests."
Record Date..................... The last business day of the month preceding the month of each
Remittance Date.
Principal (Including
Prepayments).................... Principal received as a portion of the Monthly Payment on each
Mortgage Loan will be passed through monthly, on the 25th
day of the month (or if such day is not a business day, the
next succeeding business day) in which the related Due Date
occurs (each, a "Remittance Date"), commencing September 25,
1996. Principal prepayments received during the period from
the first day of any month to the last day of such month
(each, a "Principal Prepayment Period") will be distributed
on the Remittance Date occurring in the month following the
month of receipt. Distributions in respect of principal will
be made to each Class as described herein under "Description
of the Certificates-- Distributions of Principal and
Interest" and on a pro rata basis among the Certificates of
each Class. The rate of distribution allocable to principal
will depend on, among other factors, the rate of payment of
principal (including prepayments) of the Mortgage Loans. The
Final Scheduled Remittance Date (defined herein) of each
Class of Offered Certificates has been calculated as
described herein. The actual final distribution with respect
to each Class of Offered Certificates is likely to occur
prior to its Final Scheduled Remittance Date, although, in
the event of defaults in payment of the Mortgage Loans, it
could occur later or earlier. See "Description of the
Certificates."
Interest........................ On each Remittance Date, commencing September 25, 1996,
interest will be payable to each Class of Offered Certificates
(other than the Class IA-3, Class IA-P and Class IIA-P
Certificates) at a rate equal to the applicable rate of
interest (the "Certificate Rate") specified or described on
the cover hereof (less any Non-Supported Interest Shortfalls
allocated thereto) on the outstanding respective principal
balances (or on the Class IA-2 Notional Amount, in the case
of the Class IA-2 Certificates) of such Certificates as of
the relevant Determination Date (defined herein), calculated
on the basis of a 360-day year of twelve 30-day months. The
Class IA-3, Class IA-P and Class IIA-P Certificates will be
entitled to principal only and will not be entitled to
distributions of interest. See "Description of the
Certificates--Distributions of Principal and Interest."
The Master Servicer will receive a fee for the servicing of
each Mortgage Loan (the "Servicing Fee") equal to (i) 0.25%
per annum of the unpaid principal balance of each Mortgage
Loan having a Mortgage Rate (defined herein) greater than or
equal to
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
7.50% per annum; and (ii) 0.20% per annum of the unpaid
principal balance of each Mortgage Loan having a Mortgage
Rate of less than 7.50% per annum. See "Servicing--Servicing
Compensation and Payment of Expenses."
The portion, if any, of each Monthly Payment that represents
interest on the related Mortgage Loan (other than the
Discount Mortgage Loans) at a rate equal to the Mortgage
Rate less the sum of (i) 7.25% per annum (the "Remittance
Rate") and (ii) the Servicing Fee will constitute "Excess
Interest." Excess Interest will not be available for
distribution to Certificateholders. Excess Interest is
expected to be retained by Chase and is not offered hereby.
See "Description of the Certificates--Distributions of
Principal and Interest."
Subordinated Certificates....... The rights of the holders of each Class of Subordinated
Certificates to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the
Class A Certificateholders, and (except in the case of the
Class M Certificateholders) to the holders of each Class of
Class B Certificates having a lower numerical class
designation, to the extent described below. The
subordination provided by the Subordinated Certificates is
intended to enhance the likelihood of regular receipt by the
Class A Certificateholders of the full amount of monthly
distributions due them and to protect the Class A
Certificateholders against losses. The subordination
provided by each Class of Class B Certificates relative to
the Class M Certificates and each Class of Class B
Certificates having a lower numerical class designation is
intended to similarly benefit such Classes of Subordinated
Certificates.
On each Remittance Date, payments to the Class A
Certificateholders will be made prior to payments to the
Class M and Class B Certificateholders, payments to the
Class M Certificateholders will be made prior to payments to
the Class B Certificateholders, payments to the Class B-1
Certificateholders will be made prior to payments to the
Class B-2 Certificateholders and the Non-Offered Class B
Certificateholders and payments to the Class B-2
Certificateholders will be made prior to payments to the
Non-Offered Class B Certificateholders. If, on any
Remittance Date on which the Class IA Percentage or Class
IIA Percentage is less than 100%, the Class IA or Class IIA
Certificateholders receive less than the amount due to them
on such date, the interest of such Class A
Certificateholders in the related Mortgage Group and in the
Trust Fund will increase so as to preserve the entitlement
of such Class A Certificateholders with respect to unpaid
principal of the Mortgage Loans in the applicable Mortgage
Group and interest thereon. If a principal prepayment is
made or certain other unscheduled amounts of principal are
received on a Mortgage Loan, the applicable Non-PO Class A
Certificateholders (other than the Class IA-4
Certificateholders) will be entitled to receive an amount
equal to the applicable Non-PO Class A Prepayment Percentage
(defined herein) of the applicable Non-PO Percentage of the
amount received. This will have the effect of accelerating
receipt of principal by the applicable Non-PO Class A
Certificateholders (other than the Class IA-4
Certificateholders), thus reducing their proportionate
interest in the related Mortgage Group and in the Trust Fund
and increasing the relative interest evidenced by the Class
M and Class B Certificates (absent
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
offsetting Realized Losses (defined herein) allocated to the
Class B or Class M Certificates). Increasing the interest of
the Class M and Class B Certificates relative to that of the
Class A Certificates is intended to preserve the
availability of the subordination provided by the Class M
and Class B Certificates. Similarly, because, as described
herein, the then-current level of Credit Support (defined
herein) of each Class of Subordinated Certificates will
determine which Class or Classes of Subordinated
Certificates will receive amounts in respect of the
Subordinated Principal Distribution Amount (defined herein),
under certain circumstances, on any Remittance Date,
Realized Losses on the Mortgage Loans may cause one or more
Classes of Subordinated Certificates to receive all or a
disproportionate amount of the Subordinated Principal
Distribution Amount. For example, if, as a result of
Realized Losses on the Mortgage Loans, the sum of the Class
B-1 Percentage, the Class B-2 Percentage and the Non-Offered
Class B Percentage decreases to less than its initial
aggregate level (approximately 3.5%), amounts relating to
principal payments (including prepayments) on the Mortgage
Loans otherwise distributable to the Class B
Certificateholders will be distributed to the Class M
Certificateholders (until the next Remittance Date, if any,
on which the sum of the Class B-1 Percentage, the Class B-2
Percentage and the Non-Offered Class B Percentage is at
least equal to approximately 3.5%), thereby accelerating
receipt of principal by the Class M Certificateholders and
reducing their relative interest in the Trust Fund while
increasing the relative interest in the Trust Fund evidenced
by the Class B Certificates. Amounts actually received by
the Class M and Class B Certificateholders in accordance
with the terms of the Agreement will not be subsequently
recoverable from the Class M and Class B Certificateholders.
See "Description of the Certificates-- Distributions of
Principal and Interest" and "--Subordinated Certificates and
Shifting Interests."
Advances........................ If the amount available for distribution to the
Certificateholders on any Remittance Date is less than the
amount which is due the Certificateholders on such
Remittance Date, the Master Servicer is obligated to make
advances ("Advances") for distribution to the
Certificateholders to the extent such deficiency is due to
delinquent Monthly Payments due on the immediately preceding
Due Date unless the Master Servicer determines such Advances
will not be recoverable from future payments or collections
on the related Mortgage Loans. See "Servicing--Advances."
Optional Termination............ On any Remittance Date on which the aggregate unpaid principal
balance of the Mortgage Loans is less than 5% of the
aggregate unpaid scheduled principal balance of the Mortgage
Pool on the Cut-off Date, the Master Servicer may repurchase
from the Trust Fund all Mortgage Loans remaining outstanding
at a purchase price equal to the sum of (i) the unpaid
principal amount of such Mortgage Loans (other than any such
Mortgage Loans as to which the related Mortgaged Properties
have been acquired and whose fair market values are included
in clause (ii) below), plus accrued interest thereon at the
Net Mortgage Rate (defined herein) to the next Due Date and
(ii) the fair market value of any such acquired properties,
in each case less any unreimbursed Advances made with
respect to such Mortgage Loans. Upon such repurchase,
holders of the Offered Certificates generally will receive
the outstanding
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
principal balance of the Offered Certificates plus accrued
interest thereon (other than on the Class IA-3, Class IA-P
and Class IIA-P Certificates) at the Remittance Rate. See
"Description of the Certificates--Optional Termination."
Federal Income Tax
Considerations................ An election will be made to treat the assets of the Trust Fund
(the "Subsidiary REMIC") as a real estate mortgage investment
conduit (a "REMIC") for federal income tax purposes. An
election will be made to treat the pool of assets
represented by the regular interests in the Subsidiary REMIC
as a REMIC (the "Master REMIC"). The Offered Certificates
will represent regular interests in the Master REMIC. As
such, the Offered Certificates will generally be treated as
debt instruments issued by a REMIC. The Class R Certificates
will represent the sole Class of "residual interests" in
each of the Master REMIC and the Subsidary REMIC.
The Class IA-3, Class IA-P and Class IIA-P Certificates will
be issued with original issue discount in an amount equal to
the excess of their initial principal balance over their
issue price. It is anticipated that the Class IA-2
Certificates will be treated as being issued with original
issue discount for federal income tax purposes in an amount
equal to the excess of all distributions of interest
expected to be received thereon over their issue price
(including accrued interest). In addition, it is anticipated
that the Class IA-4, Class M, Class B-1 and Class B-2
Certificates will be issued with original issue discount in
an amount equal to the excess of their initial principal
balances over their respective issue prices (including
accrued interest). It is also anticipated that the Class
IIA-1 Certificates will be issued at a premium, and that the
Class IA-1 Certificates will be issued with de minimis
original issue discount for federal income tax purposes.
Holders of Offered Certificates that have original issue
discount will be required to include amounts in income with
respect to such Certificates in advance of the receipt of
cash attributable to such income. The prepayment assumption
that will be used in computing the amount of original issue
discount includible periodically will be 215% of the
Prepayment Model described herein. See "Prepayment and Yield
Considerations." No representation is made that payments on
the Offered Certificates will occur at those rates or any
other rate.
The Offered Certificates will be treated as (i) "qualifying
real property loans" within the meaning of section 593(d)(1)
of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) assets described in section 7701(a)(19)(C) of
the Code and (iii) "real estate assets" within the meaning
of section 856(c)(5)(A) of the Code, in each case to the
extent described herein and in the Prospectus. See "Certain
Federal Income Tax Consequences" in the Prospectus.
ERISA Considerations............ A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code, including an
individual retirement account (each, a "Plan"), or any other
person investing "plan assets" of any Plan, should carefully
review with its legal advisors whether the purchase or
holding of Class A Certificates could give rise to a
transaction prohibited or not otherwise permissible under
ERISA or the Code. Because the Class M, Class B-1 and Class
B-2
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
Certificates are subordinated to the Class A Certificates,
such Certificates may not be transferred unless the
transferee has delivered (i) a representation letter to the
Trustee stating either (a) that the transferee is not a Plan
and is not acting on behalf of a Plan or using the "plan
assets" of a Plan to effect such purchase or (b) subject to
certain conditions described herein, that the source of
funds used to purchase the Class M, Class B-1 or Class B-2
Certificates is an "insurance company general account" or
(ii) an opinion of counsel as described under "ERISA
Considerations" in this Prospectus Supplement. See "ERISA
Considerations" herein and in the Prospectus.
Legal Investment................ The Class A and Class M Certificates will constitute "mortgage
related securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") for so long as they are
rated in one of the two highest rating categories by at
least one nationally recognized statistical rating
organization and, as such, will be "legal investments" for
certain types of institutional investors to the extent
provided in SMMEA, subject to state laws overriding SMMEA.
There may be certain restrictions on the ability of certain
investors either to purchase Class A and Class M
Certificates or to purchase Class A and Class M Certificates
representing more than a specified percentage of the
investor's assets. THE CLASS B-1 AND CLASS B-2 CERTIFICATES
WILL NOT CONSTITUTE "MORTGAGE RELATED SECURITIES" UNDER
SMMEA. The appropriate characterization of the Class B-1 and
Class B-2 Certificates under various legal investment
restrictions, and thus the ability of investors subject to
these restrictions to purchase the Class B-1 or Class B-2
Certificates may be subject to significant interpretive
uncertainties. Prospective purchasers of the Offered
Certificates, including those institutions whose investment
activities are subject to review by federal or state
regulatory authorities, should consult their own legal, tax
and accounting advisors and, where appropriate, applicable
regulatory authorities, in determining the consequences to
them of the purchase, ownership and disposition of the
Offered Certificates. See "Legal Investment Matters" herein
and "Legal Investment" in the Prospectus.
Use of Proceeds................. Substantially all of the net proceeds from the sale of the
Offered Certificates will be applied by the Company to the
purchase price of the Mortgage Loans and to pay expenses
connected with pooling such Mortgage Loans and issuing the
Certificates. See "Use of Proceeds."
Rating.......................... It is a condition to the issuance of the Offered Certificates
that (i) the Class A Certificates (other than the Class IA-2,
Class IA-3, Class IA-P and Class IIA-P Certificates) be
rated "Aaa" by Moody's Investors Service, Inc. ("Moody's")
and "AAA" by Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. ("S&P"), (ii) the Class
IA-2, Class IA-3, Class IA-P and Class IIA-P Certificates be
rated "Aaa" by Moody's and "AAAr" by S&P, (iii) the Class M
Certificates be rated at least "AA" by S&P, (iv) the Class
B-1 Certificates be rated at least "A" by S&P, and (v) the
Class B-2 Certificates be rated at least "BBB" by S&P. See
"Rating."
</TABLE>
S-13
<PAGE>
THE MORTGAGE POOL
GENERAL
The mortgage pool with respect to the Certificates (the "Mortgage Pool")
will consist of approximately 670 conventional mortgage loans (the "Mortgage
Loans") evidenced by fixed interest rate promissory notes (each, a "Mortgage
Note") having an aggregate principal balance on August 1, 1996 (the "Cut-off
Date") of approximately $207,049,981. References herein to percentages of
Mortgage Loans refer in each case to the percentage of the aggregate principal
balance of the Mortgage Loans or, as the case may be, the Mortgage Loans in the
applicable Mortgage Group, as of the Cut-off Date, based on the outstanding
principal balances of the Mortgage Loans as of the Cut-off Date, after giving
effect to Monthly Payments (defined herein) due on or prior to the Cut-off Date,
whether or not received. References to percentages of Mortgaged Properties
(defined herein) refer, in each case, to the percentages of aggregate principal
balances of the related Mortgage Loans (determined as described in the preceding
sentence). The Mortgage Loans were originated or purchased by The Chase
Manhattan Bank ("Chase"). See "Mortgage Loans" and "The Chase Manhattan Bank"
below. The Mortgage Notes are secured by mortgages or deeds of trust or other
similar security instruments creating first liens on single-family (one- to
four-family) residential properties, including stock allocated to dwelling units
in residential cooperative housing corporations (the "Mortgaged Properties").
The Mortgaged Properties consist of individual dwelling units, individual
cooperative apartment dwelling units, individual condominium units, two- to
four-family dwelling units and planned unit developments. The Trust Fund
includes, in addition to the Mortgage Pool, (i) the amounts held from time to
time in one or more accounts (collectively, the "Certificate Account")
maintained in the name of the Trustee pursuant to the Pooling and Servicing
Agreement (the "Agreement") to be dated as of August 1, 1996 by and among
MorServ, Inc. (the "Company"), Chase Manhattan Mortgage Corporation, as master
servicer (the "Master Servicer") and Citibank, N.A., as trustee (the "Trustee"),
(ii) any property which initially secured a Mortgage Loan and which is acquired
by foreclosure or deed-in-lieu of foreclosure, (iii) all insurance policies and
the proceeds thereof described below and (iv) certain rights to require
repurchase of the Mortgage Loans by Chase for breach of representation or
warranty.
The Company will purchase the Mortgage Loans from Chase and will cause the
Mortgage Loans to be assigned to the Trustee. The Master Servicer will service
the Mortgage Loans either by itself or through other mortgage servicing
institutions, including affiliates of the Master Servicer (the "Sub-servicers"),
pursuant to the Agreement. With respect to those Mortgage Loans serviced by the
Master Servicer through a Sub-servicer, the Master Servicer will remain liable
for its servicing obligations under the Agreement as if the Master Servicer
alone were servicing such Mortgage Loans.
REPRESENTATIONS AND WARRANTIES
Chase will make certain representations and warranties for the benefit of
the Company and the Trustee with respect to the Mortgage Loans as described in
the Prospectus under "The Trust Fund-- The Mortgage Pools" and "Mortgage Loan
Program--Representations by Sellers; Repurchases" and will be obligated to
repurchase any Mortgage Loan sold by it to the Company as to which there is a
material breach of any such representation or warranty. Such repurchase will
constitute the sole remedy available to Certificateholders for a breach of such
representations or warranties. The Trustee will enforce the repurchase
obligations of Chase, and the Company will not be obligated to repurchase any
Mortgage Loan for a breach of any representation or warranty. In lieu of such
repurchase obligation, Chase may, within two years after the date of initial
delivery of the Certificates, substitute for the affected Mortgage Loans
Substitute Mortgage Loans, as described under "The Trust Fund--The Mortgage
Pools" in the Prospectus.
S-14
<PAGE>
MORTGAGE LOANS
Certain data with respect to the Mortgage Loans are set forth below. The
Mortgage Loans were originated between January 1991 and October 1995. The
Mortgage Loans will be divided into two groups: "Mortgage Group One" and
"Mortgage Group Two" (each, a "Mortgage Group"). Mortgage Group One,
constituting approximately 81.03% of the Mortgage Loans, consists primarily of
Mortgage Loans which had original terms to stated maturity of approximately 30
years. Mortgage Group Two, constituting approximately 18.97% of the Mortgage
Loans, consists primarily of Mortgage Loans which had original terms to stated
maturity of approximately 15 years.
Monthly payments of principal and interest on the Mortgage Loans ("Monthly
Payments") will be due on the first day of each month (each, a "Due Date").
All of the Mortgage Loans having Loan-to-Value Ratios of greater than 80%
(other than one Mortgage Loan, with an outstanding principal balance as of the
Cut-off Date of approximately $266,916) are insured under Primary Mortgage
Insurance Policies (as defined in the Prospectus). Not more than approximately
8.80% of the Mortgage Loans in Mortgage Group One, and not more than
approximately 0.64% of the Mortgage Loans in Mortgage Group Two are insured by
any one Primary Mortgage Insurance Policy insurer. At the time of origination of
the Mortgage Loans, each of the Primary Mortgage Insurance Policy insurers was
approved by the Federal National Mortgage Association ("FNMA") or the Federal
Home Loan Mortgage Corporation ("FHLMC"). See "Servicing" herein and
"Description of Insurance" in the Prospectus.
Additional data with respect to the Mortgage Loans are set forth in the
following tables (certain dollar amounts and percentages may not add up to
totals due to rounding):
S-15
<PAGE>
MORTGAGE GROUP ONE
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
MORTGAGE NUMBER OF AS OF THE BALANCE AS OF THE
RATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
6.750%..................................... 4 $ 1,456,477 0.87%
7.125...................................... 1 250,707 0.15
7.250...................................... 21 8,700,686 5.19
7.375...................................... 31 9,558,396 5.70
7.500...................................... 31 9,908,672 5.91
7.625...................................... 30 9,562,623 5.70
7.750...................................... 52 17,228,123 10.27
7.875...................................... 32 9,708,871 5.79
8.000...................................... 31 9,270,189 5.53
8.125...................................... 36 9,727,161 5.80
8.250...................................... 36 12,206,349 7.28
8.375...................................... 40 12,331,832 7.35
8.500...................................... 38 11,699,647 6.97
8.625...................................... 25 7,727,664 4.61
8.750...................................... 19 5,360,124 3.19
8.875...................................... 35 10,992,471 6.55
9.000...................................... 14 4,228,459 2.52
9.125...................................... 14 3,410,922 2.03
9.250...................................... 16 5,102,013 3.04
9.375...................................... 6 1,567,378 0.93
9.500...................................... 13 3,483,892 2.08
9.625...................................... 3 854,946 0.51
9.750...................................... 3 833,428 0.50
9.875...................................... 8 2,105,668 1.26
10.000..................................... 2 491,106 0.29
------- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
------- ----------------- -------
------- ----------------- -------
</TABLE>
- ------------
(1) The interest rates (the "Mortgage Rates") borne by the Mortgage Loans in
Mortgage Group One as of the Cut-off Date ranged from 6.750% per annum to
10.000% per annum and the weighted average Mortgage Rate on the Mortgage
Loans in Mortgage Group One as of the Cut-off Date was approximately 8.204%
per annum.
S-16
<PAGE>
MORTGAGE GROUP ONE
GEOGRAPHICAL DISTRIBUTION
OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
STATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Alabama.................................... 1 $ 241,291 0.14%
Arizona.................................... 7 2,504,016 1.49
California................................. 65 21,632,576 12.89
Colorado................................... 22 6,612,119 3.94
Connecticut................................ 29 9,494,368 5.66
Florida.................................... 22 5,597,577 3.34
Georgia.................................... 2 460,742 0.27
Idaho...................................... 3 804,109 0.48
Illinois................................... 10 2,740,716 1.63
Indiana.................................... 1 202,302 0.12
Kansas..................................... 1 276,720 0.16
Kentucky................................... 1 238,154 0.14
Louisiana.................................. 1 326,505 0.19
Maryland................................... 3 883,554 0.53
Massachusetts.............................. 2 503,756 0.30
Michigan................................... 3 631,843 0.38
Missouri................................... 1 281,735 0.17
Nevada..................................... 4 1,276,037 0.76
New Jersey................................. 34 12,006,728 7.16
New York................................... 219 69,257,553 41.28
North Carolina............................. 8 2,195,191 1.31
Ohio....................................... 7 2,137,497 1.27
Oklahoma................................... 2 508,177 0.30
Pennsylvania............................... 5 1,319,320 0.79
Rhode Island............................... 2 663,717 0.40
South Carolina............................. 3 1,108,969 0.66
South Dakota............................... 1 217,864 0.13
Tennessee.................................. 1 227,580 0.14
Texas...................................... 69 20,020,964 11.93
Utah....................................... 2 498,678 0.30
Virginia................................... 7 2,055,156 1.23
Washington................................. 1 287,454 0.17
Wisconsin.................................. 2 554,837 0.33
--- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
STATE/COUNTY MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
State--New York
County--
Bronx.................................... 2 $ 498,796 0.30%
Kings.................................... 20 6,828,198 4.07
Monroe................................... 1 215,155 0.13
Nassau................................... 30 8,751,857 5.22
New York................................. 50 16,787,507 10.01
Queens................................... 11 2,913,309 1.74
Richmond................................. 4 1,216,132 0.72
Rockland................................. 2 712,231 0.42
Suffolk.................................. 30 9,327,221 5.56
Westchester.............................. 69 22,007,147 13.12
--- ----------------- -----
Totals............................... 219 $69,257,553 41.28%
--- ----------------- -----
--- ----------------- -----
State--Texas
County--
Anderson................................. 1 $ 220,339 0.13%
Collin................................... 7 2,482,797 1.48
Dallas................................... 13 3,402,191 2.03
Denton................................... 1 218,654 0.13
El Paso.................................. 1 201,014 0.12
Harris................................... 32 9,254,694 5.52
Hidalgo.................................. 1 239,600 0.14
Jefferson................................ 1 243,279 0.15
Lubbock.................................. 1 336,499 0.20
Montgomery............................... 2 557,112 0.33
Tarrant.................................. 6 1,534,688 0.91
Travis................................... 3 1,330,099 0.79
--- ----------------- -----
Totals............................... 69 $20,020,964 11.93%
--- ----------------- -----
--- ----------------- -----
</TABLE>
S-18
<PAGE>
MORTGAGE GROUP ONE
ORIGINAL PRINCIPAL BALANCE(2)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
ORIGINAL PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
PRINCIPAL NUMBER OF AS OF THE BALANCE AS OF THE
BALANCE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
$200,001-$250,000.......................... 176 $ 38,943,670 23.21%
$250,001-$300,000.......................... 169 45,243,040 26.97
$300,001-$350,000.......................... 68 21,298,159 12.70
$350,001-$400,000.......................... 37 13,575,259 8.09
$400,001-$450,000.......................... 21 8,668,804 5.17
$450,001-$500,000.......................... 32 15,033,815 8.96
$500,001-$550,000.......................... 8 4,098,172 2.44
$550,001-$600,000.......................... 10 5,678,720 3.38
$600,001-$650,000.......................... 5 2,836,421 1.69
$650,001-$700,000.......................... 2 1,354,651 0.81
$700,001-$750,000.......................... 3 2,166,624 1.29
$750,001-$800,000.......................... 3 2,270,711 1.35
$800,001-$850,000.......................... 1 808,108 0.48
$850,001-$900,000.......................... 2 1,709,301 1.02
$900,001-$950,000.......................... 1 902,673 0.54
$950,001-$1,000,000........................ 2 1,928,398 1.15
More than $1,000,000....................... 1 1,251,278 0.75
--- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(2) The average outstanding principal balance of the Mortgage Loans in Mortgage
Group One as of the Cut-off Date was approximately $310,107. The original
principal balances of the Mortgage Loans in Mortgage Group One ranged from
$207,860 to $1,300,000.
MORTGAGE GROUP ONE
YEAR OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
YEAR OF NUMBER OF AS OF THE BALANCE AS OF THE
ORIGINATION MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
1991....................................... 80 $ 22,587,347 13.46%
1992....................................... 199 59,098,477 35.23
1993....................................... 127 42,216,850 25.16
1994....................................... 108 34,002,322 20.27
1995....................................... 27 9,862,808 5.88
--- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-19
<PAGE>
MORTGAGE GROUP ONE
ORIGINAL LOAN-TO-VALUE RATIO(3)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
ORIGINAL PRINCIPAL BY AGGREGATE PRINCIPAL
LOAN-TO-VALUE NUMBER OF BALANCE AS OF THE BALANCE AS OF THE
RATIO MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
50.00% or less............................. 28 $ 11,987,393 7.15%
50.01%-55.00%.............................. 10 2,582,886 1.54
55.01%-60.00%.............................. 19 6,273,040 3.74
60.01%-65.00%.............................. 35 10,233,647 6.10
65.01%-70.00%.............................. 56 19,222,689 11.46
70.01%-75.00%.............................. 109 34,449,187 20.53
75.01%-80.00%.............................. 180 54,304,305 32.37
80.01%-85.00%.............................. 14 3,832,440 2.28
85.01%-90.00%.............................. 80 22,260,015 13.27
90.01%-95.00%.............................. 10 2,622,200 1.56
--- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(3) The weighted average original Loan-to-Value Ratio of the Mortgage Loans in
Mortgage Group was approximately 73.40% as of the Cut-off Date.
MORTGAGE GROUP ONE
LOAN PURPOSE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Cash-out Refinance......................... 66 $ 18,800,109 11.21%
Purchase................................... 262 80,192,835 47.80
Rate/Term Refinance........................ 213 68,774,859 40.99
--- ----------------- -------
Totals..................................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-20
<PAGE>
MORTGAGE GROUP ONE
REMAINING TERMS TO STATED MATURITY(4)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
MONTHS NUMBER OF AS OF THE BALANCE AS OF THE
REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
193-204.................................... 1 $ 215,189 0.13%
265-276.................................... 1 281,899 0.17
289-300.................................... 18 4,972,547 2.96
301-312.................................... 181 52,855,314 31.51
313-324.................................... 149 46,192,632 27.53
325-336.................................... 126 43,162,688 25.73
337-348.................................... 52 15,099,777 9.00
349-360.................................... 13 4,987,758 2.97
--- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(4) The weighted average remaining term to stated maturity of the Mortgage Loans
in Mortgage Group One as of the Cut-off Date was approximately 320 months.
MORTGAGE GROUP ONE
REMAINING TERMS TO EXPECTED MATURITY(5)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
MONTHS NUMBER OF AS OF THE BALANCE AS OF THE
REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
193-204.................................... 1 $ 215,189 0.13%
265-276.................................... 3 704,569 0.42
277-288.................................... 3 758,230 0.45
289-300.................................... 35 9,527,586 5.68
301-312.................................... 181 53,178,662 31.70
313-324.................................... 140 43,980,847 26.22
325-336.................................... 118 40,840,076 24.34
337-348.................................... 47 13,574,886 8.09
349-360.................................... 13 4,987,758 2.97
--- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(5) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan in Mortgage Group One as of the Cut-off Date. The weighted
average remaining term to expected maturity of the Mortgage Loans in
Mortgage Group One as of the Cut-off Date was approximately 318 months.
S-21
<PAGE>
MORTGAGE GROUP ONE
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Single-family Residence.................... 456 $ 140,591,068 83.80%
Cooperative Unit (6)....................... 13 3,906,346 2.33
Condominium................................ 50 14,863,345 8.86
Planned Unit Development................... 1 342,884 0.20
Two- to Four-family Dwelling Unit.......... 21 8,064,161 4.81
--- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(6) Mortgage Loans secured by "Cooperative Units" were made to finance or
refinance the purchase of stock allocated to units in residential
cooperative housing corporations (each, a "Co-Op Loan").
MORTGAGE GROUP ONE
OCCUPANCY(7)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
OCCUPANCY MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Owner-occupied............................. 521 $ 161,745,774 96.41%
Second Home................................ 17 5,316,535 3.17
Investor................................... 3 705,494 0.42
--- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(7) Based on representations by the Mortgagors at the time of origination of the
related Mortgage Loans.
MORTGAGE GROUP ONE
LOAN DOCUMENTATION
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP ONE
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN DOCUMENTATION MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Full or Alternative Documentation.......... 471 $ 145,014,288 86.44%
No Income Verification..................... 41 13,238,232 7.89
No Income or Asset Verification............ 29 9,515,282 5.67
--- ----------------- -------
Totals............................... 541 $ 167,767,803 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-22
<PAGE>
MORTGAGE GROUP TWO
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
MORTGAGE NUMBER OF AS OF THE BALANCE AS OF THE
RATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
6.625%..................................... 1 $ 496,807 1.26%
6.750...................................... 3 649,628 1.65
6,875...................................... 2 703,900 1.79
7.000...................................... 2 556,104 1.42
7.125...................................... 1 316,834 0.81
7.250...................................... 31 9,078,734 23.11
7.375...................................... 9 2,669,050 6.79
7.500...................................... 14 5,401,188 13.75
7.625...................................... 12 3,149,892 8.02
7.750...................................... 4 1,634,202 4.16
7.875...................................... 6 1,474,624 3.75
8.000...................................... 4 1,311,964 3.34
8.125...................................... 3 595,117 1.51
8.250...................................... 4 1,286,014 3.27
8.375...................................... 3 728,804 1.86
8.500...................................... 2 592,678 1.51
8.625...................................... 2 465,640 1.19
8.750...................................... 1 231,450 0.59
8.875...................................... 7 2,046,137 5.21
9.000...................................... 2 474,333 1.21
9.125...................................... 5 1,112,915 2.83
9.250...................................... 4 2,195,552 5.59
9.375...................................... 1 655,199 1.67
9.500...................................... 3 791,003 2.01
9.625...................................... 2 413,518 1.05
9.750...................................... 1 250,893 0.64
--- ----------------- -------
Totals............................... 129 $39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(1) The Mortgage Rates borne by the Mortgage Loans in Mortgage Group Two as of
the Cut-off Date ranged from 6.625% per annum to 9.750% per annum and the
weighted average Mortgage Rate on the Mortgage Loans in Mortgage Group Two
as of the Cut-off Date was approximately 7.868% per annum.
S-23
<PAGE>
MORTGAGE GROUP TWO
GEOGRAPHICAL DISTRIBUTION
OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
STATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Arkansas................................... 1 $ 215,712 0.55%
Arizona.................................... 2 898,032 2.29
California................................. 9 2,568,576 6.54
Connecticut................................ 2 470,923 1.20
Delaware................................... 1 300,504 0.76
Florida.................................... 11 3,843,778 9.79
Illinois................................... 2 618,566 1.57
Louisiana.................................. 2 769,552 1.96
Maryland................................... 2 687,951 1.75
Michigan................................... 2 448,009 1.14
Missouri................................... 1 234,485 0.60
Nevada..................................... 1 239,851 0.61
New Jersey................................. 8 2,808,913 7.15
New York................................... 55 16,906,952 43.04
Ohio....................................... 3 864,400 2.20
Oklahoma................................... 2 541,908 1.38
Pennsylvania............................... 5 1,436,460 3.66
Rhode Island............................... 1 268,981 0.68
South Carolina............................. 1 348,059 0.89
Texas...................................... 14 3,948,875 10.05
Utah....................................... 1 189,531 0.48
Virginia................................... 3 672,162 1.71
--- ----------------- -------
Totals............................... 129 $39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-24
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
STATE/COUNTY MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
State--New York
County--
Dutchess................................. 1 $ 338,578 0.86%
Kings.................................... 9 3,311,336 8.43
Nassau................................... 13 3,888,629 9.90
New York................................. 9 3,096,983 7.88
Richmond................................. 1 375,935 0.96
Rockland................................. 1 252,937 0.64
Suffolk.................................. 10 2,579,595 6.57
Sullivan................................. 1 206,344 0.53
Westchester.............................. 10 2,856,616 7.27
--
----------------- -----
Totals............................... 55 $16,906,952 43.04%
--
--
----------------- -----
----------------- -----
State--Texas
County--
Dallas................................... 1 $ 672,783 1.71%
El Paso.................................. 1 250,796 0.64
Harris................................... 9 2,344,261 5.97
Midland.................................. 1 184,084 0.47
Montgomery............................... 1 252,506 0.64
Tarrant.................................. 1 244,446 0.62
--
----------------- -----
Totals............................... 14 $ 3,948,875 10.05%
--
--
----------------- -----
----------------- -----
</TABLE>
MORTGAGE GROUP TWO
ORIGINAL PRINCIPAL BALANCE(2)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
ORIGINAL PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
PRINCIPAL NUMBER OF AS OF THE BALANCE AS OF THE
BALANCE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
$200,001-$250,000.......................... 30 $ 5,973,666 15.21%
$250,001-$300,000.......................... 38 9,052,042 23.04
$300,001-$350,000.......................... 18 5,077,613 12.93
$350,001-$400,000.......................... 9 3,001,015 7.64
$400,001-$450,000.......................... 11 4,140,375 10.54
$450,001-$500,000.......................... 10 4,084,080 10.40
$500,001-$550,000.......................... 3 1,416,442 3.61
$550,001-$600,000.......................... 1 471,873 1.20
$600,001-$650,000.......................... 3 1,671,410 4.25
$700,001-$750,000.......................... 3 1,939,840 4.94
$750,001-$800,000.......................... 1 655,199 1.67
$800,001-$850,000.......................... 1 756,576 1.93
More than $1,000,000....................... 1 1,042,047 2.65
--- ----------------- -------
Totals............................... 129 $39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(2) The average outstanding principal balance of the Mortgage Loans in Mortgage
Group Two as of the Cut-off Date was approximately $304,513. The original
principal balances of the Mortgage Loans in Mortgage Group Two ranged from
$210,000 to $1,100,000.
S-25
<PAGE>
MORTGAGE GROUP TWO
YEAR OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
YEAR OF NUMBER OF AS OF THE BALANCE AS OF THE
ORIGINATION MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
1991....................................... 17 $ 4,306,035 10.96%
1992....................................... 30 9,023,078 22.97
1993....................................... 46 13,250,746 33.73
1994....................................... 36 12,702,318 32.34
--- ----------------- -------
Totals............................... 129 $39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
MORTGAGE GROUP TWO
ORIGINAL LOAN-TO-VALUE RATIO(3)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
ORIGINAL PRINCIPAL BY AGGREGATE PRINCIPAL
LOAN-TO-VALUE NUMBER OF BALANCE AS OF THE BALANCE AS OF THE
RATIO MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
50.00% or less............................. 20 $ 6,629,688 16.88%
50.01%-55.00%.............................. 2 412,644 1.05
55.01%-60.00%.............................. 9 3,157,813 8.04
60.01%-65.00%.............................. 8 2,690,538 6.85
65.01%-70.00%.............................. 20 5,420,638 13.80
70.01%-75.00%.............................. 39 11,530,683 29.35
75.01%-80.00%.............................. 30 9,189,380 23.39
85.01%-90.00%.............................. 1 250,796 0.64
--- ----------------- -------
Totals............................... 129 $39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(3) The weighted average original Loan-to-Value Ratio of the Mortgage Loans in
Mortgage Group Two was approximately 65.73% as of the Cut-off Date.
MORTGAGE GROUP TWO
LOAN PURPOSE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Cash-out Refinance......................... 25 $ 7,214,715 18.37%
Purchase................................... 33 9,910,172 25.23
Rate/Term Refinance........................ 71 22,157,291 56.41
--- ----------------- -------
Totals..................................... 129 $ 39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-26
<PAGE>
MORTGAGE GROUP TWO
REMAINING TERMS TO STATED MATURITY(4)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
MONTHS NUMBER OF AS OF THE BALANCE AS OF THE
REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
73- 84 1 $ 200,528 0.51%
85- 96..................................... 2 772,377 1.97
109-120.................................... 4 887,893 2.26
121-132.................................... 29 7,967,769 20.28
133-144.................................... 40 11,680,571 29.74
145-156.................................... 50 16,227,939 41.31
157-168.................................... 3 1,545,101 3.93
--- ----------------- -------
Totals............................... 129 $ 39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(4) The weighted average remaining term to stated maturity of the Mortgage Loans
in Mortgage Group Two as of the Cut-off Date was approximately 140 months.
MORTGAGE GROUP TWO
REMAINING TERMS TO EXPECTED MATURITY (5)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
MONTHS NUMBER OF AS OF THE BALANCE AS OF THE
REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
73- 84..................................... 1 $ 200,528 0.51%
85- 96..................................... 2 772,377 1.97
109-120.................................... 5 1,086,140 2.76
121-132.................................... 35 10,094,251 25.70
133-144.................................... 39 11,024,728 28.07
145-156.................................... 44 14,559,054 37.06
157-168.................................... 3 1,545,101 3.93
--- ----------------- -------
Totals............................... 129 $39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(5) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan in Mortgage Group Two as of the Cut-off Date. The weighted
average remaining term to expected maturity of the Mortgage Loans in
Mortgage Group Two as of the Cut-off Date was approximately 139 months.
S-27
<PAGE>
MORTGAGE GROUP TWO
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Single-family Residence.................... 114 $34,754,198 88.47%
Cooperative Unit........................... 3 947,569 2.41
Condominium................................ 6 1,290,379 3.28
Planned Unit Development................... 1 297,383 0.76
Two- to Four-family Dwelling Unit.......... 5 1,992,650 5.07
--- ----------------- -------
Totals............................... 129 $39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
MORTGAGE GROUP TWO
OCCUPANCY(6)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
OCCUPANCY MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Owner-occupied............................. 122 $37,268,036 94.87%
Second Home................................ 7 2,014,143 5.13
--- ----------------- -------
Totals............................... 129 $39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(6) Based on representations by the Mortgagors at the time of origination of the
related Mortgage Loans.
MORTGAGE GROUP TWO
LOAN DOCUMENTATION
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE GROUP TWO
PRINCIPAL BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN DOCUMENTATION MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Full or Alternative Documentation.......... 91 $27,487,696 69.98%
No Income Verification..................... 21 5,845,512 14.88
No Income or Asset Verification............ 17 5,948,970 15.14
--- ----------------- -------
Totals............................... 129 $39,282,178 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-28
<PAGE>
MORTGAGE POOL
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
MORTGAGE NUMBER OF AS OF THE BALANCE AS OF THE
RATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
6.625%..................................... 1 $ 496,807 0.24%
6.750...................................... 7 2,106,105 1.02
6,875...................................... 2 703,900 0.34
7.000...................................... 2 556,104 0.27
7.125...................................... 2 567,541 0.27
7.250...................................... 52 17,779,420 8.59
7.375...................................... 40 12,227,446 5.91
7.500...................................... 45 15,309,861 7.39
7.625...................................... 42 12,712,515 6.14
7.750...................................... 56 18,862,325 9.11
7.875...................................... 38 11,183,495 5.40
8.000...................................... 35 10,582,152 5.11
8.125...................................... 39 10,322,278 4.99
8.250...................................... 40 13,492,363 6.52
8.375...................................... 43 13,060,637 6.31
8.500...................................... 40 12,292,325 5.94
8.625...................................... 27 8,193,304 3.96
8.750...................................... 20 5,591,574 2.70
8.875...................................... 42 13,038,608 6.30
9.000...................................... 16 4,702,792 2.27
9.125...................................... 19 4,523,837 2.18
9.250...................................... 20 7,297,565 3.52
9.375...................................... 7 2,222,577 1.07
9.500...................................... 16 4,274,895 2.06
9.625...................................... 5 1,268,464 0.61
9.750...................................... 4 1,084,321 0.52
9.875...................................... 8 2,105,668 1.02
10.000..................................... 2 491,106 0.24
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(1) The interest rates (the "Mortgage Rates") borne by the Mortgage Loans as of
the Cut-off Date ranged from 6.625% per annum to 10.000% per annum and the
weighted average Mortgage Rate
on the Mortgage Loans as of the Cut-off Date was approximately 8.140% per
annum.
S-29
<PAGE>
MORTGAGE POOL
GEOGRAPHICAL DISTRIBUTION
OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
STATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Alabama.................................... 1 $ 241,291 0.12%
Arkansas................................... 1 215,712 0.10
Arizona.................................... 9 3,402,048 1.64
California................................. 74 24,201,152 11.69
Colorado................................... 22 6,612,119 3.19
Connecticut................................ 31 9,965,291 4.81
Delaware................................... 1 300,504 0.15
Florida.................................... 33 9,441,355 4.56
Georgia.................................... 2 460,742 0.22
Idaho...................................... 3 804,109 0.39
Illinois................................... 12 3,359,282 1.62
Indiana.................................... 1 202,302 0.10
Kansas..................................... 1 276,720 0.13
Kentucky................................... 1 238,154 0.12
Louisiana.................................. 3 1,096,057 0.53
Maryland................................... 5 1,571,504 0.76
Massachusetts.............................. 2 503,756 0.24
Michigan................................... 5 1,079,852 0.52
Missouri................................... 2 516,220 0.25
Nevada..................................... 5 1,515,888 0.73
New Jersey................................. 42 14,815,641 7.16
New York................................... 274 86,164,505 41.62
North Carolina............................. 8 2,195,191 1.06
Ohio....................................... 10 3,001,897 1.45
Oklahoma................................... 4 1,050,085 0.51
Pennsylvania............................... 10 2,755,780 1.33
Rhode Island............................... 3 932,698 0.45
South Carolina............................. 4 1,457,028 0.70
South Dakota............................... 1 217,864 0.11
Tennessee.................................. 1 227,580 0.11
Texas...................................... 83 23,969,839 11.58
Utah....................................... 3 688,208 0.33
Virginia................................... 10 2,727,318 1.32
Washington................................. 1 287,454 0.14
Wisconsin.................................. 2 554,837 0.27
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-30
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
STATE/COUNTY MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
State--New York
County--
Bronx.................................... 2 $ 498,796 0.24%
Dutchess................................. 1 338,578 0.16
Kings.................................... 29 10,139,535 4.90
Monroe................................... 1 215,155 0.10
Nassau................................... 43 12,640,485 6.11
New York................................. 59 19,884,490 9.60
Queens................................... 11 2,913,309 1.41
Richmond................................. 5 1,592,067 0.77
Rockland................................. 3 965,167 0.47
Suffolk.................................. 40 11,906,817 5.75
Sullivan................................. 1 206,344 0.10
Westchester.............................. 79 24,863,762 12.01
--- ----------------- -----
Totals............................... 274 $86,164,505 41.62%
--- ----------------- -----
--- ----------------- -----
State--Texas
County--
Anderson................................. 1 $ 220,339 0.11%
Collin................................... 7 2,482,797 1.20
Dallas................................... 14 4,074,974 1.97
Denton................................... 1 218,654 0.11
El Paso.................................. 2 451,809 0.22
Harris................................... 41 11,598,955 5.60
Hidalgo.................................. 1 239,600 0.12
Jefferson................................ 1 243,279 0.12
Lubbock.................................. 1 336,499 0.16
Midland.................................. 1 184,084 0.09
Montgomery............................... 3 809,617 0.39
Tarrant.................................. 7 1,779,134 0.86
Travis................................... 3 1,330,099 0.64
--- ----------------- -----
Totals............................... 83 $23,969,839 11.58%
--- ----------------- -----
--- ----------------- -----
</TABLE>
S-31
<PAGE>
MORTGAGE POOL
ORIGINAL PRINCIPAL BALANCE(2)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
ORIGINAL PRINCIPAL BALANCE AGGREGATE PRINCIPAL
PRINCIPAL NUMBER OF AS OF THE BALANCE AS OF THE
BALANCE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
$200,001-$250,000.......................... 206 $ 44,917,336 21.69%
$250,001-$300,000.......................... 207 54,295,081 26.22
$300,001-$350,000.......................... 86 26,375,772 12.74
$350,001-$400,000.......................... 46 16,576,274 8.01
$400,001-$450,000.......................... 32 12,809,179 6.19
$450,001-$500,000.......................... 42 19,117,896 9.23
$500,001-$550,000.......................... 11 5,514,614 2.66
$550,001-$600,000.......................... 11 6,150,593 2.97
$600,001-$650,000.......................... 8 4,507,831 2.18
$650,001-$700,000.......................... 2 1,354,651 0.65
$700,001-$750,000.......................... 6 4,106,465 1.98
$750,001-$800,000.......................... 4 2,925,910 1.41
$800,001-$850,000.......................... 2 1,564,684 0.76
$850,001-$900,000.......................... 2 1,709,301 0.83
$900,001-$950,000.......................... 1 902,673 0.44
$950,001-$1,000,000........................ 2 1,928,398 0.93
More than $1,000,000....................... 2 2,293,324 1.11
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(2) The average outstanding principal balance of the Mortgage Loans as of the
Cut-off Date was approximately $309,030. The original principal balances of
the Mortgage Loans ranged from $207,860 to $1,300,000.
MORTGAGE POOL
YEAR OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
YEAR OF NUMBER OF AS OF THE BALANCE AS OF THE
ORIGINATION MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
1991....................................... 97 $ 26,893,382 12.99%
1992....................................... 229 68,121,555 32.90
1993....................................... 173 55,467,596 26.79
1994....................................... 144 46,704,640 22.56
1995....................................... 27 9,862,808 4.76
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-32
<PAGE>
MORTGAGE POOL
ORIGINAL LOAN-TO-VALUE RATIO(3)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
ORIGINAL PRINCIPAL AGGREGATE PRINCIPAL
LOAN-TO-VALUE NUMBER OF BALANCE AS OF THE BALANCE AS OF THE
RATIO MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
50.00% or less............................. 48 $ 18,617,081 8.99%
50.01%-55.00%.............................. 12 2,995,530 1.45
55.01%-60.00%.............................. 28 9,430,853 4.55
60.01%-65.00%.............................. 43 12,924,185 6.24
65.01%-70.00%.............................. 76 24,643,326 11.90
70.01%-75.00%.............................. 148 45,979,870 22.21
75.01%-80.00%.............................. 210 63,493,685 30.67
80.01%-85.00%.............................. 14 3,832,440 1.85
85.01%-90.00%.............................. 81 22,510,810 10.87
90.01%-95.00%.............................. 10 2,622,200 1.27
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(3) The weighted average original Loan-to-Value Ratio of the Mortgage Loans was
approximately 71.94% as of the Cut-off Date.
MORTGAGE POOL
LOAN PURPOSE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Cash-out Refinance......................... 91 $ 26,014,824 12.56%
Purchase................................... 295 90,103,007 43.52
Rate/Term Refinance........................ 284 90,932,150 43.92
--- ----------------- -------
Totals..................................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-33
<PAGE>
MORTGAGE POOL
REMAINING TERMS TO STATED MATURITY(4)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
MONTHS NUMBER OF AS OF THE BALANCE AS OF THE
REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
73- 84..................................... 1 $ 200,528 0.10%
85- 96..................................... 2 772,377 0.37
109-120.................................... 4 887,893 0.43
121-132.................................... 29 7,967,769 3.85
133-144.................................... 40 11,680,571 5.64
145-156.................................... 50 16,227,939 7.84
157-168.................................... 3 1,545,101 0.75
193-204.................................... 1 215,189 0.10
265-276.................................... 1 281,899 0.14
289-300.................................... 18 4,972,547 2.40
301-312.................................... 181 52,855,314 25.53
313-324.................................... 149 46,192,632 22.31
325-336.................................... 126 43,162,688 20.85
337-348.................................... 52 15,099,777 7.29
349-360.................................... 13 4,987,758 2.41
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(4) The weighted average remaining term to stated maturity of the Mortgage Loans
as of the Cut-off Date was approximately 286 months.
S-34
<PAGE>
MORTGAGE POOL
REMAINING TERMS TO EXPECTED MATURITY (5)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
MONTHS NUMBER OF AS OF THE BALANCE AS OF THE
REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
73- 84..................................... 1 $ 200,528 0.10%
85- 96..................................... 2 772,377 0.37
109-120.................................... 5 1,086,140 0.52
121-132.................................... 35 10,094,251 4.88
133-144.................................... 39 11,024,728 5.32
145-156.................................... 44 14,559,054 7.03
157-168.................................... 3 1,545,101 0.75
193-204.................................... 1 215,189 0.10
265-276.................................... 3 704,569 0.34
277-288.................................... 3 758,230 0.37
289-300.................................... 35 9,527,586 4.60
301-312.................................... 181 53,178,662 25.68
313-324.................................... 140 43,980,847 21.24
325-336.................................... 118 40,840,076 19.72
337-348.................................... 47 13,574,886 6.56
349-360.................................... 13 4,987,758 2.41
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(5) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan as of the Cut-off Date. The weighted average remaining term to
expected maturity of the Mortgage Loans as of the Cut-off Date was
approximately 284 months.
MORTGAGE POOL
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Single-family Residence.................... 570 $ 175,345,266 84.69%
Cooperative Unit........................... 16 4,853,914 2.34
Condominium................................ 56 16,153,723 7.80
Planned Unit Development................... 2 640,267 0.31
Two- to Four-family Dwelling Unit.......... 26 10,056,810 4.86
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
S-35
<PAGE>
MORTGAGE POOL
OCCUPANCY(6)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
OCCUPANCY MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Owner-occupied............................. 643 $ 199,013,810 96.12%
Second Home................................ 24 7,330,678 3.54
Investor................................... 3 705,494 0.34
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
- ------------
(6) Based on representations by the Mortgagors at the time of origination of the
related Mortgage Loans.
MORTGAGE POOL
LOAN DOCUMENTATION
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN DOCUMENTATION MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ------------------------------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
Full or Alternative Documentation.......... 562 $ 172,501,984 83.31%
No Income Verification..................... 62 19,083,744 9.22
No Income or Asset Verification............ 46 15,464,253 7.47
--- ----------------- -------
Totals............................... 670 $ 207,049,981 100.00%
--- ----------------- -------
--- ----------------- -------
</TABLE>
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent more than 30 days or will have had more than one delinquency in
excess of 30 days as to any Monthly Payment during the preceding twelve months.
No zip code area contains greater than approximately 1.91% of the Mortgaged
Properties.
A Standard Hazard Insurance Policy is required to be maintained by the
Mortgagor with respect to each Mortgage Loan in an amount equal to the maximum
insurable value of the improvements securing such Mortgage Loan or the principal
balance of such Mortgage Loan, whichever is less. See "Description of
Insurance--Hazard Insurance on the Mortgage Loans--Standard Hazard Insurance
Policies" in the Prospectus. No Mortgage Pool Insurance Policy, Special Hazard
Insurance Policy or Mortgagor Bankruptcy Insurance will be maintained with
respect to the Mortgage Pool, nor will any Mortgage Loan be insured by the FHA
or guaranteed by the VA.
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as presently constituted.
Prior to the issuance of the Certificates, Mortgage Loans may be removed from
the Mortgage Pool if the Company deems such removal necessary or appropriate.
Other mortgage loans may be included in the Mortgage Pool prior to the issuance
of the Certificates unless including such mortgage loans would materially alter
the characteristics of the Mortgage Pool as described herein. The Company
believes that the information set forth herein will be representative of the
characteristics of the Mortgage Pool as it will be constituted at the time the
Certificates are issued.
S-36
<PAGE>
ASSIGNMENT OF MORTGAGE LOANS
The Company will cause the Mortgage Loans to be assigned to the Trustee,
together with the rights to all principal and interest due on or with respect to
the Mortgage Loans after the Cut-off Date other than interest accrued on the
Mortgage Loans prior to the Cut-off Date. The Trustee will, concurrently with
such assignment, authenticate and deliver the Certificates. Each Mortgage Loan
will be identified in a schedule appearing as an exhibit to the Agreement (the
"Mortgage Loan Schedule"). The Mortgage Loan Schedule will specify, among other
things, with respect to each Mortgage Loan, the original principal amount and
the unpaid principal balance as of the close of business on the Cut-off Date;
the Monthly Payment; the months remaining to stated maturity of the Mortgage
Note; and the Mortgage Rate.
In addition, the Company will, as to each Mortgage Loan, deliver or cause to
be delivered to the Trustee the Mortgage Note (together with all amendments and
modifications thereto) endorsed without recourse to the Trustee or its designee,
the original or a certified copy of the mortgage (together with all amendments
and modifications thereto) with evidence of recording indicated thereon and an
original or certified copy of an assignment of the Mortgage in recordable form.
As to each Co-op Loan, the Company will also deliver or cause to be delivered to
the Trustee a Uniform Commercial Code financing statement and an assignment
thereof to the Trustee, the stock certificate representing the stock allocated
to the dwelling unit in the residential cooperative housing corporation, an
assignment to the Trustee of the collateral assignment of lease and the
recognition agreement. The Company will cause the assignments to be recorded in
the appropriate public records.
S-37
<PAGE>
THE CHASE MANHATTAN BANK
GENERAL
Effective July 15, 1996, The Chase Manhattan Bank, N.A. was merged with and
into Chemical Bank, with Chemical Bank as the surviving entity. The resulting
institution, renamed The Chase Manhattan Bank ("Chase"), headquartered in New
York, New York, provides consumer, corporate, trust and international banking
services through branches in the New York City metropolitan area and upstate New
York region, and conducts a worldwide banking business through overseas
branches, subsidiaries, representatives and correspondents. The principal office
of Chase is located at 270 Park Avenue, New York, New York 10017, and its
telephone number is (212) 270-6000.
MORTGAGE LOAN UNDERWRITING
Chase's underwriting standards are intended to evaluate the borrower's
credit standing and repayment ability, and the value and adequacy of the
Mortgaged Property as collateral. Initially, a prospective borrower is required
to fill out a detailed application designed to provide to the underwriting
officer pertinent credit information. As part of the description of the
borrower's financial condition, the borrower is required to provide a current
balance sheet describing assets and liabilities and a statement of income and
expenses, as well as, to the extent required by applicable state law, an
authorization to apply for a credit report which summarizes the borrower's
credit history with merchants and lenders and any record of bankruptcy. While a
credit report is always required for a prospective borrower, the extent of the
report and other documentation requested varies among different origination
programs.
For any prospective borrower, an employment verification is obtained from
the borrower's employer wherein the employer reports the length of employment
with the employer, the employee's current salary, and whether it is expected
that the borrower will continue such employment in the future; alternatively,
under the Alternative Documentation underwriting program, an employment
verification may be obtained through examination of the borrower's income and
withholding statements for the past one or two years and an original payroll
earnings statement for the most recent 30-day period and a contact call may be
made to the borrower's employer (or to the borrower if self-employed) at the
borrower's place of business. For a self-employed prospective borrower, the
borrower is generally required to submit copies of personal and business federal
income tax returns for the previous two years. For any prospective borrower, the
borrower authorizes verification of all deposits at all financial institutions
at which the borrower has demand or savings accounts; alternatively, under the
Alternative Documentation underwriting program, the borrower may be permitted to
provide bank statements for deposit accounts or mutual fund or brokerage
statements for securities accounts for the most recent 60-day period.
In addition to the foregoing, Chase maintains a "No Income Verification"
underwriting program in which prospective borrowers are not required to provide
documentation verifying statements made on their applications with respect to
income. However, verification of deposits of the prospective borrower (either
directly or by review of bank statements) is required. The program does provide,
however, for Chase to obtain tax returns directly from the Internal Revenue
Service.
Once the credit report and the employment and deposit verifications are
received by the underwrit-ing officer considering the loan application, a
determination is made as to whether the prospective borrower has sufficient
monthly income available (i) to meet the borrower's monthly obligations on the
proposed mortgage loan (determined on the basis of the monthly payments due in
the year of origination) and other expenses related to the home (such as
property taxes and hazard insurance) and (ii) to meet other financial
obligations and monthly living expenses. In all instances, Chase's underwriting
policies may be varied in cases deemed appropriate by its underwriting officers
and may be changed in the future.
S-38
<PAGE>
In determining the adequacy of the property as collateral, an independent
appraisal is made of each property considered for financing. Each appraiser is
selected in accordance with predetermined guidelines established for appraisers.
The appraiser is required to inspect the property and verify that it is in good
condition and that construction, if new, has been completed. If the appraiser
reports any exceptions to the verification, Chase or its agent must determine
that such property has been substantially completed to its satisfaction. The
appraisal is based on the appraiser's judgment of value giving appropriate
weight to both the market value of comparable properties and the cost of
replacing the property and other factors as appropriate. Chase's underwriting
standards also require a search of the public records relating to a Mortgaged
Property for liens and judgments against such Mortgaged Property, as well as
customary title insurance, except that title insurance is not required in
connection with Co-op Loans.
In connection with Co-op Loans, a recognition agreement in customary form is
generally required from the related cooperative corporation,
Through its Domestic Private Banking unit, Chase also originates mortgage
loans for individuals with substantially higher than average income and net
assets. In connection with such originations, certain exceptions to Chase's
standard underwriting guidelines may be made, and alternative documentation may
be substituted for Chase's standard documentation. In addition, in certain
cases, income and asset verification and other documentation has not been
included in the borrower's mortgage file (any such Mortgage Loans included in
the Mortgage Pool are referred to herein as "No Income or Asset Verification"
Mortgage Loans).
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Offered Certificates (defined herein),
the aggregate amount of each interest payment on the Offered Certificates (other
than the Class IA-3, Class IA-P and Class IIA-P Certificates) and the yield to
maturity of the Offered Certificates are related to the rate and timing of
payments of principal on the underlying Mortgage Loans. The principal payments
on such Mortgage Loans may be in the form of scheduled principal payments or
prepayments (for this purpose, the term "prepayment" includes prepayments in
full, curtailments and liquidations due to default, casualty, condemnation and
the like, as well as repurchases by a mortgage loan seller). Any such
prepayments will result in distributions to holders of Certificates
("Certificateholders") of principal amounts which would otherwise be distributed
over the remaining terms of the Mortgage Loans. In addition, because, for at
least nine years after the issuance of the Certificates, the Class A
Certificateholders (other than the Class IA-3, Class IA-4, Class IA-P and Class
IIA-P Certificateholders) will be entitled to receive a percentage of certain
amounts, including principal prepayments, which is greater than their
proportionate interest in the Trust Fund, the rate of principal prepayments on
the Mortgage Loans will have a greater effect on the rate of principal payments
and the amount of interest payments on, and the yield to maturity of, such
Certificates than if such Certificateholders were entitled only to their
proportionate interest in such amounts. As a result of the method of calculating
the Class IA-4 Priority Amount (defined herein) and the priorities for the
allocation of the Non-PO Class IA Distribution Amount (defined herein), it is
expected that, absent an exceptionally high rate of principal prepayments on the
Mortgage Loans in Mortgage Group One, no principal prepayments will be allocated
to the Class IA-4 Certificates during the first five years following the
issuance of the Certificates and that, while the percentage of principal
prepayments allocated to the Class IA-4 Certificates during the four years
thereafter will gradually increase, such percentage, until the tenth year
following the issuance of the Certificates, will be disproportionately lower
than the percentage of such principal prepayments allocated to the other Non-PO
Class IA Certificates (other than the Class IA-P Certificates). See "Description
of the Certificates--Distributions of Principal and Interest". In general, the
prepayment rate may be influenced by a number of factors, including general
economic conditions and homeowner mobility. Mortgagors are generally permitted
to prepay the Mortgage
S-39
<PAGE>
Loans, in whole or in part, at any time without penalty. The rate of payment of
principal may also be affected by any repurchase of the Mortgage Loans. See "The
Mortgage Pool--General" and "Description of the Certificates--Optional
Termination" herein. In such event, the repurchase price will be passed through
to the Certificateholders as a prepayment of principal in the month following
the month of such repurchase.
The rate of prepayments with respect to mortgage loans on one- to
four-family residences has fluctuated significantly in recent years. The Company
believes that in a fluctuating interest rate environment a predominant factor
affecting the prepayment rate on a large pool of mortgage loans is the
difference between the interest rates on the mortgage loans (giving
consideration to the cost of any refinancing) and prevailing mortgage rates. In
general, if mortgage interest rates were to fall below the interest rates on the
Mortgage Loans, the rate of prepayment would be expected to increase.
Conversely, in general, if mortgage interest rates were to rise above the
interest rates on the Mortgage Loans, the rate of prepayment would be expected
to decrease. Other factors affecting prepayment of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties and servicing decisions. Additionally, in
general, mortgage loans having relatively high principal balances and/or
relatively low loan-to-value ratios may be more likely to prepay than mortgage
loans having relatively low principal balances and/or relatively high
loan-to-value ratios. Therefore, if a mortgage pool consists of mortgage loans
which generally have relatively high principal balances and relatively low
loan-to-value ratios, the rate of prepayments with respect to such mortgage pool
could be higher than would otherwise be the case. In addition, prepayments
generally will also result from home sales by mortgagors and from foreclosures
due to defaults on mortgage loans. There is no historical prepayment data
available for the Mortgage Pool, and comparable data is not available because
the Mortgage Loans do not constitute a representative sample of mortgage loans
generally. In addition, historical data available with respect to mortgage loans
underlying mortgage pass-through certificates issued by GNMA, FNMA or FHLMC may
not be comparable to prepayments expected to be experienced by the Mortgage
Pool, because the Mortgage Loans have characteristics which differ from mortgage
loans underlying pass-through certificates issued by GNMA, FNMA and FHLMC.
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect the total distributions received, the date of receipt of
such distributions and the actual yield to maturity to an investor in the
Offered Certificates, even if the average rate of principal payments is
consistent with an investor's expectations. Because the rate of distribution of
principal of the Certificates will be directly related to the actual
amortization (including prepayments) of the Mortgage Loans, which may include
Mortgage Loans that have remaining terms to maturity shorter or longer than
those assumed and interest rates higher or lower than those assumed, the
distributions of the Offered Certificates are likely to differ from those
reflected in the following tables, even if all the Mortgage Loans prepay at the
indicated percentages of the Prepayment Model (defined below). In addition, it
is not likely that the Mortgage Loans will prepay at a constant rate until
maturity or that all of the Mortgage Loans will prepay at the same rate. In
general, the earlier a payment of principal on the Mortgage Loans, the greater
the effect on an investor's yield to maturity. As a result, if principal
payments occur at a rate higher (or lower) than the rate anticipated by an
investor in the Offered Certificates during the period immediately following the
issuance of the Certificates, the effect on such investor's yield will not be
equally offset by a subsequent like reduction (or increase) in the rate of
principal payments. If an Offered Certificate is offered at a discount from its
original principal amount and if the purchaser of such Offered Certificate
calculates its yield to maturity based on a faster assumed rate of payment of
principal than that actually received on such Certificate, its actual yield to
maturity will be lower than that so calculated. Conversely, if an Offered
Certificate is offered at a premium to its original principal amount, and if the
purchaser of such Offered Certificate calculates its yield to maturity based on
a slower assumed rate of payment of principal than that actually received on
such Certificate, its actual yield to maturity will be lower than that so
calculated and, under certain circumstances, such a
S-40
<PAGE>
purchaser may fail to recoup its initial investment. No assurances can be given
as to the rate of payments on the Mortgage Loans.
If on any Remittance Date there are not sufficient funds to pay the Non-PO
Class A Distribution Amount (defined herein), the amount of the resulting
shortfall, together with interest thereon at the Remittance Rate (defined
herein), will be due to the Non-PO Class A Certificateholders on the next
Remittance Date. If on any Remittance Date on which the aggregate outstanding
principal balance of the Class B Certificates is greater than zero, the Class M
Certificates do not receive a full month's interest at the Remittance Rate, the
resulting shortfall, together with interest thereon at the Remittance Rate, will
be due to the Class M Certificateholders on the next Remittance Date. If on any
Remittance Date on which the aggregate outstanding principal balance of the
Class B-2 Certificates and the Non-Offered Class B Certificates is greater than
zero, the Class B-1 Certificates do not receive a full month's interest at the
Remittance Rate, the resulting shortfall, together with interest thereon at the
Remittance Rate, will be due to the Class B-1 Certificateholders on the next
Remittance Date. If on any Remittance Date on which the aggregate outstanding
principal balance of the Non-Offered Class B Certificates is greater than zero,
the Class B-2 Certificates do not receive a full month's interest at the
Remittance Rate, the resulting shortfall, together with interest thereon at the
Remittance Rate, will be due to the Class B-2 Certificateholders on the next
Remittance Date. If any such shortfalls occur, the weighted average lives of the
Class A, Class M, Class B-1 or Class B-2 Certificates, as the case may be, may
be longer than if such shortfalls had not occurred.
IF THE AGGREGATE PRINCIPAL BALANCE OF THE NON-OFFERED CLASS B CERTIFICATES
IS REDUCED TO ZERO, THE YIELD TO MATURITY ON THE CLASS B-2 CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO LOSSES ON THE MORTGAGE LOANS (AND THE TIMING THEREOF),
BECAUSE THE ENTIRE AMOUNT OF ANY SUCH LOSSES WHICH OCCUR AFTER THE AGGREGATE
PRINCIPAL BALANCE OF THE NON-OFFERED CLASS B CERTIFICATES HAS BEEN REDUCED TO
ZERO WILL BE ALLOCABLE TO THE CLASS B-2 CERTIFICATES, AS DESCRIBED HEREIN. IF
THE AGGREGATE PRINCIPAL BALANCE OF THE CLASS B-2 CERTIFICATES AND THE
NON-OFFERED CLASS B CERTIFICATES IS REDUCED TO ZERO, THE YIELD TO MATURITY ON
THE CLASS B-1 CERTIFICATES WILL BE EXTREMELY SENSITIVE TO LOSSES ON THE MORTGAGE
LOANS AND THE TIMING THEREOF BECAUSE THE ENTIRE AMOUNT OF ANY SUCH LOSSES WHICH
OCCUR AFTER THE AGGREGATE PRINCIPAL BALANCE OF THE CLASS B-2 CERTIFICATES AND
THE NON-OFFERED CLASS B CERTIFICATES HAS BEEN REDUCED TO ZERO WILL BE ALLOCABLE
TO THE CLASS B-1 CERTIFICATES, AS DESCRIBED HEREIN. IF THE AGGREGATE PRINCIPAL
BALANCE OF THE CLASS B CERTIFICATES IS REDUCED TO ZERO, THE YIELD TO MATURITY ON
THE CLASS M CERTIFICATES WILL BE EXTREMELY SENSITIVE TO LOSSES ON THE MORTGAGE
LOANS AND THE TIMING THEREOF BECAUSE THE ENTIRE AMOUNT OF ANY SUCH LOSSES WHICH
OCCUR AFTER THE AGGREGATE PRINCIPAL BALANCE OF THE CLASS B CERTIFICATES HAS BEEN
REDUCED TO ZERO WILL BE ALLOCABLE TO THE CLASS M CERTIFICATES, AS DESCRIBED
HEREIN. IN ADDITION, AS DESCRIBED HEREIN, FOR AT LEAST NINE YEARS AFTER THE
ISSUANCE OF THE CERTIFICATES OR SUCH LESSER TIME AS THE CLASS A CERTIFICATES ARE
OUTSTANDING, EACH CLASS OF SUBORDINATED CERTIFICATES (DEFINED HEREIN), AS WELL
AS THE CLASS IA-4 CERTIFICATES, WILL BE ENTITLED TO RECEIVE A PERCENTAGE OF
CERTAIN AMOUNTS, INCLUDING PRINCIPAL PREPAYMENTS, WHICH IS GENERALLY LESS THAN
THEIR PROPORTIONATE INTEREST IN THE TRUST FUND. SEE "DESCRIPTION OF THE
CERTIFICATES--SUBORDINATED CERTIFICATES AND SHIFTING INTERESTS."
No assurance can be given as to the rate or timing of principal payments or
prepayments on the Mortgage Loans. In addition, it is unlikely that prepayments
on the Mortgage Loans will occur at a constant rate even if the average
prepayment experience equals the indicated levels of the Prepayment Model.
In the event of acceleration of Mortgage Loans as a result of enforcement of
"due-on-sale" provisions in connection with transfers of the related Mortgaged
Properties, the level of prepayments on the respective Mortgage Loans will be
increased, thereby shortening the weighted average lives of the Offered
Certificates. See "Maturity and Prepayment Considerations" in the Prospectus.
S-41
<PAGE>
The yield to holders of the Offered Certificates will depend upon, among
other things, the price at which such Offered Certificates are purchased and the
amount of and rate at which principal, including both scheduled and unscheduled
payments thereof, is paid to the respective Certificateholders.
The yield to Certificateholders (other than the Class IA-3, Class IA-P and
Class IIA-P Certificateholders) will be reduced by lags between the time
interest income accrues to Certificateholders and the time the related interest
income is received by Certificateholders. In addition, the yield to
Certificateholders (other than the Class IA-3, Class IA-P and Class IIA-P
Certificateholders) may be reduced as a result of Prepayment Interest Shortfalls
(defined herein) to the extent described herein. See "Servicing--Adjustment to
Servicing Fee in Connection with Prepaid Mortgage Loans."
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement (the "Prepayment
Model") represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans. A prepayment
assumption of 100% of the Prepayment Model assumes prepayment rates of 0.2% per
annum of the then outstanding principal balance of such mortgage loans in the
first month of the life of the mortgage loans and an additional 0.2% per annum
in each month thereafter until the thirtieth month. Beginning in the thirtieth
month and in each month thereafter during the life of the mortgage loans, 100%
of the Prepayment Model assumes a constant prepayment rate of 6.0% per annum.
The tables set forth below are based on the assumption that the Mortgage Loans
prepay at the indicated percentages of the Prepayment Model. Neither the
Prepayment Model nor any other prepay-ment model purports to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Pool.
The tables set forth below have been prepared on the basis of the respective
expected initial principal balances of the Offered Certificates. For purposes of
preparation of the tables, it has been assumed that the composition of the
Mortgage Pool is as follows: (a) the Non-Discount Mortgage Loans (defined
herein) in Mortgage Group One had an aggregate outstanding principal balance as
of the Cut-off Date of $147,801,537.04, and each such Mortgage Loan has a
Mortgage Rate of 8.3298439811%, a Net Mortgage Rate of 8.0798439811%, a
remaining term to maturity of 317 months and a loan age of 41 months; (b) the
Discount Mortgage Loans (defined herein) in Mortgage Group One had an aggregate
outstanding principal balance as of the Cut-off Date of $19,966,266.03, and each
such Mortgage Loan has a Mortgage Rate of 7.2717978994%, a Net Mortgage Rate of
7.0717978994%, a remaining term to maturity of 326 months and a loan age of 31
months: (c) the Non-Discount Mortgage Loans in Mortgage Group Two had an
aggregate outstanding principal balance as of the Cut-off Date of
$24,811,121.96, and each such Mortgage Loan has a Mortgage Rate of
8.2585561954%, a Net Mortgage Rate of 8.0085561954%, a remaining term to
maturity of 135 months and a loan age of 42 months; and (d) the Discount
Mortgage Loans in Mortgage Group Two had an aggregate outstanding principal
balance as of the Cut-off Date of $14,471,056.16, and each such Mortgage Loan
has a Mortgage Rate of 7.1985676883%, a Net Mortgage Rate of 6.9985676883%, a
remaining term to maturity of 146 months and a loan age of 32 months. For
purposes of preparation of the tables, it also has been assumed that (i) the
Offered Certificates are purchased on August 27, 1996; (ii) payments on the
Offered Certificates are made on the 25th day of each month, commencing
September 25, 1996; (iii) the initial principal balance of each Class of Offered
Certificates and of the Non-Offered Class B Certificates is equal to the
respective principal balance for each such Class or Classes set forth on the
cover hereof; (iv) the initial Class A Percentage is approximately 94.25%; (v)
the initial Class IA Percentage is approximately 94.25%, (vi) the initial Class
IIA Percentage is approximately 94.25%; (vii) the initial Class M Percentage is
approximately 2.25%; (viii) the initial Class B-1 Percentage is approximately
1.00%; (ix) the initial Class B-2 Percentage is approximately 0.75%; (x) the
initial Non-Offered Class B Percentage is approximately 1.75%; (xi) the Mortgage
Loans prepay monthly in full on the last day of each month (with no Prepayment
Interest Shortfalls) at the specified percentage of the Prepayment Model, with
no delinquencies, losses or repurchases, commencing in August 1996; (xii) all
principal prepayments on the Mortgage Loans are applied on the Offered
Certificates in the manner
S-42
<PAGE>
described herein; (xiii) each scheduled Monthly Payment is made on its Due Date
commencing September 1, 1996; and (xiv) the Master Servicer does not repurchase
the outstanding Mortgage Loans as described below under "Description of the
Certificates--Optional Termination." The assumptions set forth in this paragraph
are referred to herein as the "Modeling Assumptions."
Any discrepancy between the characteristics of the Mortgage Loans actually
included in the Trust Fund and the characteristics of the Mortgage Loans
expected to be so included may affect the percentages of the original principal
balance outstanding set forth in the tables and the weighted average lives of
the Offered Certificates. In addition, to the extent that the Mortgage Loans
that actually are included in the Trust Fund have characteristics that differ
from those assumed in preparing the following tables, the outstanding principal
balance of any Offered Certificate will likely be reduced to zero earlier or
later than indicated by the tables.
Variations in actual prepayment experience and the principal balances of
Mortgage Loans that prepay may increase or decrease the percentages of the
original principal balances outstanding and the weighted average lives shown in
the following tables. Such variations may occur even if the average prepayment
experience of all such Mortgage Loans equals the indicated levels of the
Prepayment Model. There is no assurance that the Mortgage Loans will prepay at
any constant level of the Prepayment Model.
Based on the foregoing assumptions, the following tables indicate the
weighted average life of each Class of Offered Certificates and set forth the
percentages of the original principal balance of each Class of Offered
Certificates that would be outstanding after each of the dates shown at various
constant percentages of the Prepayment Model.
The approximate weighted average life in years (determined as set forth in
footnote (1) to each of the tables beginning on page S-44) of each Class of
Offered Certificates at 215% of the Prepayment Model, the assumed prepayment
speed used by the Underwriters (defined herein) to price the Offered
Certificates, is as follows:
<TABLE>
<S> <C> <C> <C>
Class IA-1: 5.3 Class IIA-1: 3.9
Class IA-2: 5.3 Class IIA-P: 4.2
Class IA-3: 5.3 Class M: 10.5
Class IA-4: 11.4 Class B-1: 10.5
Class IA-P: 6.2 Class B-2: 10.5
</TABLE>
NO ASSURANCE CAN BE GIVEN AS TO THE RATE OR TIMING OF PRINCIPAL PAYMENTS OR
PREPAYMENTS ON ANY OF THE MORTGAGE LOANS.
S-43
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
REMITTANCE CLASS IA-1 CLASS IA-2(2) CLASS IA-3
DATE ------------------------------- ------------------------------- -------------------------------
IN AUGUST 0% 100% 215% 350% 500% 0% 100% 215% 350% 500% 0% 100% 215% 350% 500%
- ------------------------------- --- ---- ---- ---- ---- --- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial........................ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
1997........................... 99 92 84 74 64 99 92 84 74 64 99 92 84 74 64
1998........................... 98 84 70 54 39 98 84 70 54 39 98 84 70 54 39
1999........................... 96 77 58 39 22 96 77 58 39 22 96 77 58 39 22
2000........................... 95 70 47 27 10 95 70 47 27 10 95 70 47 27 10
2001........................... 93 64 39 17 2 93 64 39 17 2 93 64 39 17 2
2002........................... 92 59 31 11 0 92 59 31 11 0 92 59 31 11 0
2003........................... 90 53 26 7 0 90 53 26 7 0 90 53 26 7 0
2004........................... 88 49 21 4 0 88 49 21 4 0 88 49 21 4 0
2005........................... 86 45 18 3 0 86 45 18 3 0 86 45 18 3 0
2006........................... 84 41 15 2 0 84 41 15 2 0 84 41 15 2 0
2007........................... 81 37 13 2 0 81 37 13 2 0 81 37 13 2 0
2008........................... 78 34 11 1 0 78 34 11 1 0 78 34 11 1 0
2009........................... 75 31 9 1 0 75 31 9 1 0 75 31 9 1 0
2010........................... 72 28 7 1 0 72 28 7 1 0 72 28 7 1 0
2011........................... 69 25 6 1 0 69 25 6 1 0 69 25 6 1 0
2012........................... 65 22 5 * 0 65 22 5 * 0 65 22 5 * 0
2013........................... 61 19 4 * 0 61 19 4 * 0 61 19 4 * 0
2014........................... 57 17 3 * 0 57 17 3 * 0 57 17 3 * 0
2015........................... 52 14 3 * 0 52 14 3 * 0 52 14 3 * 0
2016........................... 47 12 2 * 0 47 12 2 * 0 47 12 2 * 0
2017........................... 41 10 2 * 0 41 10 2 * 0 41 10 2 * 0
2018........................... 35 8 1 * 0 35 8 1 * 0 35 8 1 * 0
2019........................... 28 6 1 * 0 28 6 1 * 0 28 6 1 * 0
2020........................... 21 4 1 * 0 21 4 1 * 0 21 4 1 * 0
2021........................... 13 3 * * 0 13 3 * * 0 13 3 * * 0
2022........................... 4 1 * * 0 4 1 * * 0 4 1 * * 0
2023........................... * * * * 0 * * * * 0 * * * * 0
2024........................... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2025........................... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2026........................... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
--- ---- ---- ---- ---- --- ---- ---- ---- ---- --- ---- ---- ---- ----
Weighted Average Life in
years(1)....................... 17.7 9.6 5.3 3.0 1.9 17.7 9.6 5.3 3.0 1.9 17.7 9.6 5.3 3.0 1.9
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificate's to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
(2) Percentages and weighted average lives shown are based on the Class IA-2
Notional Amount, which at any time is equal to the outstanding principal
balance of the Class IA-1 Certificates.
* Less than 0.5% but greater than 0.0%.
S-44
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
REMITTANCE CLASS IA-4 CLASS IA-P
DATE ------------------------------- -------------------------------
IN AUGUST 0% 100% 215% 350% 500% 0% 100% 215% 350% 500%
- ---------------------------------------------------- --- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............................................. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
1997................................................ 99 99 99 99 99 99 93 86 78 69
1998................................................ 98 98 98 98 98 97 86 74 61 48
1999................................................ 96 96 96 96 96 96 80 63 47 33
2000................................................ 95 95 95 95 95 95 74 54 37 23
2001................................................ 93 93 93 93 93 93 68 47 29 16
2002................................................ 92 90 88 86 64 91 63 40 22 11
2003................................................ 90 86 82 76 36 89 58 34 17 7
2004................................................ 88 81 74 65 20 87 53 29 13 5
2005................................................ 86 75 64 52 12 85 49 25 10 3
2006................................................ 84 69 55 40 8 83 45 21 8 2
2007................................................ 81 63 46 31 5 80 41 18 6 2
2008................................................ 78 57 39 24 4 78 37 15 5 1
2009................................................ 75 52 33 18 2 75 33 12 3 1
2010................................................ 72 47 27 14 2 71 30 10 3 *
2011................................................ 69 42 23 10 1 68 27 9 2 *
2012................................................ 65 37 19 8 1 64 24 7 1 *
2013................................................ 61 33 15 6 * 61 21 6 1 *
2014................................................ 57 28 12 4 * 56 19 5 1 *
2015................................................ 52 24 10 3 * 52 16 4 1 *
2016................................................ 47 21 8 2 * 47 14 3 * *
2017................................................ 41 17 6 1 * 42 11 2 * *
2018................................................ 35 14 4 1 * 36 9 2 * *
2019................................................ 28 10 3 1 * 30 7 1 * *
2020................................................ 21 7 2 * * 24 5 1 * *
2021................................................ 13 4 1 * * 17 4 1 * *
2022................................................ 4 1 * * * 9 2 * * *
2023................................................ * * * * * 1 * * * *
2024................................................ 0 0 0 0 0 0 0 0 0 0
2025................................................ 0 0 0 0 0 0 0 0 0 0
2026................................................ 0 0 0 0 0 0 0 0 0 0
--- ---- ---- ---- ---- --- ---- ---- ---- ----
Weighted Average Life in years(1)................... 17.7 13.9 11.4 9.8 6.9 17.8 10.2 6.2 4.0 2.7
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificate's to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
* Less than 0.5% but greater than 0.0%.
S-45
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
REMITTANCE CLASS IIA-1 CLASS IIA-P
DATE ------------------------------- -------------------------------
IN AUGUST 0% 100% 215% 350% 500% 0% 100% 215% 350% 500%
- ---------------------------------------------------- --- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............................................. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
1997................................................ 94 88 82 73 64 95 89 82 75 66
1998................................................ 89 78 66 53 41 89 79 67 56 44
1999................................................ 82 67 52 38 25 83 69 55 41 28
2000................................................ 75 58 41 26 14 76 59 44 30 18
2001................................................ 67 48 32 18 8 69 51 35 21 12
2002................................................ 59 40 24 12 4 61 42 27 15 7
2003................................................ 50 32 18 8 2 53 34 20 10 4
2004................................................ 41 24 12 5 1 44 27 15 7 3
2005................................................ 30 17 8 3 * 35 20 10 4 1
2006................................................ 19 10 4 1 * 25 13 6 2 1
2007................................................ 7 3 1 * * 14 7 3 1 *
2008................................................ 1 * * * * 2 1 * * *
2009................................................ 0 0 0 0 0 0 0 0 0 0
2010................................................ 0 0 0 0 0 0 0 0 0 0
2011................................................ 0 0 0 0 0 0 0 0 0 0
--- ---- ---- ---- ---- --- ---- ---- ---- ----
Weighted Average Life in years(1)................... 6.7 5.2 3.9 2.9 2.1 7.0 5.4 4.2 3.1 2.3
</TABLE>
<TABLE>
<CAPTION>
REMITTANCE CLASS M CLASS B-1 CLASS B-2
DATE ------------------------------- ------------------------------- -------------------------------
IN AUGUST 0% 100% 215% 350% 500% 0% 100% 215% 350% 500% 0% 100% 215% 350% 500%
- ------------------------------- --- ---- ---- ---- ---- --- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial........................ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
1997........................... 98 98 98 98 98 98 98 98 98 98 98 98 98 98 98
1998........................... 96 96 96 96 96 96 96 96 96 96 96 96 96 96 96
1999........................... 94 94 94 94 94 94 94 94 94 94 94 94 94 94 94
2000........................... 91 91 91 91 91 91 91 91 91 91 91 91 91 91 91
2001........................... 89 89 89 89 89 89 89 89 89 89 89 89 89 89 89
2002........................... 86 84 82 80 77 86 84 82 80 77 86 84 82 80 77
2003........................... 82 79 75 70 64 82 79 75 70 64 82 79 75 70 64
2004........................... 79 73 66 58 50 79 73 66 58 50 79 73 66 58 50
2005........................... 75 66 56 46 36 75 66 56 46 36 75 66 56 46 36
2006........................... 71 59 47 34 24 71 59 47 34 24 71 59 47 34 24
2007........................... 67 52 38 26 16 67 52 38 26 16 67 52 38 26 16
2008........................... 64 46 32 19 10 64 46 32 19 10 64 46 32 19 10
2009........................... 61 42 26 15 7 61 42 26 15 7 61 42 26 15 7
2010........................... 59 38 22 11 5 59 38 22 11 5 59 38 22 11 5
2011........................... 56 34 18 8 3 56 34 18 8 3 56 34 18 8 3
2012........................... 53 30 15 6 2 53 30 15 6 2 53 30 15 6 2
2013........................... 49 26 12 5 1 49 26 12 5 1 49 26 12 5 1
2014........................... 46 23 10 3 1 46 23 10 3 1 46 23 10 3 1
2015........................... 42 20 8 2 1 42 20 8 2 1 42 20 8 2 1
2016........................... 38 17 6 2 * 38 17 6 2 * 38 17 6 2 *
2017........................... 33 14 5 1 * 33 14 5 1 * 33 14 5 1 *
2018........................... 28 11 4 1 * 28 11 4 1 * 28 11 4 1 *
2019........................... 23 8 2 1 * 23 8 2 1 * 23 8 2 1 *
2020........................... 17 6 2 * * 17 6 2 * * 17 6 2 * *
2021........................... 11 3 1 * * 11 3 1 * * 11 3 1 * *
2022........................... 4 1 * * * 4 1 * * * 4 1 * * *
2023........................... * * * * * * * * * * * * * * *
2024........................... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2025........................... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2026........................... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
--- ---- ---- ---- ---- --- ---- ---- ---- ---- --- ---- ---- ---- ----
Weighted Average Life in
years(1)....................... 15.6 12.5 10.5 9.1 8.2 15.6 12.5 10.5 9.1 8.2 15.6 12.5 10.5 9.1 8.2
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificate's to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
* Less than 0.5% but greater than 0.0%.
S-46
<PAGE>
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS IA-2 CERTIFICATES
The pre-tax yield to maturity of the Class IA-2 Certificates will be
extremely sensitive to fluctuations in the level of LIBOR and to the rate of the
principal payments (including prepayments, defaults and repurchases) on the
Mortgage Loans, which generally can be prepaid at any time. The Certificate Rate
on the Class IA-2 Certificates will vary inversely with LIBOR. A high rate of
LIBOR will have a material negative effect on the pre-tax yield to maturity of
the Class IA-2 Certificates. See "Description of the Certificates--Determination
of LIBOR." A high rate of principal payments (including prepayments, defaults
and repurchases) also will have a material negative effect on the pre-tax yield
to maturity of the Class IA-2 Certificates. It is possible that under certain
LIBOR interest rate scenarios or prepayment scenarios investors in the Class
IA-2 Certificates will not fully recoup their initial investment.
Changes in LIBOR may not correlate with changes in prevailing mortgage
interest rates. It is possible that lower prevailing mortgage interest rates,
which might be expected to result in faster prepayments, could occur
concurrently with an increased level of LIBOR.
To illustrate the significance of changes in LIBOR and prepayments on the
distributions on the Class IA-2 Certificates, the following table indicates the
approximate annual pre-tax yields to maturity of the Class IA-2 Certificates
stated on a corporate bond equivalent basis, under five different prepayment
assumptions based on the Prepayment Model described above and five levels of
LIBOR.
The tables set forth below are based on the Modeling Assumptions, and
assuming further that the purchase price of the Class IA-2 Certificates is
$5,731,323.32 (which includes accrued interest) and that LIBOR with respect to
the September 25, 1996 Remittance Date and each Remittance Date thereafter is as
indicated in the table. There can be no assurance that the Mortgage Loans in
Mortgage Group One will have the assumed characteristics, will prepay at any of
the rates shown in the table or at any other particular rate, that the pre-tax
yield to maturity on the Class IA-2 Certificates will correspond to any of the
pre-tax yields shown herein, that the level of LIBOR will correspond to the
levels shown herein or that the purchase price of the Class IA-2 Certificates
will equal the price assumed above. The actual prices to be paid for the Class
IA-2 Certificates have not been determined and will be dependent on the
characteristics of Mortgage Group One as ultimately constituted. Each investor
must make its own decision as to the appropriate prepayment assumptions to be
used and the appropriate levels of LIBOR to be assumed in deciding whether or
not to purchase a Class IA-2 Certificate.
SENSITIVITY OF THE CLASS IA-2 CERTIFICATES TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELD TO MATURITY)
<TABLE>
<CAPTION>
PREPAYMENT MODEL
----------------------------------------------------
% LIBOR 0% 100% 215% 350% 500%
- -------- ------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
3.43750 109.23% 98.73% 85.85% 69.15% 47.51%
4.43750 83.63% 73.87% 61.78% 45.76% 24.20%
5.43750 59.15% 50.11% 38.77% 23.11% 0.72%
6.43750 35.70% 27.41% 16.80% 1.09% (24.24%)
7.43750 12.46% 5.09% (4.45%) (19.73%) (55.25%)
</TABLE>
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed stream
of cash flows to be paid on the Class IA-2 Certificates, would cause the
discounted present value of such assumed stream of cash flows to equal an
assumed offering price $5,731,323.32 (which includes accrued interest). In all
cases monthly rates are converted to the corporate bond equivalent yields shown
above. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that cash flows are
reinvested at the related discount rates or internal rate of return. Thus, these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributions on the
Class IA-2 Certificates. Consequently, these pre-tax yields do not purport
S-47
<PAGE>
to reflect the return on any investment in the Class IA-2 Certificates when such
reinvestment rates are considered.
It is possible that the characteristics of the Mortgage Loans in Mortgage
Group One will not correspond exactly to those assumed in preparing the table
above. The yields of the Class IA-2 Certificates at each level of LIBOR may
therefore differ even if all the Mortgage Loans prepay monthly at the related
assumed prepayment rate. In addition, it is unlikely that any Mortgage Loan will
prepay at a constant rate until maturity or that all of the Mortgage Loans in
Mortgage Group One will prepay at the same rate. The timing of changes in the
rate of prepayments may affect significantly the total distributions received,
the date of receipt of such distributions and the actual pre-tax yield received
by a holder of the Class IA-2 Certificates even if the average rate of principal
prepayments on the Mortgage Loans in Mortgage Group One is consistent with an
investor's expectations.
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS IA-3 CERTIFICATES
The yield to maturity of the Class IA-3 Certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments
and defaults) on the Mortgage Loans in Mortgage Group One, which may fluctuate
significantly from time to time. A slower rate of principal payments on the
Mortgage Loans in Mortgage Group One than that anticipated by investors will
have a material negative effect on the yield to maturity of the Class IA-3
Certificates.
The following table illustrates the significant effect that principal
prepayments on the Mortgage Loans in Mortgage Group One may have upon the yield
to maturity of the Class IA-3 Certificates. The actual prices to be paid for the
Class IA-3 Certificates have not been determined and will be dependent on the
characteristics of Mortgage Group One. The table shows the hypothetical pre-tax
yields to maturity of the Class IA-3 Certificates, stated on a corporate bond
equivalent basis, under five different prepayment assumptions based on the
Prepayment Model described above. The table is based on the Modeling Assumptions
and assumes further that the purchase price of the Class IA-3 Certificates is
72.00%.
PRE-TAX YIELD
<TABLE>
<CAPTION>
PREPAYMENT MODEL
- ---------------------------------------------------
<S> <C> <C> <C> <C>
0% 100% 215% 350% 500%
- ----- ----- ----- ------ ------
<CAPTION>
<S> <C> <C> <C> <C>
1.91% 3.85% 7.38% 13.10% 20.46%
</TABLE>
Any change in the composition of Mortgage Group One from that assumed could
substantially alter the information set forth in the table above. No assurances
can be given as to the rate or timing of principal payments or prepayments on
the Mortgage Loans in Mortgage Group One.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class IA-3 Certificates would cause the
discounted present value of such assumed streams of cash flows to equal the
assumed offering price of 72.00% for the Class IA-3 Certificates. In all cases
monthly rates are then converted to the corporate bond equivalent yields shown
above. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that intermediate cash flows
are reinvested at the discount rate or internal rate of return. Thus, these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Class IA-3 Certificates. Consequently, these yields do not purport to reflect
the return on any investment in the Class IA-3 Certificates when such
reinvestment rates are considered.
It is possible that the characteristics of the Mortgage Loans in Mortgage
Group One will not correspond exactly to those assumed in preparing the table
above. The pre-tax yield of the Class IA-3 Certificates may therefore differ
even if all the Mortgage Loans in Mortgage Group One prepay
S-48
<PAGE>
monthly at the assumed prepayment rate. In addition, it is unlikely that any
Mortgage Loan in Mortgage Group One will prepay at a constant rate until
maturity or that all the Mortgage Loans in Mortgage Group One will prepay at the
same rate. The timing of changes in the rate of prepayments on the Mortgage
Loans in Mortgage Group One may affect significantly the total distributions
received, the date of receipt of such distributions and the actual yield
received by a holder of a Class IA-3 Certificate even if the average rate of
principal prepayments on the Mortgage Loans in Mortgage Group One is consistent
with an investor's expectations.
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS IA-P CERTIFICATES
The yield to maturity of the Class IA-P Certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments
and defaults) on the Discount Mortgage Loans (defined herein) in Mortgage Group
One, which may fluctuate significantly from time to time. A slower rate of
principal payments on the Discount Mortgage Loans in Mortgage Group One than
that anticipated by investors will have a material negative effect on the yield
to maturity of the Class IA-P Certificates. As of the Cut-off Date, there were
approximately 57 Discount Mortgage Loans in Mortgage Group One, with an
aggregate outstanding principal balance of approximately $19,966,266.
The following table illustrates the significant effect that principal
prepayments on the Discount Mortgage Loans in Mortgage Group One have upon the
yield to maturity of the Class IA-P Certificates. The actual prices to be paid
for the Class IA-P Certificates have not been determined and will be dependent
on the characteristics of Mortgage Group One. The table shows the hypothetical
pre-tax yields to maturity of the Class IA-P Certificates, stated on a corporate
bond equivalent basis, under five different prepayment assumptions based on the
Prepayment Model described above. The table is based on the Modeling Assumptions
and assumes further that the purchase price of the Class IA-P Certificates is
70.00%.
PRE-TAX YIELD
<TABLE>
<CAPTION>
PREPAYMENT MODEL
- ---------------------------------------------------
0% 100% 215% 350% 500%
- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C>
2.08% 3.91% 6.81% 10.92% 16.21%
</TABLE>
Any change in the composition of the Discount Mortgage Loans in Mortgage
Group One from that assumed could substantially alter the information set forth
in the table above. No assurances can be given as to the rate or timing of
principal payments or prepayments on the Discount Mortgage Loans in Mortgage
Group One.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class IA-P Certificates would cause the
discounted present value of such assumed streams of cash flows to equal the
assumed offering price of 70.00% for the Class IA-P Certificates. In all cases
monthly rates are then converted to the corporate bond equivalent yields shown
above. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that intermediate cash flows
are reinvested at the discount rate or internal rate of return. Thus, these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Class IA-P Certificates. Consequently, these yields do not purport to reflect
the return on any investment in the Class IA-P Certificates when such
reinvestment rates are considered.
It is possible that the characteristics of the Discount Mortgage Loans in
Mortgage Group One will not correspond exactly to those assumed in preparing the
table above. The pre-tax yield of the Class IA-P Certificates may therefore
differ even if all the Discount Mortgage Loans in Mortgage Group One prepay
monthly at the assumed prepayment rate. In addition, it is unlikely that any
Discount Mortgage
S-49
<PAGE>
Loan in Mortgage Group One will prepay at a constant rate until maturity or that
all the Discount Mortgage Loans in Mortgage Group One will prepay at the same
rate. The timing of changes in the rate of prepayments on the Discount Mortgage
Loans in Mortgage Group One may affect significantly the total distributions
received, the date of receipt of such distributions and the actual yield
received by a holder of a Class IA-P Certificate even if the average rate of
principal prepayments on the Discount Mortgage Loans in Mortgage Group One is
consistent with an investor's expectations. Because the Discount Mortgage Loans
in Mortgage Group One will have a lower average Net Mortgage Rate than the
Mortgage Loans in Mortgage Group One as a whole, in general it is likely that
prepayments on the Class IA-P Certificates will occur more slowly than on the
Non-PO Class IA Certificates (other than the Class IA-4 Certificates)
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS IIA-P CERTIFICATES
The yield to maturity of the Class IIA-P Certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments
and defaults) on the Discount Mortgage Loans in Mortgage Group Two, which may
fluctuate significantly from time to time. A slower rate of principal payments
on the Discount Mortgage Loans in Mortgage Group Two than that anticipated by
investors will have a material negative effect on the yield to maturity of the
Class IIA-P Certificates. As of the Cut-off Date, there were approximately 49
Discount Mortgage Loans in Mortgage Group Two, with an aggregate outstanding
principal balance of approximately $14,471,056.
The following table illustrates the significant effect that principal
prepayments on the Discount Mortgage Loans in Mortgage Group Two have upon the
yield to maturity of the Class IIA-P Certificates. The actual prices to be paid
for the Class IIA-P Certificates have not been determined and will be dependent
on the characteristics of Mortgage Group Two. The table shows the hypothetical
pre-tax yields to maturity of the Class IIA-P Certificates, stated on a
corporate bond equivalent basis, under five different prepayment assumptions
based on the Prepayment Model described above. The table is based on the
Modeling Assumptions and assumes further that the purchase price of the Class
IIA-P Certificates is 68.00%.
PRE-TAX YIELD
<TABLE>
<CAPTION>
PREPAYMENT MODEL
- ----------------------------------------------------
0% 100% 215% 350% 500%
- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C>
5.89% 7.88% 10.74% 14.87% 20.43%
</TABLE>
Any change in the composition of the Discount Mortgage Loans in Mortgage
Group Two from that assumed could substantially alter the information set forth
in the table above. No assurances can be given as to the rate or timing of
principal payments or prepayments on the Discount Mortgage Loans in Mortgage
Group Two.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class IIA-P Certificates would cause the
discounted present value of such assumed streams of cash flows to equal the
assumed offering price of 68.00% for the Class IIA-P Certificates. In all cases
monthly rates are then converted to the corporate bond equivalent yields shown
above. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that intermediate cash flows
are reinvested at the discount rate or internal rate of return. Thus, these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Class IIA-P Certificates. Consequently, these yields do not purport to reflect
the return on any investment in the Class IIA-P Certificates when such
reinvestment rates are considered.
S-50
<PAGE>
It is possible that the characteristics of the Discount Mortgage Loans in
Mortgage Group Two will not correspond exactly to those assumed in preparing the
table above. The pre-tax yield of the Class IIA-P Certificates may therefore
differ even if all the Discount Mortgage Loans in Mortgage Group Two prepay
monthly at the assumed prepayment rate. In addition, it is unlikely that any
Discount Mortgage Loan in Mortgage Group Two will prepay at a constant rate
until maturity or that all the Discount Mortgage Loans in Mortgage Group Two
will prepay at the same rate. The timing of changes in the rate of prepayments
on the Discount Mortgage Loans in Mortgage Group Two may affect significantly
the total distributions received, the date of receipt of such distributions and
the actual yield received by a holder of a Class IIA-P Certificate even if the
average rate of principal prepayments on the Discount Mortgage Loans in Mortgage
Group Two is consistent with an investor's expectations. Because the Discount
Mortgage Loans in Mortgage Group Two will have a lower average Net Mortgage Rate
than the Mortgage Loans in Mortgage Group Two as a whole, in general it is
likely that prepayments on the Class IIA-P Certificates will occur more slowly
than on the Non-PO Class IIA Certificates.
The Company makes no representation that any of the Mortgage Loans will
prepay in the manner or at any of the rates assumed in the tables set forth
above. Each investor must make its own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase any of the Offered
Certificates. Since the rate of principal payments (including prepayments) and
repurchases on the Mortgage Loans will significantly affect the yield to
maturity on the Offered Certificates, prospective investors are urged to consult
their investment advisors as to both the anticipated rate of future principal
payments (including prepayments) on the Mortgage Loans and the suitability of
the Offered Certificates to their investment objectives.
The Company intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Securities and Exchange Commission in a Report on Form
8-K. See "Incorporation of Certain Documents By Reference" in the Prospectus.
Such tables and materials were prepared by the Underwriters at the request of
certain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such investors. Such tables and assumptions may be
based on assumptions that differ from the Modeling Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for
investors other than those specifically requesting them.
SERVICING
GENERAL
The Mortgage Loans will be serviced by the Master Servicer generally in
accordance with procedures described in the accompanying Prospectus under the
heading "Description of the Certificates."
When any Mortgaged Property is conveyed by the Mortgagor, the Master
Servicer generally will enforce, and will cause any Subservicer to enforce, any
"due-on-sale" clause contained in the Mortgage Loan, to the extent permitted
under applicable law and governmental regulations. Acceleration of Mortgage
Loans as a result of enforcement of such "due-on-sale" provisions in connection
with transfers of the related Mortgaged Properties will affect the level of
prepayments on the Mortgage Loans, thereby affecting the weighted average lives
and yields to maturity of the Offered Certificates. See "Prepayment and Yield
Considerations" herein and "Maturity and Prepayment Considerations" in the
Prospectus. The terms of the Mortgage Loans or applicable law, however, may
provide that the Master Servicer is prohibited from exercising the "due-on-sale"
clause if information is submitted so as to evaluate the intended buyer as if a
new loan were being made to the buyer and it can reasonably be determined that
the security under the related Mortgage Note will not be impaired by the
assumption of
S-51
<PAGE>
the Mortgage Loan and that the risk of a breach of any covenant in the Mortgage
Note is acceptable. Upon any such assumption, a fee equal to a specified
percentage of the outstanding principal balance of the Mortgage Loan is
typically required, which sum will be retained by the Master Servicer as
additional servicing compensation.
The Master Servicer generally institutes foreclosure proceedings when all
other reasonable means to cure a default have been exhausted. It monitors each
foreclosure action on its residential loans to ensure that required actions are
completed on a timely basis in accordance with the laws of the applicable
jurisdiction. The Master Servicer will acquire title to the Mortgaged Property
in the name of the Trustee for the benefit of the Certificateholders and manage
the disposition of such property.
Generally, when a mortgagor fails to make a required payment on a mortgage
loan and does not cure the deficiency promptly, the loan is classified as
delinquent. In many cases, delinquencies are cured promptly, but if not,
foreclosure proceedings are generally commenced. The procedural steps necessary
for foreclosure vary from state to state, but generally, if the loan is not
reinstated within certain periods specified by the relevant mortgage loan
documents, the property securing the loan can be acquired by the lender. If a
mortgagee takes title to the mortgaged property through foreclosure but the
mortgaged property has a value lower than the outstanding amount of the debt,
the law in certain states permits such mortgagee to obtain a deficiency judgment
in the amount of the difference. The laws of certain other states restrict or
prohibit such deficiency judgments. It is anticipated that in most cases the
Master Servicer will not seek deficiency judgments against defaulted mortgagors.
CHASE MANHATTAN MORTGAGE CORPORATION
Effective April 1, 1996, Chemical Residential Mortgage Corporation ("CRMC")
purchased certain assets of Chase Manhattan Mortgage Corporation (which on such
date changed its name to Chase Mortgage Services, Inc.) and changed its name to
Chase Manhattan Mortgage Corporation ("CMMC"). CMMC will act as Master Servicer
pursuant to the Agreement. As of June 30, 1996, CMMC serviced or subserviced
approximately $95 billion of conventional one- to four-family residential
mortgage loans. The principal office of CMMC is located at 343 Thornall Street,
Edison, New Jersey 08837, and its telephone number is (908) 205-0600. The loans
contained in CMMC's servicing portfolio include fixed and adjustable rate loans,
first and second lien loans and one- to four-family loans, and therefore may
differ significantly from the Mortgage Loans. There can be no assurance, and no
representation is made, that the delinquency experience with respect to the
Mortgage Loans will be similar to that reflected in the table below, nor is any
representation made as to the rate at which losses may be experienced on
liquidation of defaulted Mortgage Loans.
The following table summarizes the foreclosure and delinquency experience on
conventional residential (fixed and adjustable rate) first trust deed or
mortgage loans (including loans originated by unaffiliated originators) serviced
or subserviced by CMMC as of the dates indicated. As of each of the dates
indicated (other than June 30, 1996), CMMC was known as Chemical Residential
Mortgage Corporation; however, the statistical information set forth below has
been restated to include corresponding information with respect to the
corporation, formerly known as Chase Manhattan Mortgage
S-52
<PAGE>
Corporation, certain of the assets of which Chemical Residential Mortgage
Corporation purchased effective April 1, 1996.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
-------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Principal Balance (End of
Period)............................... $73,927,369 $93,123,503 $81,654,744 $94,847,046
Total Number of Loans................. 678,883 876,107 741,911 881,913
DELINQUENCIES AND FORECLOSURES
Period of Delinquency: 30-59 Days
Principal Balance................... $ 1,746,294 $ 2,022,700 $ 1,658,328 $ 1,978,733
Number of Loans..................... 16,241 19,453 15,350 18,692
Percent Delinquent by Number of
Loans................................. 2.39% 2.22% 2.07% 2.12%
Period of Delinquency: 60-89 Days
Principal Balance................... $ 340,305 $ 369,325 $ 324,120 $ 352,004
Number of Loans..................... 3,170 3,639 2,929 3,325
Percent Delinquent by Number of
Loans................................. 0.47% 0.42% 0.39% 0.38%
Period of Delinquency: 90 Days or more
Principal Balance................... $ 240,348 $ 338,106 $ 251,916 $ 218,825
Number of Loans..................... 2,220 3,279 2,336 2,084
Percent Delinquent by Number of
Loans................................. 0.33% 0.37% 0.31% 0.24%
In Foreclosure
Principal Balance................... $ 525,454 $ 709,646 $ 575,729 $ 786,740
Number of Loans..................... 4,837 6,805 5,314 7,541
Percent in Foreclosure by Number of
Loans................................. 0.71% 0.78% 0.72% 0.86%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Total Delinquent or in Foreclosure
Principal Balance................... $ 2,852,401 $ 3,439,777 $ 2,810,093 $ 3,336,302
Number of Loans..................... 26,468 33,176 25,929 31,642
Percent Delinquent or in Foreclosure
by Number of Loans.................... 3.90% 3.79% 3.49% 3.59%
</TABLE>
The above delinquency and foreclosure statistics represent the recent
experience of CMMC. There can be no assurance, however, that the delinquency
experience on the Mortgage Loans will be comparable. In addition, the foregoing
statistics include mortgage loans with a variety of payment and other
characteristics that may not correspond to those of the Mortgage Loans. Further,
the Mortgage Loans were not chosen from CMMC's portfolio on the basis of any
methodology which could or would make them representative of the total pool of
mortgage loans in CMMC's portfolio. The actual delinquency experience on the
Mortgage Loans will depend, among other things, upon the value of the real
estate securing such Mortgage Loans and the ability of the mortgagors to make
required payments.
The likelihood that mortgagors will become delinquent in the payment of
their mortgage loans and the rate of any subsequent foreclosures may be affected
by a number of factors related to borrowers' personal circumstances, including,
but not limited to, unemployment or change in employment (or in the case of
self-employed mortgagors or mortgagors relying on commission income,
fluctuations in income), marital separation and a mortgagor's equity in the
related mortgaged property. In addition, delinquency and foreclosure experience
may be sensitive to adverse economic conditions, either nationally or
regionally, may exhibit seasonal variations and may be influenced by the level
of interest rates and servicing decisions on the applicable mortgage loans.
Regional economic conditions (including
S-53
<PAGE>
declining real estate values) may particularly affect delinquency and
foreclosure experience on mortgage loans to the extent that mortgaged properties
are concentrated in certain geographic areas.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer will be paid a monthly fee (the "Servicing Fee")
(including sub-servicing compensation) with respect to each Mortgage Loan in an
amount equal to (i) 0.25% per annum of the unpaid principal balance of each
Mortgage Loan having a Mortgage Rate greater than or equal to 7.50% per annum;
and (ii) 0.20% per annum of the unpaid principal balance of each Mortage Loan
having a Mortgage Rate less than 7.50% per annum.
The Master Servicer is obligated to pay certain ongoing expenses associated
with the Mortgage Pool and incurred by the Master Servicer in connection with
its responsibilities under the Agreement. See "Description of the
Certificates--Certificates Evidencing Interests in Mortgage Loans--Servicing
Compensation and Payment of Expenses" in the Prospectus for information
regarding other possible compensation to the Master Servicer and for information
regarding expenses payable by the Master Servicer.
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH PREPAID MORTGAGE LOANS
When a Mortgagor makes a full or partial principal prepayment of a Mortgage
Loan between Due Dates, the Mortgagor generally is required to pay interest on
the principal balance thereof only to the date of prepayment. In order to
minimize any resulting shortfall in interest (such shortfall, a "Prepayment
Interest Shortfall"), the aggregate amount of the Servicing Fee will be reduced
to the extent necessary to include an amount in payments to the holders of the
Offered Certificates equal to a full month's interest payment at the applicable
Net Mortgage Rate (defined herein) with respect to such prepaid Mortgage Loan.
Such reductions in the Servicing Fee will be made only to the extent that the
aggregate amount of such interest shortfalls does not exceed the aggregate
amount of the Servicing Fee on the related Remittance Date. Any Prepayment
Interest Shortfalls (adjusted to the applicable Net Mortgage Rate) in excess of
the aggregate amount of the Servicing Fee deposited in the Certificate Account
for a Remittance Date (such excess, the "Non-Supported Interest Shortfall") will
be allocated on such Remittance Date pro rata among the outstanding Classes of
Certificates based upon the amount of interest which each such Class would
otherwise be paid on such Remittance Date and will consequently reduce the yield
on the applicable Classes of Certificates. Any principal prepayment, together
with a full month's interest thereon at the applicable Net Mortgage Rate (to the
extent described in this paragraph), will be paid on the Remittance Date in the
month following the month in which the last day of the related Principal
Prepayment Period (defined herein) occurred. See "Yield Considerations" in the
Prospectus.
ADVANCES
The Master Servicer is obligated to make Advances of cash each month for
distribution to the Certificateholders equal to the difference between the
amount due to them and the amount in the Certificate Account available to be
distributed to them pursuant to the Agreement, but only to the extent such
difference is attributable to delinquent Monthly Payments due on the immediately
preceding Due Date. The Master Servicer is under no obligation to make an
Advance with respect to any Mortgage Loan if the Master Servicer determines, in
its sole discretion, that such Advance will not be recoverable from future
payments and collections, including liquidation proceeds, on such Mortgage Loan.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to the Certificateholders, not to guarantee or insure against
losses. Accordingly, any funds so advanced are recoverable by the Master
Servicer out of amounts received on the Mortgage Loans.
S-54
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. A copy of the
Agreement will be attached as an exhibit to the Current Report on Form 8-K of
the Company that will be available to purchasers of the Certificates at, and
will be filed with the Securities and Exchange Commission within 15 days of, the
initial delivery of the Certificates. Reference is made to the Prospectus for
additional information regarding the terms and conditions of the Agreement.
The following summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
Agreement. When particular provisions or terms used in the Agreement are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference.
GENERAL
Initially, the Class A Certificates will evidence in the aggregate a
beneficial interest of approximately 94.25% in the Trust Fund (the "Class A
Percentage"), allocated between the Class IA Certificates, which will initially
represent a beneficial interest of approximately 94.25% (the "Class IA
Percentage") based upon the Mortgage Loans and other property related to
Mortgage Group One and the Class IIA Certificates, which will initially
represent a beneficial interest of approximately 94.25% (the "Class IIA
Percentage") based upon the Mortgage Loans and other property related to
Mortgage Group Two. Initially, the Class M Certificates will evidence a
beneficial interest of approximately 2.25% in the Trust Fund (the "Class M
Percentage"), the Class B-1 Certificates will evidence a beneficial interest of
approximately 1.00 in the Trust Fund (the "Class B-1 Percentage"), the Class B-2
Certificates will evidence in the aggregate a beneficial interest of
approximately 0.75% in the Trust Fund (the "Class B-2 Percentage") and the
Non-Offered Class B Certificates will evidence in the aggregate the remaining
beneficial interest (the "Non-Offered Class B Percentage") in the Trust Fund.
Initially, the Non-Offered Class B Percentage will be approximately 1.75%. The
Class A Percentage (both in the aggregate and with respect to each Mortgage
Group), the Class M Percentage, the Class B-1 Percentage and the Class B-2
Percentage will vary from time to time to the extent that the respective Class
A, Class M, Class B-1 or Class B-2 Certificateholders do not receive amounts due
to them on any Remittance Date, losses are realized on the Mortgage Loans, or
principal prepayments are made or certain other unscheduled amounts of principal
are received in respect of the Mortgage Loans. See "Description of the
Certificates--Subordinated Certificates and Shifting Interests." The Non-Offered
Class B Certificates will be privately placed with a limited number of
institutional investors and are not offered hereby. The Offered Certificates
(other than the Class IA-2 Certificates) generally will be issuable in
denominations of $1,000 principal amount (or integral multiples thereof). The
Class IA-2 Certificates will generally be issuable in denominations of $100,000
(or integral multiples of $1,000 in excess thereof) of the Class IA-2 Notional
Amount (defined herein).
The Class M, Class B-1 and Class B-2 Certificates, as well as Definitive
Certificates (defined herein), if any, will be transferable and exchangeable at
the corporate trust office of the Trustee at 111 Wall Street, New York, New
York. No service charge will be made for any registration or transfer of Offered
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge in connection with such transfer. The
Offered Certificates, other than the Class M, Class B-1 and Class B-2
Certificates (such Classes of Certificates, the "Book-Entry Certificates") will
be represented initially by one or more physical certificates registered in the
name of Cede & Co. ("Cede") as the nominee of The Depository Trust Company
("DTC"). No person acquiring an interest in the Book-Entry Certificates (a
"Certificate Owner") will be entitled to receive a certificate representing such
person's interest in the Trust Fund, except as set forth below under
"Description of the Certificates--Definitive Certificates." Unless and until
Definitive Certificates are issued under the
S-55
<PAGE>
limited circumstances described herein, all references to actions by the
Book-Entry Certificateholders shall refer to actions taken by DTC upon
instructions from its Participants (as defined below) and all references herein
to distributions, notices, reports and statements to the Book-Entry
Certificateholders shall refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the Book-Entry Certificates, as the
case may be, for distribution to Certificate Owners in accordance with DTC
procedures. See "Description of the Certificates--Book-Entry Registration."
The Final Scheduled Remittance Date of each Class of Offered Certificates
(other than the Class IIA-1 and Class IIA-P Certificates) is November 25, 2026,
which is the Remittance Date occurring in the month that is twelve months
following the latest stated maturity date of any Mortgage Loan in Mortgage Group
One. The Final Scheduled Remittance Date for each Class of Class IIA
Certificates is January 25, 2011, which is the Remittance Date occurring in the
month that is twelve months following the latest stated maturity date of any
Mortgage Loan in Mortgage Group Two.
The rate of principal payments of the Certificates will depend on the rate
of principal payments of the Mortgage Loans (including prepayments, defaults,
delinquencies and liquidations) which, in turn, will depend on the
characteristics of the Mortgage Loans, the level of prevailing interest rates
and other economic factors, and no assurance can be given as to the actual
payment experience. The principal balance or notional amount, as applicable, of
each Class of Certificates may be reduced to zero earlier or later than its
Final Scheduled Remittance Date.
BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the State
of New York and is a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934. DTC was created to hold securities for its participating
organizations (each, a "Participant") and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (including
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and Chase Securities
Inc. ("CSI" and, together with DLJ, the "Underwriters")), banks, trust companies
and clearing corporations. Indirect access to the DTC system also is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants and
that desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Book-Entry Certificates may do so only through Participants
and Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest on the Book-Entry Certificates through a
Participant or an Indirect Participant. Under a book-entry format, Certificate
Owners may experience some delay in their receipt of payments, since such
payments will be forwarded by Chase, as Paying Agent, to Cede, as nominee for
DTC. DTC will forward such payments to its Participants, which thereafter will
forward them to Certificate Owners directly or through an Indirect Participant.
It is anticipated that the only "Certificateholder" of a Book-Entry Certificate
will be Cede, as nominee of DTC. Certificate Owners will not be recognized by
the Trustee as Certificateholders, as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of Book-Entry
Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC will be required to make book-entry transfers
of Book-Entry Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, Book-Entry
S-56
<PAGE>
Certificates. Participants and Indirect Participants with which Certificates
Owners have accounts with respect to the Book-Entry Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificate Owners. Accordingly, although Certificate
Owners will not possess physical certificates, the Rules provide a mechanism by
which Participants and Certificate Owners will receive payments and will be able
to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, and on behalf of certain banks, the ability of
a Certificate Owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the DTC system, or to otherwise act with respect to
such Certificates, may be limited due to the absence of physical certificates
for such Certificates.
DTC has advised the Company that it will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Participants to whose accounts with DTC the Book-Entry Certificates are
credited. Additionally, DTC has advised the Company that it will take such
action where the consent of specified percentages of the Offered Certificates is
required under the Agreement only at the direction of and on behalf of
Participants whose interests represent such specified percentages. DTC may take
conflicting actions on behalf of other Participants.
Neither the Company, the Master Servicer, the Certificate Administrator nor
the Trustee will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Book-Entry
Certificates held by Cede, as nominee for DTC, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
DEFINITIVE CERTIFICATES
The Class M, Class B-1 and Class B-2 Certificates will be issued in fully
registered, certificated form. The Book-Entry Certificates will be issued in
fully registered, certificated form ("Definitive Certificates") to Certificate
Owners or their nominees, rather than to DTC or its nominee, only if (i) the
Company advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as depository with respect to the
Book-Entry Certificates and the Company is unable to locate a qualified
successor within 30 days or (ii) the Company, at its option, elects to terminate
the book-entry system through DTC.
Upon the occurrence of either event described in the immediately preceding
paragraph, the Trustee is required to notify DTC which in turn will notify all
Certificate Owners through Participants of the availability of Definitive
Certificates in exchange for Book-Entry Certificates. Upon surrender by Cede, as
nominee of DTC, of the definitive certificates representing the Book-Entry
Certificates and receipt of instructions for re-registration, the Trustee will
reissue the Book-Entry Certificates as Definitive Certificates to Certificate
Owners.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Distributions of principal and interest on the Certificates will be made on
the 25th day of each month or, if such day is not a business day, the next
succeeding business day (each, a "Remittance Date"), beginning September 25,
1996, to the persons in whose names the Certificates are registered at the close
of business on the last business day of the month preceding the month in which
payment is made (each, a "Record Date"). Distributions will be made to each
Class as described below and on a pro rata basis among the Certificates of each
Class. Distributions of principal of and interest on the Book-Entry Certificates
will initially be made by Chase, as Paying Agent, directly to Cede by wire
transfer. Distributions of principal and/or interest with respect to the Class
IA-3, Class IA-P, Class IIA-P, Class M, Class B-1 and Class B-2 Certificates
and, upon the issuance of Definitive Certificates to
S-57
<PAGE>
persons other than Cede, distributions of principal and/or interest on such
Definitive Certificates will be made by Chase, as Paying Agent, directly to
holders in whose names such Certificates were registered at the close of
business on the related Record Date. Such distributions will be made by check
mailed to the address of the person entitled thereto as it appears on the
certificate register, or, upon written request to the Certificate Administrator
delivered at least ten business days prior to the first Remittance Date for
which distribution by wire transfer is to be made, by a holder of an Offered
Certificate having an original aggregate principal balance (or Class IA-2
Notional Amount, in the case of the Class IA-2 Certificates) of at least
$5,000,000, by wire transfer to such Certificateholder, except that the final
distribution in retirement of Certificates will be made only upon presentation
and surrender of the Certificates at the office or agency of the Trustee
specified in the final distribution notice to Certificateholders.
Principal received as part of a regularly scheduled Monthly Payment on each
Mortgage Loan will be passed through monthly on the Remittance Date occurring in
the month in which the related Due Date occurs. The Non-PO Class IA
Certificateholders and Non-PO Class IIA Certificateholders will be entitled to
an amount equal to the Non-PO Class IA Percentage (defined herein) and Non-PO
Class IIA Percentage (defined herein), respectively, of the applicable Non-PO
Percentage (defined herein) of scheduled principal amounts due with respect to
Mortgage Group One and Mortgage Group Two, respectively. Principal prepayments
and certain other unscheduled amounts of principal received during the period
from the first day of any month to the last day of such month (each, a
"Principal Prepayment Period") will be passed through on the Remittance Date
occurring in the month following the month of receipt. The Non-PO Class IA
Certificateholders and Non-PO Class IIA Certificateholders will be entitled to
an amount equal to the Non-PO Class IA Prepayment Percentage (defined herein)
and Non-PO Class IIA Prepayment Percentage (defined herein), respectively, of
the applicable Non-PO Percentage of such unscheduled amounts of principal paid
with respect to Mortgage Group One and Mortgage Group Two, respectively.
"Class IA Certificates" means the Class IA-1, Class IA-2, Class IA-3, Class
IA-4 and Class IA-P Certificates, referred to collectively.
"Class IIA Certificates" means the Class IIA-1 and Class IIA-P Certificates,
referred to collectively.
"Class A Certificates" means the Class IA and Class IIA Certificates,
referred to collectively.
The Class A, Class M, Class B-1 and Class B-2 Certificates are sometimes
collectively referred to herein as the "Offered Certificates."
The Class IA Certificates (exclusive of the Class IA-P Certificates) are
sometimes collectively referred to herein as the "Non-PO Class IA Certificates."
The Class IIA Certificates (exclusive of the Class IIA-P Certificates) are
sometimes collectively referred to herein as the "Non-PO Class IIA
Certificates."
"Class B Certificates" means the Class B-l, Class B-2, Class B-3, Class B-4
and Class B-5 Certificates, referred to collectively.
"Non-Offered Class B Certificates" means the Class B-3, Class B-4 and Class
B-5 Certificates, referred to collectively.
"Subordinated Certificates" means the Class M and Class B Certificates,
referred to collectively.
On any Remittance Date, the "Class IA-2 Notional Amount" will be an amount
equal to the outstanding principal balance of the Class IA-1 Certificates.
S-58
<PAGE>
With respect to each Mortgage Loan, the "PO Percentage" will equal a
fraction, expressed as a percentage (but not less than 0%), the numerator of
which will equal the excess, if any, of 7.25% per annum (the "Remittance Rate")
over the applicable Net Mortgage Rate (defined herein) and the denominator of
which will equal the Remittance Rate. The PO Percentage will be 0% with respect
to Mortgage Loans for which the Net Mortgage Rate is greater than or equal to
the Remittance Rate. As
of the Cut-off Date, the weighted average Mortgage Rate of the Discount Mortgage
Loans (defined below) in Mortgage Group One is approximately 7.272% and the
weighted average Mortgage Rate of the Discount Loans in Mortgage Group Two is
approximately 7.199%.
With respect to each Mortgage Loan, the "Non-PO Percentage" will equal a
fraction, expressed as a percentage (but not greater than 100%), the numerator
of which will equal the applicable Net Mortgage Rate and the denominator of
which will equal the Remittance Rate. The Non-PO Percentage will be 100% with
respect to Mortgage Loans for which the Net Mortgage Rate is greater than or
equal to the Remittance Rate.
The "Discount Mortgage Loans" are those Mortgage Loans having Net Mortgage
Rates less than the Remittance Rate.
The "Non-Discount Mortgage Loans" are those Mortgage Loans having Net
Mortgage Rates greater than or equal to the Remittance Rate.
The Class IA-P and Class IIA-P Certificates will not be entitled to receive
interest and will be entitled to receive principal only from the applicable PO
Percentage of principal received with respect to the Discount Mortgage Loans in
the related Mortgage Group. With respect to each Mortgage Loan, the "Net
Mortgage Rate" equals the applicable Mortgage Rate less the applicable Servicing
Fee.
The Class IA-3 Certificates will not be entitled to receive interest and
will be entitled to receive principal only from the applicable Non-PO Percentage
of principal received with respect to the Mortgage Loans in Mortgage Group One
as further described herein.
The "Mortgage Group One PO Allocated Amount" will be calculated as of any
date by (i) multiplying the outstanding principal balance of each Mortgage Loan
in Mortgage Group One as of such date (giving effect to any Advances but prior
to giving effect to any principal prepayments received with respect to such
Mortgage Loan that have not been passed through to the Certificateholders) by
the PO Percentage with respect to such Mortgage Loan and (ii) summing the
results.
The "Mortgage Group Two PO Allocated Amount" will be calculated as of any
date by (i) multiplying the outstanding principal balance of each Mortgage Loan
in Mortgage Group Two as of such date (giving effect to any Advances but prior
to giving effect to any principal prepayments received with respect to such
Mortgage Loan that have not been passed through to the Certificateholders) by
the PO Percentage with respect to such Mortgage Loan and (ii) summing the
results.
The "Mortgage Group One Non-PO Allocated Amount" will be calculated as of
any date by (i) multiplying the outstanding principal balance of each Mortgage
Loan in Mortgage Group One as of such date (giving effect to any Advances but
prior to giving effect to any principal prepayments received with respect to
such Mortgage Loan that have not been passed through to the Certificateholders)
by the Non-PO Percentage with respect to such Mortgage Loan and (ii) summing the
results.
The "Mortgage Group Two Non-PO Allocated Amount" will be calculated as of
any date by (i) multiplying the outstanding principal balance of each Mortgage
Loan in Mortgage Group Two as of such date (giving effect to any Advances but
prior to giving effect to any principal prepayments received with respect to
such Mortgage Loan that have not been passed through to the Certificateholders)
by the Non-PO Percentage with respect to such Mortgage Loan and (ii) summing the
results.
S-59
<PAGE>
Distributions in respect of principal will be made on each Remittance Date
to the Class IA-P Certificates in an amount (the "Class IA-P Amount") equal to
the sum of (A) the difference between (i) the Mortgage Group One PO Allocated
Amount as of the first day of the related Due Period and (ii) the Mortgage Group
One PO Allocated Amount as of the last day of the related Due Period (after
application of payments received during such Due Period) and (B) the amount, if
any, by which the Class IA-P Amount with respect to the previous Remittance Date
exceeded the amount distributed to the Class IA-P Certificates on such previous
Remittance Date.
Except during such time as the aggregate principal balance of the
Subordinated Certificates equals zero, distributions in respect of principal
will be made on each Remittance Date to the Non-PO Class IA Certificates as
described below. On each Remittance Date, the portion of the Non-PO Class IA
Distribution Amount (defined herein) remaining after the payment of interest as
described below to the Non-PO Class IA Certificateholders will be distributed to
the Non-PO Class IA Certificateholders as follows:
first, to the Class IA-4 Certificates, up to the Class IA-4 Priority
Amount (defined below);
second, to the Class IA-1 and Class IA-3 Certificates, pro rata based
upon their outstanding principal balances, until their principal balances
have been reduced to zero; and
third, to the Class IA-4 Certificates until their principal balance has
been reduced to zero.
If the aggregate outstanding principal balance of the Subordinated
Certificates is reduced to zero, any distributions in respect of principal among
the remaining Classes of Non-PO Class IA Certificates will be made pro rata in
accordance with their respective outstanding principal balances and not in
accordance with the priorities set forth above.
The "Class IA-4 Priority Amount" for any Remittance Date means the lesser of
(i) the outstanding principal balance of the Class IA-4 Certificates and (ii)
the sum of (A) the product of (1) the Class IA-4 Percentage and (2) the Mortgage
Group One Scheduled Principal Amount and (B) the product of (1) the Class IA-4
Percentage, (2) the Class IA-4 Prepayment Shift Percentage and (3) the Mortgage
Group One Unscheduled Principal Amount.
The "Class IA-4 Percentage" means, as of any Remittance Date, the
outstanding principal balance of the Class IA-4 Certificates (before giving
effect to any distributions of principal to the Class IA-4 Certificates on such
Remittance Date) divided by the Mortgage Group One Non-PO Allocated Amount as of
the beginning of the related Due Period.
On any Remittance Date, the "Mortgage Group One Scheduled Principal Amount"
means an amount equal to the applicable Non-PO Percentage of the principal
portion of all Monthly Payments, whether or not received, which were due on the
related Due Date on outstanding Mortgage Loans in Mortgage Group One as of such
Due Date.
On any Remittance Date, the "Mortgage Group One Unscheduled Principal
Amount" means the amounts with respect to principal described in the definition
of "Non-PO Class IA Distribution Amount" (exclusive of the amounts described in
clause (a) thereof) with respect to such Remittance Date, but without such
amounts being multiplied by the Non-PO Class IA Percentage or the Non-PO Class
IA Prepayment Percentage, as applicable.
S-60
<PAGE>
The "Class IA-4 Prepayment Shift Percentage" for any Remittance Date will be
the percentage indicated below:
<TABLE>
<CAPTION>
CLASS IA-4 PREPAYMENT
REMITTANCE DATE OCCURRING IN SHIFT PERCENTAGE
- ------------------------------------------------------- ----------------------
<S> <C>
September 1996 through August 2001..................... 0%
September 2001 through August 2002..................... 30%
September 2002 through August 2003..................... 40%
September 2003 through August 2004..................... 60%
September 2004 through August 2005..................... 80%
September 2005 and thereafter.......................... 100%
</TABLE>
Distributions in respect of principal will be made on each Remittance Date
to the Class IIA-P Certificates in an amount (the "Class IIA-P Amount") equal to
the sum of (A) the difference between (i) the Mortgage Group Two PO Allocated
Amount as of the first day of the related Due Period and (ii) the Mortgage Group
Two PO Allocated Amount as of the last day of the related Due Period (after
application of payments received during such Due Period) and (B) the amount, if
any, by which the Class IIA-P Amount with respect to the previous Remittance
Date exceeded the amount distributed to the Class IIA-P Certificates on such
previous Remittance Date.
Except during such time as the aggregate principal balance of the
Subordinated Certificates equals zero, on each Remittance Date, the portion of
the Non-PO Class IIA Distribution Amount (defined herein) remaining after
payment of interest as described below to the Class IIA-1 Certificateholders
will be distributed to the Class IIA-1 Certificates until their principal
balance has been reduced to zero.
Principal distributions made on each Class of Certificates will be paid pro
rata among the Certificates of such Class in accordance with their respective
outstanding principal balances.
Interest will be payable to each Class of Offered Certificates (other than
the Class IA-3, Class IA-P and Class IIA-P Certificates) at a rate equal to the
applicable rate of interest (the "Certificate Rate") specified or described on
the front cover hereof, less any Non-Supported Interest Shortfalls allocated
thereto, on the respective outstanding principal balances of such Certificates
(or, in the case of the Class IA-2 Certificates, on the Class IA-2 Notional
Amount) as of the relevant Determination Date.
Interest will be payable on the Class IA-1 and Class IA-2 Certificates on
each Remittance Date and will accrue at their respective Certificate Rates on
their outstanding principal balances (or, in the case of the Class IA-2
Certificates, on the Class IA-2 Notional Amount) during the one-month period
beginning on the 25th day of the month preceding the month in which the related
Remittance Date occurs and ending on the 24th day of the month of such
Remittance Date (such period, the "Floating Rate Interest Accrual Period"). Such
Certificate Rates will be calculated as follows:
(i) the Certificate Rate on the Class IA-1 Certificates with respect to
the Remittance Date in September 1996 will be 6.2875%, and as to any
Remittance Date thereafter, the Certificate Rate on the Class IA-1
Certificates will equal LIBOR as determined on the second London Business
Day (defined herein) preceding the related Floating Rate Interest Accrual
Period (each such day, a "Rate Adjustment Date") ("LIBOR") plus 0.85%,
subject to a maximum rate of 9.00% per annum and a minimum rate of 0.85% per
annum; and
(ii) the Certificate Rate on the Class IA-2 Certificates with respect to
the Remittance Date in September 1996 will be 2.7125%, and as to any
Remittance Date thereafter, the Certificate Rate on the Class IA-2
Certificates will equal 8.15% minus LIBOR, subject to a maximum rate of
8.15% per annum and a minimum rate of 0.00% per annum;
S-61
<PAGE>
The portion, if any, of each Monthly Payment that represents interest on the
related Mortgage Loan (other than the Discount Mortgage Loans) at a rate equal
to the Mortgage Rate less the sum of (i) the Remittance Rate and (ii) the
Servicing Fee will constitute "Excess Interest." Excess Interest is expected to
be retained by Chase and is not offered hereby. Excess Interest will not be
available for distribution to Certificateholders.
On each Remittance Date, there will be distributed to the holders of the
Non-PO Class IA Certificates and the Non-PO Class IIA Certificates from the
applicable Available Distribution Amount and Advances made by the Master
Servicer an amount, to the extent available, equal to the applicable Non-PO
Class A Distribution Amount.
The "Available Distribution Amount" means, generally, with respect to each
Mortgage Group, or, as the context requires, both Mortgage Groups, as of any
Remittance Date, an amount equal to the amount on deposit in the Certificate
Account as of the close of business on the related Determination Date, except:
(a) amounts received on Mortgage Loans in the related Mortgage Group as late
payments or other recoveries of principal or interest (including net liquidation
proceeds and insurance proceeds) and respecting which the Master Servicer
previously made an unreimbursed Advance; (b) amounts representing reimbursement
for Advances with respect to Mortgage Loans in the related Mortgage Group
determined to be nonrecoverable and amounts representing reimbursement for
certain losses and expenses incurred by the Master Servicer, as described in the
Agreement; (c) the Servicing Fee with respect to Mortgage Loans in the related
Mortgage Group, as adjusted as provided in the Agreement with respect to
principal prepayments; (d) all amounts representing Monthly Payments with
respect to Mortgage Loans in the related Mortgage Group due after the related
Due Date; (e) all principal prepayments, liquidation proceeds, insurance
proceeds, condemnation proceeds and repurchase proceeds received with respect to
Mortgage Loans in the related Mortgage Group after the related Principal
Prepayment Period; (f) where permitted by the Agreement, that portion of net
liquidation proceeds and insurance proceeds representing unpaid Servicing Fees
with respect to Mortgage Loans in the related Mortgage Group; and (g) any other
amounts not included in accordance with the Agreement.
The "Non-PO Class IA Distribution Amount" and "Non-PO Class IIA Distribution
Amount" (each, a "Non-PO Class A Distribution Amount") mean generally as of any
Remittance Date, an amount, not in excess of the applicable Non-PO Class A
Principal Balance plus interest thereon at the Remittance Rate equal to the sum
of: (a) an amount equal to the applicable Non-PO Class A Percentage of the
applicable Non-PO Percentage of the principal portion of all Monthly Payments
whether or not received, which were due on the related Due Date on outstanding
Mortgage Loans in the related Mortgage Group as of such Due Date, plus the
applicable Non-PO Class A Percentage of the interest portion thereof, adjusted
to the Remittance Rate; (b) an amount equal to the applicable Non-PO Class A
Prepayment Percentage of the applicable Non-PO Percentage of all principal
prepayments received during the related Principal Prepayment Period on Mortgage
Loans in the related Mortgage Group, plus the applicable Non-PO Class A
Percentage of interest paid thereon by the Mortgagor and the amount of
compensating interest paid by the Master Servicer pursuant to the Agreement,
each adjusted to the Remittance Rate; (c) with respect to each Mortgage Loan in
the related Mortgage Group not described in (d) below, an amount equal to the
applicable Non-PO Class A Percentage of the applicable Non-PO Percentage of the
sum of the principal portion of all insurance proceeds, condemnation awards and
any other cash proceeds from a source other than the Mortgagor, to the extent
required to be deposited in the Certificate Account, which were received during
the related Principal Prepayment Period, plus the applicable Non-PO Class A
Percentage of one month's interest thereon, adjusted to the Remittance Rate, net
of related unreimbursed servicing advances and net of any portion thereof which,
as to any Mortgage Loan in the related Mortgage Group, constitutes a late
collection with respect to which an Advance has previously been made; (d) with
respect to each Mortgage Loan in the related Mortgage Group which has become a
liquidated Mortgage Loan during the related Principal Prepayment Period, an
amount equal to the least of (i) the applicable Non-PO Class A Percentage of the
S-62
<PAGE>
applicable Non-PO Percentage of an amount equal to the principal balance of such
Mortgage Loan (net of Advances with respect to principal) as of the Due Date
immediately preceding the date on which it became a liquidated Mortgage Loan
plus the applicable Non-PO Class A Percentage of one month's interest thereon
adjusted to the Remittance Rate, (ii) the applicable Non-PO Class A Prepayment
Percentage of the applicable Non-PO Percentage of the net liquidation proceeds,
if any, with respect to such liquidated Mortgage Loan (net of any unreimbursed
Advances) plus the applicable Non-PO Class A Percentage of one month's interest
thereon adjusted to the Remittance Rate, and (iii) the applicable Non-PO Class A
Prepayment Percentage of the net liquidation proceeds (net of any unreimbursed
Advances) with respect to such liquidated Mortgage Loan exclusive of amounts
distributable to the Class IA-P or Class IIA-P Certificates with respect to such
liquidated Mortgage Loan plus the applicable Non-PO Class A Percentage of one
month's interest thereon adjusted to the Remittance Rate; (e) with respect to
each Mortgage Loan in the related Mortgage Group repurchased during the related
Principal Prepayment Period, an amount equal to the applicable Non-PO Class A
Prepayment Percentage of the applicable Non-PO Percentage of the principal
portion of the purchase price thereof plus the applicable Non-PO Class A
Percentage of the interest portion of the purchase price thereof, adjusted to
the Remittance Rate (net of amounts with respect to which a distribution has
previously been made to the Non-PO Class A Certificateholders); (f) while none
of the Subordinated Certificates remains outstanding, the excess of the
outstanding principal balance of the applicable Non-PO Class A Certificates over
the applicable Non-PO Allocated Amount; (g) if the Cross Support Date (defined
herein) has occurred, the applicable Support Percentage (defined herein) of the
principal portion of the amounts referred to in (b), (d) and (e) above on
Mortgage Loans in the Mortgage Group as to which the Non-PO Class A Percentage
has been reduced to zero; and (h) an amount equal to any amounts that were not
distributed to the applicable Non-PO Class A Certificateholders on any prior
Remittance Date that would have constituted part of the applicable Non-PO Class
A Distribution Amount had they been so distributed, together with interest
thereon at the Remittance Rate (net of amounts with respect to which a
distribution has been previously made to the Non-PO Class A Certificateholders).
As of any Remittance Date, the "Non-PO Class IA Percentage" will equal a
fraction, expressed as a percentage, the numerator of which is the Non-PO Class
IA Principal Balance and the denominator of which is the Mortgage Group One
Non-PO Allocated Amount immediately prior to the Due Date in the month of such
Remittance Date.
As of any Remittance Date, the "Non-PO Class IIA Percentage" will equal a
fraction, expressed as a percentage, the numerator of which is the Non-PO Class
IIA Principal Balance and the denominator of which is the Mortgage Group Two
Non-PO Allocated Amount immediately prior to the Due Date in the month of such
Remittance Date.
The "Cross Support Date" is the first Remittance Date on which the Non-PO
Class IA Principal Balance or Non-PO Class IIA Principal Balance is equal to
zero.
As of any Remittance Date, the "Support Percentage" for a Mortgage Group
will be the product of (i) the principal balance of the applicable Non-PO Class
A Certificates divided by the aggregate principal balance of the Non-PO Class A
Certificates and (ii) the Aggregate Non-PO Class A Prepayment Percentage.
As of any Remittance Date, the "Aggregate Non-PO Class A Prepayment
Percentage" will be the sum of (i) (A) the sum of the Non-PO Class IA Principal
Balance and the Non-PO Class IIA Principal Balance divided by (B) the Non-PO
Allocated Amount and (ii) as of any Remittance Date up to and including the
Remittance Date in August 2001, 100% of the Aggregate Subordinated Percentage;
as of any Remittance Date in the first year thereafter, 70% of the Aggregate
Subordinated Percentage; as of any Remittance Date in the second year
thereafter, 60% of the Aggregate Subordinated Percentage; as of any Remittance
Date in the third year thereafter, 40% of the Aggregate Subordinated Percentage;
as of any Remittance Date in the fourth year thereafter, 20% of the Aggregate
Subordinated Percentage; and as of any Remittance Date thereafter, 0%.
S-63
<PAGE>
As of any Remittance Date, the "Aggregate Subordinated Percentage" will be
equal to the percentage obtained by dividing (i) the Non-PO Allocated Amount
minus the Non-PO Class A Principal Balance by (ii) the Non-PO Allocated Amount.
The "Non-PO Class IA Principal Balance" and "Non-PO Class IIA Principal
Balance" (each, a "Non-PO Class A Principal Balance") mean, generally, as of any
Remittance Date, (a) the applicable Non-PO Class A Principal Balance for the
preceding Remittance Date less (b) amounts distributed to the applicable Non-PO
Class A Certificateholders on such preceding Remittance Date allocable to
principal (including Advances) and any losses allocated to the applicable Non-PO
Class A Certificates plus (c) the applicable Class Interest Shortfall, if any,
for such preceding Remittance Date; provided that (i) the Non-PO Class IA
Principal Balance on the first Remittance Date will be the initial Non-PO Class
IA Principal Balance, which is expected to be approximately $157,630,390 and
(ii) the Non-PO Class IIA Principal Balance on the first Remittance Date will be
the initial Non-PO Class IIA Principal Balance, which is expected to be
approximately $36,521,592. On any Remittance Date, the "Class IA Interest
Shortfall" will equal the excess, if any, of the amounts payable to the Class IA
Certificateholders allocable to interest over amounts actually distributed with
respect to interest to the Class IA Certificateholders and the "Class IIA
Interest Shortfall" will equal the excess, if any, of the amounts payable to the
Class IIA Certificateholders allocable to interest over amounts actually
distributed with respect to interest to the Class IIA Certificateholders.
The "Non-PO Class IA Prepayment Percentage" and "Non-PO Class IIA Prepayment
Percentage" (each, a "Non-PO Class A Prepayment Percentage") mean, generally,
subject to certain conditions set forth in the Agreement, as of any Remittance
Date up to and including the Remittance Date in August 2001, 100%; as of any
Remittance Date in the first year thereafter, the applicable Non-PO Class A
Percentage plus 70% of the applicable Subordinated Percentage for such
Remittance Date; as of any Remittance Date in the second year thereafter, the
applicable Non-PO Class A Percentage plus 60% of the applicable Subordinated
Percentage for such Remittance Date; as of any Remittance Date in the third year
thereafter, the applicable Non-PO Class A Percentage plus 40% of the applicable
Subordinated Percentage for such Remittance Date; as of any Remittance Date in
the fourth year thereafter, the applicable Non-PO Class A Percentage plus 20% of
the applicable Subordinated Percentage for such Remittance Date; and as of any
Remittance Date after the fourth year thereafter, the applicable Non-PO Class A
Percentage; provided that, if either Non-PO Class A Percentage as of any such
Remittance Date is greater than the initial applicable Non-PO Class A
Percentage, the Non-PO Class IA Prepayment Percentage and the Non-PO Class IIA
Prepayment Percentage shall each be 100%. As of any Remittance Date, the
"Mortgage Group One Subordinated Percentage" means the difference between 100%
and the Non-PO Class IA Percentage and the "Mortgage Group Two Subordinated
Percentage" means the difference between 100% and the Non-PO Class IIA
Percentage and each is a "Subordinated Percentage."
On each Remittance Date, the Class M Certificateholders will be entitled to
receive, from the portion, if any, of the Available Distribution Amount
remaining after making all distributions of interest and principal payable to
the Class A Certificateholders on such Remittance Date: (i) one month's interest
at the Remittance Rate on the outstanding principal balance of the Class M
Certificates (which balance shall be deemed to include all interest due on prior
Remittance Dates but not yet paid for so long as the aggregate principal balance
of the Class B Certificates is greater than zero), less any Non-Supported
Interest Shortfalls allocable to the Class M Certificates, (ii) any amounts
distributable with respect to principal to the Class M Certificateholders on any
prior Remittance Date which were not previously distributed and (iii) principal
distributions up to the amount calculated pursuant to the third succeeding
paragraph.
On each Remittance Date, the Class B-1 Certificateholders will be entitled
to receive, from the portion, if any, of the Available Distribution Amount
remaining after making all distributions of interest and principal payable to
the Class A and Class M Certificateholders on such Remittance Date:
S-64
<PAGE>
(i) one month's interest at the Remittance Rate on the outstanding principal
balance of the Class B-1 Certificates (which balance shall be deemed to include
all interest due on prior Remittance Dates but not yet paid for so long as the
aggregate principal balance of the Class B-2 Certificates and the Non-Offered
Class B Certificates is greater than zero), less any Non-Supported Interest
Shortfalls allocable to the Class B-1 Certificates, (ii) any amounts
distributable with respect to principal to the Class B-1 Certificateholders on
any prior Remittance Date which were not previously distributed and (iii)
principal distributions up to the amount calculated pursuant to the second
succeeding paragraph.
On each Remittance Date, the Class B-2 Certificateholders will be entitled
to receive, from the portion, if any, of the Available Distribution Amount
remaining after making all distributions of interest and principal payable to
the Class A, Class M and Class B-1 Certificateholders on such Remittance Date:
(i) one month's interest at the Remittance Rate on the outstanding principal
balance of the Class B-2 Certificates (which balance shall be deemed to include
all interest due on prior Remittance Dates but not yet paid for so long as the
aggregate principal balance of the Non-Offered Class B Certificates is greater
than zero), less any Non-Supported Interest Shortfalls allocable to the Class
B-2 Certificates, (ii) any amounts distributable with respect to principal to
the Class B-2 Certificateholders on any prior Remittance Date which were not
previously distributed and (iii) principal distributions up to the amount
calculated pursuant to the following paragraph.
On each Remittance Date, the portion of the Available Distribution Amount
relating to payments of principal of the Mortgage Loans remaining after all
distributions of principal and interest to the Class A Certificates with respect
to such Remittance Date have been made (the "Subordinated Principal Distribution
Amount") will be allocated among the Class or Classes of Subordinated
Certificates entitled to receive distributions of principal on such Remittance
Date, as described in the second succeeding sentence. Each such Class will be
allocated its pro rata portion of the Subordinated Principal Distribution Amount
based upon the outstanding principal balances of all Classes of Subordinated
Certificates entitled to principal distributions on such Remittance Date. On
each Remittance Date, the Subordinated Principal Distribution Amount will be
allocated among the following Classes of Certificates: (i) any Class of
Subordinated Certificates which has current Credit Support (defined herein)
(before giving effect to any distribution of principal thereon on such
Remittance Date) greater than or equal to the original Credit Support for such
Class; (ii) the Class of Subordinated Certificates having the lowest numerical
class designation of any outstanding Class of Subordinated Certificates which
does not meet the criteria in (i) above; and (iii) the Class B-5 Certificates if
all other outstanding Classes of Subordinated Certificates meet the criteria in
(i) above or if no other Class of Subordinated Certificates is outstanding;
provided, however, that no Class of Subordinated Certificates will receive any
distribution of principal on any Remittance Date if on such Remittance Date any
Class of Subordinated Certificates having a lower numerical class designation
than such Class fails to meet the criteria in (i) above. For the purposes of
(ii) above, the Class M Certificates will be deemed to have a lower numerical
class designation than each Class of Class B Certificates.
Each Class of Subordinated Certificates (other than the Class B-5
Certificates) will have the benefit of a level of credit support, expressed as a
percentage of the aggregate outstanding principal balance of the Certificates
("Credit Support"). Credit Support for such Classes of Certificates will equal
in each case the percentage obtained by dividing the aggregate outstanding
principal balance of all Classes of Subordinated Certificates having higher
numerical class designations than such Class by the aggregate outstanding
principal balance of all outstanding Classes of Certificates (other than the
Class IA-P and Class IIA-P Certificates) (for this purpose, the Class M
Certificates shall be deemed to have a lower numerical class designation than
each Class of Class B Certificates). Generally, the level of Credit Support for
any Class will decrease to the extent Realized Losses are allocated to any Class
of Subordinated Certificates having a higher numerical class designation and
will increase to the extent that any Class or Classes of Certificates not
subordinated to such Class receives a disproportionate portion of payments
(including prepayments) of principal on the Mortgage Loans.
S-65
<PAGE>
DETERMINATION OF LIBOR
On each Rate Adjustment Date, the Master Servicer will determine LIBOR on
the basis of the offered one-month LIBOR quotations of the Reference Banks (as
defined below), as such quotations are provided to the Master Servicer as of
11:00 a.m. (London time) on such Rate Adjustment Date. For this purpose "London
Business Day" means any day on which dealings in deposits in United States
dollars are transacted in the London interbank market; "Reference Banks" means
four leading banks engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in
London, (ii) whose quotations appear on the Reuters Screen LIBO Page on the Rate
Adjustment Date in question and (iii) which have been designated as such by the
Master Servicer and are able and willing to provide such quotations to the
Master Servicer on each Rate Adjustment Date; and "Reuters Screen LIBO Page"
means the display designated as page "LIBO" on the Reuters Monitor Money Rates
Service (or such other page as may replace the LIBO page on that service for the
purpose of displaying London interbank offered quotations of major banks). If
any Reference Bank designated by the Master Servicer should be removed from the
Reuters Screen LIBO Page or in any other way fails to meet the qualifications of
a Reference Bank, the Master Servicer will use its best efforts to designate an
alternative Reference Bank.
On each Rate Adjustment Date, the Master Servicer will determine LIBOR for
the next Remittance Date as follows:
(i) If on any Rate Adjustment Date two or more of the Reference Banks
provide such offered quotations, LIBOR for the next Remittance Date will be
the arithmetic mean of such offered quotations, (rounding such arithmetic
mean upwards, if necessary, to the nearest whole multiple of 1/16%).
(ii) If on any Rate Adjustment Date only one or none of the Reference
Banks provides such offered quotations, LIBOR for the next Remittance Date
will be whichever is the higher of (x) LIBOR as determined on the previous
Rate Adjustment Date or (y) the Reserve Interest Rate. The "Reserve Interest
Rate" will be the rate per annum which the Master Servicer determines to be
either (A) the arithmetic mean (rounding such arithmetic mean upwards, if
necessary, to the nearest whole multiple of 1/16%) of the one-month
Eurodollar lending rates that the New York City banks selected by the Master
Servicer are quoting, on the relevant Rate Adjustment Date, to the principal
London offices of leading banks in the London interbank market or (B) in the
event that the Master Servicer can determine no such arithmetic mean, the
lowest one-month Eurodollar lending rate that the New York City banks
selected by the Master Servicer are quoting on such Rate Adjustment Date to
leading European banks.
(iii) If on any Rate Adjustment Date the Master Servicer is required but
is unable to determine the Reserve Interest Rate in the manner provided in
paragraph (ii) above, LIBOR for the next Remittance Date will be LIBOR as
determined on the previous Rate Adjustment Date, or, in the case of the
first Rate Adjustment Date, the level of LIBOR used to calculate the initial
Certificate Rates of the Class IA-1 and Class IA-2 Certificates.
Listed below are the historical values for one-month LIBOR as published in
The Wall Street Journal on the first business day of each month since 1991. The
following does not purport to be
S-66
<PAGE>
representative of subsequent levels of LIBOR or of LIBOR determined as described
above. No assurance can be given as to any subsequent level of LIBOR.
<TABLE>
<CAPTION>
MONTH 1991 1992 1993 1994 1995 1996
- --------------------------------------- ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
January................................ 7.6250% 4.3125% 3.3125% 3.2500% 6.00000% 5.71075%
February............................... 6.9375 4.1875 3.1250 3.1250 6.12500 5.43750
March.................................. 7.0000 4.2500 3.1875 3.5625 6.12500 5.34375
April.................................. 6.3750 4.2500 3.1875 3.6875 6.12500 5.46875
May.................................... 6.0625 3.9375 3.1250 4.0000 6.06250 5.43750
June................................... 6.9375 4.0000 3.2500 4.8750 6.06250 5.43750
July................................... 6.0625 3.9375 3.1875 4.5625 6.06250 5.50000
August................................. 5.9375 3.3750 3.1875 4.5000 5.87500 5.46875
September.............................. 5.4375 3.5000 3.1875 4.8750 5.87500 --
October................................ 5.1250 3.1875 3.1875 5.0625 5.87500 --
November............................... 5.1875 3.2500 3.1875 5.0625 5.84375 --
December............................... 4.3125 4.2500 3.5625 6.0625 6.03125 --
</TABLE>
SUBORDINATED CERTIFICATES AND SHIFTING INTERESTS
The rights of the Class M Certificateholders to receive distributions with
respect to the Mortgage Loans will be subordinated to the rights of the Class A
Certificateholders, the rights of the holders of each Class of Class B
Certificates to receive distributions with respect to the Mortgage Loans will be
subordinated to the rights of the holders of the Class A Certificates, the Class
M Certificates, and each Class of Class B Certificates having a lower numerical
class designation than such Class of Class B Certificates, each to the extent
described below. The subordination provided by the Class M and Class B
Certificates is intended to enhance the likelihood of regular receipt by the
Class A Certificateholders of the full amount of monthly distributions due them
and to protect the Class A Certificateholders against losses. The subordination
provided by each Class of Class B Certificates is intended to enhance the
likelihood of regular receipt by the holders of the Class A Certificates, the
Class M Certificates, and each Class of Class B Certificates having a lower
numerical class designation than such Class of Class B Certificates of the full
amount of monthly distributions due them and to protect such Certificateholders
against losses.
On each Remittance Date payments to the Class A Certificateholders will be
made prior to payments to the Class M and Class B Certificateholders, payments
to the Class M Certificateholders will be made prior to payments in the Class B
Certificateholders, payments to the Class B-1 Certificateholders will be made
prior to payments to the Class B-2 Certificateholders and the Non-Offered Class
B Certificateholders and payments to the Class B-2 Certificateholders will be
made prior to payments to the Non-Offered Class B Certificateholders. If on any
Remittance Date on which the aggregate outstanding principal balance of the
Class M and Class B Certificates is greater than zero the Non-PO Class IA or
Class IIACertificateholders are paid less than the applicable Non-PO Class A
Distribution Amount for such date, the interest of the Non-PO Class A
Certificateholders in the Trust Fund will vary so as to preserve the entitlement
of the Non-PO Class A Certificateholders to unpaid principal of the Mortgage
Loans and interest thereon. This may have the effect of increasing the
proportionate interest of the Non-PO Class A Certificateholders in the Trust
Fund.
"Mortgage Pool Principal Balance" means, generally, as of any Remittance
Date, the sum of the principal balances of all Mortgage Loans as to which no
prepayment in full, cash liquidation or foreclosure and sale of the related
Mortgaged Property has taken place and as to which no determination of the
Master Servicer has been made that all recoverable amounts have been received.
The Non-PO Class IA Certificateholders and the Non-PO Class IIA
Certificateholders will be entitled to receive the applicable Non-PO Class A
Prepayment Percentage of the applicable Non-PO
S-67
<PAGE>
Percentage of the amount of principal prepayments and certain other unscheduled
amounts of principal received on the Mortgage Loans as described above. This
will have the effect of initially accelerating principal payments to the Non-PO
Class A Certificateholders (other than the Class IA-4 Certificateholders) and
reducing their proportionate interest in the Trust Fund and correspondingly
increasing (in the absence of offsetting Realized Losses) the Credit Support of
each Class of Subordinated Certificates having Credit Support. See "Description
of the Certificates--Distributions of Principal and Interest." Increasing the
interest of the Class M and Class B Certificates in the Trust Fund relative to
that of the Class A Certificates is intended to preserve the availability of the
benefits of the subordination provided by the Class M and Class B Certificates.
Similarly, if, as a result of losses on the Mortgage Loans, the Class B
Percentage decreases to less than its initial aggregate level (approximately
3.5%), amounts relating to principal payments (including prepayments) on the
Mortgage Loans otherwise distributable to the Class B Certificateholders will be
distributed to the Class M Certificateholders, thereby accelerating receipt of
principal by the Class M Certificateholders and reducing their relative interest
in the Trust Fund while increasing the relative interest in the Trust Fund
evidenced by the Class B Certificates.
During such time as the Non-Offered Class B Certificates are outstanding,
all Realized Losses (defined below) on the Mortgage Loans will be allocated to
the Non-Offered Class B Certificates until the principal balance of the
Non-Offered Class B Certificates has been reduced to zero. If the aggregate
principal balance of the Non Offered Class B Certificates has been reduced to
zero, all future Realized Losses on the Mortgage Loans will be allocated to the
Class B-2 Certificates until the principal balance of the Class B-2 Certificates
has been reduced to zero. If the aggregate principal balance of the Non-Offered
Class B Certificates and the Class B-2 Certificates has been reduced to zero,
all future Realized Losses on the Mortgage Loans will be allocated to the Class
B-1 Certificates until the principal balance of the Class B-1 Certificates has
been reduced to zero. If the aggregate principal balance of the Class B
Certificates has been reduced to zero, all future Realized Losses on the
Mortgage Loans will be allocated to the Class M Certificates until the principal
balance of the Class M Certificates has been reduced to zero. If the aggregate
principal balance of the Class M and Class B Certificates has been reduced to
zero, all future Realized Losses will be allocated to the Class A Certificate
until the principal balance of the Class A Certificates has been reduced to
zero.
A "Realized Loss" is generally the amount, if any, with respect to any
defaulted Mortgage Loan which has been liquidated in accordance with the
Agreement, by which the unpaid principal balance and accrued interest thereon at
a rate equal to the Net Mortgage Rate exceeds the amount actually recovered by
the Servicer with respect thereto (net of reimbursement of certain expenses) at
the time such defaulted Mortgage Loan was liquidated.
Amounts actually paid at any time to the Class M and Class B
Certificateholders in accordance with the terms of the Agreement will not be
subsequently recoverable from the Class M and Class B Certificateholders.
OPTIONAL TERMINATION
The Master Servicer may, on any Remittance Date, repurchase from the Trust
Fund all Mortgage Loans remaining outstanding at such time as the aggregate
unpaid principal balance of such Mortgage Loans is less than 5% of the aggregate
unpaid scheduled principal balance of the Mortgage Pool on the Cut-off Date. The
repurchase price will equal the sum of (i) the unpaid principal amount of such
Mortgage Loans (other than any such Mortgage Loans as to which the related
Mortgaged Properties have been acquired and whose fair market values are
included in clause (ii) below), plus accrued interest thereon at the Remittance
Rate to the next Due Date and (ii) the fair market value of any such acquired
properties, in each case less any unreimbursed Advances made with respect to
such Mortgage Loans. Upon any such repurchase, the Offered Certificateholders
generally will receive the outstanding principal balance of the Offered
Certificates plus accrued interest thereon (other than on the Class IA-3, Class
IA-P and Class IIA-P Certificates) at the Remittance Rate. Such amounts will be
distributed to Certificateholders on the Remittance Date in the month following
the month of repurchase.
S-68
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
An election will be made to treat the Trust Fund as a REMIC for federal
income tax purposes (the "Subsidiary REMIC"). Certain amounts, if any, received
in respect of the Mortgage Loans in excess of their principal amount and accrued
interest thereon will represent the residual interest in the Subsidiary REMIC.
All other amounts distributable with respect to the Mortgage Loans will
represent in the aggregate the regular interests in the Subsidiary REMIC. An
election will be made to treat the pool of assets represented by the regular
interests in the Subsidiary REMIC as a REMIC (the "Master REMIC"). See "Certain
Federal Income Tax Consequences" in the Prospectus.
The Offered Certificates will represent regular interests in the Master
REMIC and will be treated as newly originated debt instruments. All
Certificateholders will be required to use the accrual method of accounting with
respect to interest income on the Certificates, regardless of their normal
method of accounting. Holders of Offered Certificates that have original issue
discount will be required to include amounts in income with respect to such
Certificates in advance of the receipt of cash attributable to such income. The
Class IA-3, Class IA-P and Class IIA-P Certificates will be issued with original
issue discount in an amount equal to the excess of their initial principal
balance over their issue price. It is anticipated that the Class IA-4, Class M,
Class B-1 and Class B-2 Certificates will be issued with original issue discount
in an amount equal to the excess of their initial principal balances over their
respective issue prices (including accrued interest). It is also anticipated
that the Class IIA-1 Certificates will be issued at a premium, and that the
Class IA-1 Certificates will be issued with de minimis original issue discount
for federal income tax purposes. Although unclear for federal income tax
purposes, it is anticipated that the Class IA-2 Certificates will be considered
to be issued with original issue discount in an amount equal to the excess of
all distributions of interest expected to be received thereon over their issue
price (including accrued interest). Any "negative" amounts of original issue
discount on the Class IA-2 Certificates attributable to rapid prepayments with
respect to the Mortgage Loans will not be deductible currently, but may be
offset against future positive accruals of original issue discount, if any.
Finally, a holder of a Class IA-2 Certificate may be entitled to a loss
deduction to the extent it becomes certain that such holder will not recover a
portion of its basis in such Certificate, assuming no further prepayments. In
the alternative, it is possible that rules similar to the "noncontingent bond
method" of the contingent interest rules in applicable Treasury regulations
regarding OID may be promulgated with respect to the Class IA-2 Certificates.
See "Certain Federal Income Tax Consequences--Taxation of REMIC
Certificates--Regular Certificates--Original Issue Discount" in the Prospectus.
Under the noncontingent bond method, if the interest payable for any period is
greater or less than the amount projected, the amount of income included for
that period would be either increased or decreased accordingly. Any reduction in
the income accrual for a period below zero (a "Negative Adjustment") would be
treated by a Certificateholder as ordinary loss to the extent of prior income
accruals and may be carried forward to offset future interest accruals. At
maturity, any remaining Negative Adjustment would be treated as a reduction in
the amount realized on retirement of the Certificate. The legislative history of
relevant Code provisions indicates, however, that negative amounts of original
issue discount on an instrument such as REMIC regular interest may not give rise
to taxable losses in any accrual period prior to the instrument's disposition or
retirement. Thus, it is not clear whether any losses resulting from a Negative
Adjustment would be recognized currently or be carried forward until disposition
or retirement of the debt obligation.
The prepayment assumption that will be used in computing the amount and rate
of accrual of original issue discount includible periodically will be 215% of
the Prepayment Model set forth herein. See "Prepayment and Yield
Considerations." No representation is made that payments on the Offered
Certificates will occur at that rate or any other rate.
The Offered Certificates will be treated as (i) "qualifying real property
loans" within the meaning of section 593(d)(1) of the Code, (ii) assets
described in section 7701(a)(19)(C) of the Code and (iii) "real estate assets"
within the meaning of section 856(c)(5)(A) of the Code, in each case to the
extent
S-69
<PAGE>
described herein and in the Prospectus. Interest on the Offered Certificates
will be treated as "interest on obligations secured by mortgages on real
property" within the meaning of section 856(c)(3)(B) of the Code to the same
extent that the Offered Certificates are treated as "real estate assets" within
the meaning of section 856(c)(5)(A) of the Code.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or section 4975 of the Code,
including an individual retirement account (each, a "Plan"), or any other person
investing "plan assets" of any Plan, should carefully review with its legal
advisors whether the purchase or holding of Class A Certificates could give rise
to a transaction prohibited or not otherwise permissible under ERISA or the
Code. See "ERISA Considerations" in the Prospectus. A governmental plan as
defined in Section 3(32) of ERISA is not subject to ERISA or section 4975 of the
Code. However, such a governmental plan may be subject to a federal, state or
local law, which is, to a material extent, similar to the provisions of ERISA or
section 4975 of the Code ("Similar Law"). A fiduciary of a governmental plan
should make its own determination as to the need for and the availability of any
exemptive relief under Similar Law.
The U.S. Department of Labor ("DOL") has issued Prohibited Transaction Class
Exemption 83-1 ("PTCE 83-1") exempting certain transactions involving mortgage
pool investment entities holding mortgages on certain residential property from
the prohibited transaction provisions of ERISA and the Code. See "ERISA
Considerations" in the Prospectus for a discussion of PTCE 83-1 and the
prohibited transaction provisions of ERISA and the Code.
Prohibited transaction exemptions granted to DLJ ("PTE 90-83") and to CSI
("PTE 90-33", and together with PTE 90-83, the "Exemptions") exempt the purchase
and holding of the Class A Certificates by or with "plan assets" of a Plan from
the prohibited transaction provisions of section 406(a) of ERISA (and the excise
taxes imposed by section 4975(c)(1)(A) of the Code) provided that certain
conditions are met. Among the conditions are the following: (i) DLJ or CSI, as
the case may be, is the sole underwriter, or the manager or co-manager of the
underwriting syndicate for such Class A Certificates, (ii) the Class A
Certificates are rated in one of the three highest generic rating categories by
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. ("S & P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Rating Co. or Fitch Investors Service, L.P. (iii) the Class A
Certificates are collateralized by, among other things, obligations that bear
interest or are purchased at a discount and which are secured by single-family
residential, multifamily residential or commercial real property (including
obligations secured by leasehold interests on commercial real property), or
fractional undivided interests in such obligations, (iv) the Class A
Certificates are not subordinated to other Certificates of the Trust Fund, (v)
the Plan is an "accredited investor" (as defined under Rule 501(a)(1) of
Regulation D under the Securities Act of 1933, as amended (the "Act")), (vi) the
acquisition of the Class A Certificates by a Plan is on terms that are at least
as favorable to the Plan as they would be in an arm's length transaction with an
unrelated third party, and (vii) the compensation to the DLJ or CSI, as the case
may be, represents reasonable compensation, the proceeds to the Company
represent no more than the fair market value of the obligations securing such
Class A Certificates and the sum of all payments made to and retained by the
Master Servicer represents not more than reasonable compensation for the Master
Servicer's services under the Agreement and reimbursement of the Master
Servicer's reasonable expenses in connection therewith. It is expected that the
Class A Certificates will satisfy the conditions of the applicable Exemption set
forth above in clauses (i), (iii), (iv) and (vii). Whether the remaining
conditions of the applicable Exemption, will be satisfied with respect to the
Class A Certificates will depend on the
S-70
<PAGE>
circumstances at the time "plan assets" of a Plan are used to acquire such
Certificates. In that connection, the Class A Certificates will, on the date of
their original issue, satisfy the condition set forth in clause (ii). In
addition, if certain additional conditions specified in the applicable Exemption
are met, the applicable Exemption would provide an exemption from the prohibited
transaction provisions of ERISA section 406(b) (and the excise taxes imposed by
section 4975(c)(I)(E) of the Code) relating to possible self-dealing
transactions by fiduciaries who have discretionary authority, or render
investment advice, with respect to Plan assets used to purchase Class A
Certificates where the fiduciary (or its affiliate) is an obligor on the
obligations or receivables held in the Trust Fund. Neither Exemption would apply
to certain otherwise prohibited transactions with respect to Plans sponsored by
the following entities (or any affiliate of any such entity): (a) the Company,
(b) the applicable Underwriter, (c) the Trustee, (d) the Master Servicer or (e)
any obligor with respect to obligations or receivables included in the Company
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the Company.
Before purchasing a Class A Certificate, a fiduciary of a Plan or any other
person investing "plan assets" of any Plan, should itself confirm that (a) the
Class A Certificates constitute "certificates" for the purposes of the
Exemptions and (b) that the specific and general conditions set forth in the
Exemptions would be satisfied. In addition to making its own determination as to
the availability of the exemptive relief provided in the Exemptions, the
fiduciary or other Plan investor should consider its general fiduciary
obligations under ERISA in determining whether to purchase a Certificate on
behalf or with "plan assets" of a Plan.
Neither of the Exemptions nor PTCE 83-1 will apply to the Class M
Certificates, the Class B-1 Certificates or the Class B-2 Certificates;
therefore, the purchase or holding of a Class M Certificate, a Class B-1
Certificate or a Class B-2 Certificate by or with "plan assets" of a Plan may
result in prohibited transactions or the imposition of excise taxes or civil
penalties. Accordingly, transfer of the Class M, Class B-1 or Class B-2
Certificates will not be made unless the transferee (i) executes a
representation letter in form and substance satisfactory to the Trustee and the
Company stating that (a) it is not, and is not acting on behalf of, any such
Plan or using the "plan assets" of any such Plan to effect such purchase or (b)
if it is an insurance company, that the source of funds used to purchase the
Class M, Class B-1 or Class B-2 Certificates is an "insurance company general
account" (as such term is defined in Section V(e) of Prohibited Transaction
Class Exemption 95-60 ("PTE 95-60"), 60 Fed. Reg. 35925 (July 12, 1995)) and
there is no Plan with respect to which the amount of such general account's
reserves and liabilities for the contract(s) held by or on behalf of such Plan
and all other Plans maintained by the same employer (or affiliate thereof as
defined in Section V(a)(1) of PTE 95-60 or by the same employee organization
exceeds 10% of the total of all reserves and liabilities of such general account
(as such amounts are determined under Section 1(a) of PTE 95-60) at the date of
acquisition or (ii) provides an opinion of counsel in form and substance
satisfactory to the Trustee and the Company that the purchase or holding of the
Class M, Class B-1 or Class B-2 Certificates by or on behalf of such Plan will
not result in the assets of the Trust Fund being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code and will
not subject the Company, the Master Servicer or the Trustee to any obligation in
addition to those undertaken in the Agreement. The Class M, Class B-1 and Class
B-2 Certificates will contain a legend describing such restrictions on transfer
and 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.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1, the
Exemptions or other exemptions, and the potential consequences to their specific
circumstances prior to making an investment in the Class A Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment in
the Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
S-71
<PAGE>
The sale of Certificates to a Plan is in no respect a representation by the
Company, DLJ or CSI that this investment meets all relevant legal requirements
with respect to investments by Plans generally or by any particular Plan, or
that this investment is appropriate for Plans generally or for any particular
Plan.
LEGAL INVESTMENT MATTERS
The Class A and Class M Certificates offered hereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), and, as such, are legal investments for
certain entities to the extent provided in SMMEA. However, institutions subject
to the jurisdiction of the Office of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit Union
Administration or federal or state banking, insurance or other regulatory
authorities should review applicable rules, supervisory policies and guidelines,
since certain restrictions may apply to investments in such classes. It should
also be noted that certain states have enacted legislation limiting to varying
extents the ability of certain entities (in particular insurance companies) to
invest in mortgage related securities. Investors should consult with their own
legal advisors in determining whether, and to what extent the Class A and Class
M Certificates constitute legal investments for such investors. See "Legal
Investment" in the Prospectus.
The Class B-1 and Class B-2 Certificates will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of the Class
B-1 and Class B-2 Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase Class
B-1 and Class B-2 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 Class B-1 and Class B-2 Certificates will constitute legal
investments for them.
Except as to the status of the Class A and Class M Certificates as "mortgage
related securities", the Company makes no representations as to the proper
characterization of the Offered Certificates for legal investment or 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
characteristic of the Offered Certificates) may adversely affect the liquidity
of the Offered Certificates.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Offered Certificates will be applied by the Company to the purchase price of the
Mortgage Loans and expenses connected with pooling the Mortgage Loans and
issuing the Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in (i) the underwriting
agreement, dated August 14, 1996, among the Company, DLJ and CSI, (ii) the terms
agreement dated August 23, 1996 between the Company and DLJ and (iii) the terms
agreement dated August 23, 1996 between the Company and CSI (collectively, the
"Underwriting Agreement") (A) the Company has agreed to sell to DLJ and DLJ has
agreed to purchase from the Company, all of the Offered Certificates (other than
the Class IIA-1 Certificates) and (B) the Company has agreed to sell to CSI and
CSI has agreed to purchase from the Company, all of the Class IIA-1 Certficates.
S-72
<PAGE>
The Underwriting Agreement provides that the Underwriters' respective
obligations thereunder are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of their respective Offered
Certificates if any are purchased.
The distribution of the Offered Certificates by the Underwriters will be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined, in each case, at the time of sale. The
Underwriters may effect such transactions by selling the Offered Certificates to
or through dealers, and such dealers may receive from the Underwriters, for whom
they act as agents, compensation in the form of underwriting discounts,
concessions or commissions. The Underwriters and any dealers that participate
with the Underwriters in the distribution of the Offered Certificates may be
deemed to be underwriters, and any discounts, concessions or commissions
received by them, and any profit on the resale of the Offered Certificates
purchased by them for their own account, may be deemed to be underwriting
discounts and commissions under the Act.
The Underwriting Agreement provides that the Company will indemnify each of
the Underwriters against certain civil liabilities, including liabilities under
the Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Morgan, Lewis &
Bockius LLP, New York, New York and for the Underwriters by Cadwalader,
Wickersham & Taft, New York, New York. The material federal income tax
consequences of the Certificates will be passed upon for the Company by Morgan,
Lewis & Bockius LLP.
RATING
It is a condition to the issuance of the Offered Certificates that the Class
A Certificates (other than the Class IA-2, Class IA-3, Class IA-P and Class
IIA-P Certificates) be rated "Aaa" by Moody's and "AAA" by S&P, that the Class
IA-2, Class IA-3, Class IA-P and Class IIA-P Certificates be rated "Aaa" by
Moody's and "AAAr" by S&P, and that the Class M, Class B-1 and Class B-2
Certificates be rated at least "AA", "A" and "BBB", respectively, by S&P.
The ratings assigned by Moody's to mortgage pass-through certificates
address the likelihood of the receipt by Certificateholders of all distributions
to which such Certificateholders are entitled. Moody's ratings address the
structural and legal aspects associated with the Certificates, including the
nature of the underlying mortgage loans. Moody's ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The ratings do not address the possibility that
Certificateholders might suffer a lower than anticipated yield.
S&P's ratings on mortgage pass-through certificates address the likelihood
of receipt by Certificateholders of payments required under the operative
agreements. S&P assigns the additional rating of "r" to highlight classes of
securities that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. S&P's ratings take into
consideration the credit quality of the mortgage pool including any credit
support providers, structural and legal aspects associated with the
certificates, and the extent to which the payment stream of the mortgage pool is
adequate to make payment required under the certificates. S&P's ratings on
mortgage pass-through certificates do not, however, constitute a statement
regarding the frequency of prepayments on the mortgage loans. S&P's ratings do
not address the possibility that investors may suffer 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.
S-73
<PAGE>
The Company has not requested a rating of the Offered Certificates by any
rating agency other than Moody's and S&P and the Company has not provided
information relating to the Certificates offered hereby or the Mortgage Loans to
any rating agency other than Moody's and S&P. 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 either, or both, of Moody's and S&P.
OTHER CONSIDERATIONS
The Company believes that the transfer by Chase of the Mortgage Loans to the
Company, the simultaneous transfer of the Mortgage Loans by the Company to the
Trust Fund and the sale of the Offered Certificates should be treated as
absolute and unconditional sales. However, in the event of an insolvency of
Chase or the bankruptcy of the Company, or if a conservator or receiver is
appointed for Chase, a court, a creditor or other party in interest, a
conservator, receiver or a trustee in bankruptcy, among other remedies, could
attempt to recharacterize the sale of the Mortgage Loans by Chase to the Company
and by the Company to the Trust Fund as a borrowing by Chase or the Company, as
the case may be, from the holders of the Offered Certificates, secured by a
pledge of the Mortgage Loans. Such an attempt, even if unsuccessful, could
result in delays in payments on the Offered Certificates and could result, if
ultimately successful, in payment of reduced amounts on the Offered
Certificates. If such an attempt were successful, a court, among other remedies,
could elect to accelerate payment of such Certificates and liquidate the
Mortgage Loans, with the holders of such Certificates entitled to the then
outstanding principal balance thereof and interest thereon at the Remittance
Rate to the date of payment (or, under certain circumstances to the date of the
appointment of a conservator, receiver or trustee in bankruptcy, as the case may
be). Thus, the holders of Offered Certificates could lose the right to future
payments of interest and might incur reinvestment losses in a lower interest
rate environment. Certain tax and governmental liens and certain administrative
expenses of the receiver or trustee in bankruptcy might have priority over the
interest of the Trust Fund in the Mortgage Loans, or the proceeds from the
liquidation of the Mortgage Loans may not be sufficient to pay the outstanding
principal balance of, and interest on, the Offered Certificates.
S-74
<PAGE>
GLOSSARY OF DEFINED TERMS IN PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
Act.................................................................................. S-70
Advances............................................................................. S-11
Aggregate Non-PO Class A Prepayment Percentage....................................... S-63
Aggregate Subordinated Percentage.................................................... S-64
Agreement............................................................................ S-4
Available Distribution Amount........................................................ S-62
Book-Entry Certificates.............................................................. S-4
Cede................................................................................. S-55
Certificate Account.................................................................. S-14
Certificate Owner.................................................................... S-4
Certificate Rate..................................................................... S-9
Certificateholders................................................................... S-4
Certificates......................................................................... S-1
Chase................................................................................ S-3
Class A Certificates................................................................. S-1
Class A Interest Shortfall........................................................... S-64
Class IA Interest Shortfall.......................................................... S-64
Class IIA Interest Shortfall......................................................... S-64
Class A Percentage................................................................... S-8
Class IA Percentage.................................................................. S-8
Class IIA Percentage................................................................. S-8
Class IA-P Amount.................................................................... S-60
Class IIA-P Amount................................................................... S-61
Class IA-4 Percentage................................................................ S-60
Class IA-4 Priority Amount........................................................... S-60
Class IA-4 Prepayment Shift Percentage............................................... S-61
Class B Certificates................................................................. S-1
Class B-1 Percentage................................................................. S-8
Class B-2 Percentage................................................................. S-8
Class M Percentage................................................................... S-8
CMMC................................................................................. S-52
Code................................................................................. S-12
Company.............................................................................. S-1
Co-op Loan........................................................................... S-22
Credit Support....................................................................... S-65
CRMC................................................................................. S-52
Cross Support Date................................................................... S-63
CSI.................................................................................. S-1
Cut-off Date......................................................................... S-14
Definitive Certificates.............................................................. S-57
Discount Mortgage Loans.............................................................. S-59
DLJ.................................................................................. S-1
DOL.................................................................................. S-70
DTC.................................................................................. S-4
Due Date............................................................................. S-4
ERISA................................................................................ S-12
Excess Interest...................................................................... S-10
Exemptions........................................................................... S-70
FHLMC................................................................................ S-15
</TABLE>
S-75
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
Floating Rate Interest Accrual Period................................................ S-61
FNMA................................................................................. S-15
Indirect Participants................................................................ S-56
LIBOR................................................................................ S-61
London Business Day.................................................................. S-66
Master REMIC......................................................................... S-2
Master Servicer...................................................................... S-1
Modeling Assumptions................................................................. S-43
Monthly Payments..................................................................... S-4
Moody's.............................................................................. S-13
Mortgage Group....................................................................... S-4
Mortgage Group One................................................................... S-4
Mortgage Group One Non-PO Allocated Amount........................................... S-59
Mortgage Group One PO Allocated Amount............................................... S-59
Mortgage Group One Scheduled Principal Amount........................................ S-60
Mortgage Group One Subordinated Percentage........................................... S-64
Mortgage Group One Unscheduled Principal Amount...................................... S-60
Mortgage Group Two................................................................... S-4
Mortgage Group Two Non-PO Allocated Amount........................................... S-59
Mortgage Group Two PO Allocated Amount............................................... S-59
Mortgage Group Two Subordinated Percentage........................................... S-64
Mortgage Loans....................................................................... S-1
Mortgage Loan Schedule............................................................... S-37
Mortgage Note........................................................................ S-14
Mortgage Pool........................................................................ S-1
Mortgage Pool Principal Balance...................................................... S-67
Mortgaged Properties................................................................. S-14
Mortgage Rates....................................................................... S-16
Net Mortgage Rate.................................................................... S-59
Non-Discount Mortgage Loan........................................................... S-59
Non-Offered Class B Certificates..................................................... S-1
Non-Offered Class B Percentage....................................................... S-8
Non-PO Class A Certificates.......................................................... S-3
Non-PO Class IA Certificates......................................................... S-3
Non-PO Class IIA Certificates........................................................ S-3
Non-PO Class A Distribution Amount................................................... S-62
Non-PO Class IA Distribution Amount.................................................. S-62
Non-PO Class IIA Distribution Amount................................................. S-62
Non-PO Class IA Percentage........................................................... S-63
Non-PO Class IIA Percentage.......................................................... S-63
Non-PO Class A Prepayment Percentage................................................. S-64
Non-PO Class IA Prepayment Percentage................................................ S-64
Non-PO Class IIA Prepayment Percentage............................................... S-64
Non-PO Class A Principal Balance..................................................... S-64
Non-PO Class IA Principal Balance.................................................... S-64
Non-PO Class IIA Principal Balance................................................... S-64
Non-PO Percentage.................................................................... S-59
Non-Supported Interest Shortfall..................................................... S-54
Offered Certificates................................................................. S-1
Participant.......................................................................... S-56
Plan................................................................................. S-12
</TABLE>
S-76
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
PO Percentage........................................................................ S-59
Prepayment Interest Shortfall........................................................ S-54
Prepayment Model..................................................................... S-42
Principal Prepayment Period.......................................................... S-9
Prospectus........................................................................... S-1
PTCE 83-1............................................................................ S-70
PTE 90-83............................................................................ S-70
PTE 90-33............................................................................ S-70
PTE 95-60............................................................................ S-71
Rate Adjustment Date................................................................. S-61
Realized Loss........................................................................ S-68
Record Date.......................................................................... S-57
Reference Banks...................................................................... S-66
REMIC................................................................................ S-2
Remittance Date...................................................................... S-9
Remittance Rate...................................................................... S-10
Reserve Interest Rate................................................................ S-66
Reuters Screen LIBO Page............................................................. S-66
Rules................................................................................ S-56
S&P.................................................................................. S-13
Servicing Fee........................................................................ S-9
SMMEA................................................................................ S-13
Subordinated Certificates............................................................ S-3
Subordinated Percentage.............................................................. S-64
Subordinated Principal Distribution Amount........................................... S-65
Subservicers......................................................................... S-14
Subsidiary REMIC..................................................................... S-2
Support Percentage................................................................... S-63
Trustee.............................................................................. S-4
Trust Fund........................................................................... S-1
Underwriting Agreement............................................................... S-72
Underwriters......................................................................... S-1
</TABLE>
S-77
<PAGE>
PROSPECTUS
MORSERV, INC.
DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
This Prospectus relates to Pass-Through Certificates (the "Certificates")
issuable in Series which may be sold from time to time on terms determined at
the time of sale, evidencing specified interests in a trust fund (the "Trust
Fund"). As specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates will include certain mortgage related assets (the
"Mortgage Assets") consisting of (i) mortgage loans (the "Mortgage Loans") or
(ii) mortgage pass-through securities issued or guaranteed by FHLMC, FNMA or
GNMA (the "Agency Securities"), as more particularly described herein, having
aggregate outstanding principal balances of up to $1,000,000,000 and in certain
other property conveyed by MorServ, Inc. (the "Company"). The Mortgage Loans
included in any Mortgage Pool and the Agency Securities included in any pool of
Agency Securities will be described in the related Prospectus Supplement. The
Mortgage Loans and Agency Securities will have been acquired by the Company from
time to time in the open market or in privately negotiated transactions,
including transactions with affiliates. Certain of the Mortgage Loans and
mortgage loans underlying the Agency Securities may have been originated by
affiliates of the Company. Specific information, to the extent available,
regarding the size and composition of the pool of Mortgage Loans or Agency
Securities relating to each Series of Certificates will be set forth in the
related Prospectus Supplement. If specified in the related Prospectus
Supplement, a pool insurance policy, letter of credit, surety bond, guarantee,
or any combination thereof, or other forms of credit enhancement may be provided
with respect to a Series or Classes of Certificates evidencing interests in
Mortgage Loans. The Prospectus Supplement for a Series will name the entity,
which may be an affiliate of the Company, which will act directly or through one
or more Sub-servicers, as Master Servicer (the "Master Servicer") of the
Mortgage Loans for such Series.
Each Series of Certificates will consist of one or more Classes or
Sub-classes of Certificates, which may include one or more senior Classes of
Certificates (the "Senior Certificates") and one or more subordinate Classes of
Certificates (the "Subordinated Certificates"). Unless otherwise specified in
the related Prospectus Supplement, the Subordinated Certificates will not be
offered hereby. Certificates of a Series may be divided into two or more Classes
or Sub-classes representing interests in specified percentages of principal or
interest, or both, in distributions on the pool of Mortgage Loans or Agency
Securities relating to such Series, as specified in the related Prospectus
Supplement. Each Prospectus Supplement will describe the Series and Class or
Classes of Certificates offered thereby including the percentage interest in
principal of and in interest represented thereby and the distributions of
principal or interest or both to any one or more of such Classes or Sub-classes
which may be on a sequential or pro rata basis, or such other manner specified
therein.
The Prospectus Supplement will set forth the Remittance Rate or other
applicable rate that will be passed through with respect to the Mortgage Assets,
together with the rate of interest that will be paid to Certificateholders of
each Class or Sub-class of such Series. Such Remittance Rate or other applicable
rate and any such rate of interest may be fixed, variable or adjustable, as
specified in the related Prospectus Supplement.
The Company's only obligations with respect to a Series of Certificates will
be pursuant to certain limited representations and warranties. Except for
certain representations and warranties relating to the Mortgage Loans and
certain other exceptions, the Master Servicer's obligations with respect to the
Certificates evidencing interests in a pool of Mortgage Loans are limited to its
contractual servicing obligations. Unless otherwise specified in the related
Prospectus Supplement, if the amount eligible for distribution to holders of
Certificates (or to Senior Certificateholders only in the case of a Series of
Certificates having a Class of Subordinated Certificates) evidencing interests
in a pool of Mortgage Loans on any Remittance Date is less than the amount due
them, the Master Servicer may be obligated, under certain terms and conditions,
to advance cash to such Certificateholders, to the extent such deficiency is
attributable to delinquent payments of principal and interest during the
immediately preceding Due Period (as defined herein) and only to the extent the
Master Servicer determines such advances are recoverable from future payments
and collections on the Mortgage Loans or otherwise (the "Advances"). See
"Description of the Certificates--Advances" and "-- Distributions on
Certificates."
The intention of any underwriter to make a secondary market in the
Certificates will be set forth in the related Prospectus Supplement. There can
be no assurance that a secondary market for the Certificates will develop, or if
it does develop, that it will continue.
An election may be made to cause the Trust Fund relating to a Series of
Certificates to be treated as a "real estate mortgage investment conduit"
("REMIC") for federal income tax purposes. See "Certain Federal Income Tax
Consequences."
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
COMPANY, THE CHASE MANHATTAN CORPORATION, THE CHASE MANHATTAN BANK OR ANY OF
THEIR AFFILIATES. THE CERTIFICATES WILL NOT BE SAVINGS ACCOUNTS OR DEPOSITS AND
NEITHER THE CERTIFICATES, EXCEPT AS DESCRIBED HEREIN, NOR THE UNDERLYING
MORTGAGE LOANS OR AGENCY SECURITIES WILL BE INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY NOR HAS THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY PASSED
UPON THE ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement.
-------------------
The date of this Prospectus is August 23, 1996.
<PAGE>
The Prospectus Supplement relating to a Series of Certificates to be offered
hereunder, among other things, will set forth with respect to such Series of
Certificates: (i) the aggregate principal amount, Remittance Rate or Rates or
other applicable rate or rates (or the manner of determining such rate or rates)
and authorized denominations of each Class of such Certificates; (ii) certain
information concerning the Mortgage Assets and insurance policies or alternate
credit facilities, if any, relating to the Mortgage Loans or all or part of the
related Certificates; (iii) the specified interest of each Class of Certificates
in, and manner and priority of, the distributions on the Mortgage Assets; (iv)
the identity of each Class of Subordinated Certificates included in such Series
of Certificates, if any, and the Reserve Fund, if any; (v) the Remittance Dates;
(vi) whether the Company intends to elect to cause the Trust Fund to be treated
as a REMIC; and (vii) additional information with respect to the plan of sale of
such Certificates.
The Company will be subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at certain of its Regional Offices
located as follows: Chicago Regional Office, Kluczynski Federal Building, 230
South Dearborn Street, Room 3190, Chicago, Illinois 60604, and New York Regional
Office, Seven World Trade Center, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Company does not intend to send any reports to
Certificateholders.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
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 the Company offered hereby
shall be deemed to be incorporated by reference into this Prospectus. 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.
2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement. Capitalized terms used herein shall have the respective meanings
assigned them herein and in the "Glossary."
<TABLE>
<S> <C>
Securities Offered.................. Pass-Through Certificates (the "Certificates")
evidencing interests in pools of Mortgage Loans or
Agency Securities (each as defined below) may be
issued from time to time in Series pursuant to
separate Pooling and Servicing Agreements (each, an
"Agreement") among MorServ, Inc. "Company"), the
Master Servicer/the "Master Servicer") specified in
the related Prospectus Supplement for a Series of
Certificates evidencing interests in Mortgage
Loans, the REMIC Servicer (the "REMIC Servicer"),
if any, specified in the related Prospectus
Supplement for a Series of Certificates evidencing
interests in Agency Securities and the Trustee (the
"Trustee") specified in the related Prospectus
Supplement for such Series of Certificates.
Depositor........................... The Company is a wholly-owned, limited purpose
indirect subsidiary of The Chase Manhattan Bank
("Chase"). Unless otherwise expressly provided in
the related Prospectus Supplement, neither The
Chase Manhattan Corporation, Chase nor any of their
affiliates, including the Company, has guaranteed,
or is or will be otherwise obligated with respect
to the Certificates of any Series. See "Special
Considerations."
Master Servicer..................... The entity, which may be an affiliate of the Company,
named as master servicer (the "Master Servicer") in
the related Prospectus Supplement for a Series of
Certificates evidencing interests in Mortgage
Loans.
Seller.............................. The entity or entities named as seller (the "Seller")
in the related Prospectus Supplement, which may be an
affiliate of the Company.
Trust Fund.......................... The Trust Fund for a Series of Certificates (each, a
"Trust Fund") will include certain mortgage related
assets (the "Mortgage Assets") and certain other
property held in trust for the benefit of the
Certificateholders consisting of (a) first lien
mortgage loans (or participation interests therein)
secured by one- to four-family residential
properties (the "Mortgage Loans") or (b) mortgage
pass-through securities issued or guaranteed by the
Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation
("FHLMC") (the "Agency Securities"), together with
payments in respect of such Mortgage Assets and
certain other accounts, obligations or agreements,
in each case as specified in the related Prospectus
Supplement.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
A. The Mortgage Loans............... The Mortgage Loans evidenced by a Series of
Certificates (the "Mortgage Pool"), as specified in
the related Prospectus Supplement, may be fixed,
adjustable or variable rate Mortgage Loans. The
Mortgage Loans may be conventional Mortgage Loans
(the "Conventional Mortgage Loans") or Mortgage
Loans insured by the Federal Housing Administration
(the "FHA Mortgage Loans") or partially guaranteed
by the Veterans Administration (the "VA Mortgage
Loans"). The Mortgage Loans will be secured by one-
to four-family residential properties. The
adjustable rate and variable rate Mortgage Loans
(together, the "Adjustable Rate Loans") may, as
described in the related Prospectus Supplement,
permit or require periodic changes in the interest
rates borne by the Mortgage Loans (the "Adjustable
Mortgage Rates"), and in the monthly payments made
on the Mortgage Loans. The Mortgage Loans may
include graduated payment mortgage loans (the "GPM
Loans"), which provide for payments during the
initial years of their term that are less than the
actual amount of principal and interest that would
be payable on a level debt service basis. The
interest not paid in the early years of such GPM
Loans will be added to the principal balance and
paid, together with interest, in later years. The
related Prospectus Supplement will specify any
limit on the amount of GPM Loans which will be
included in a Mortgage Pool.
Unless otherwise specified in a related Prospectus
Supplement, each Mortgage Loan will have a 15- to
30-year term at origination and a Loan-to-Value
Ratio at origination (as defined herein, the
"Mortgage Loan-to-Value Ratio") not to exceed 95%.
Unless otherwise specified in a related Prospectus
Supplement, no Conventional Mortgage Loan will have
a Mortgage Loan-to-Value Ratio exceeding 80%,
unless covered by a primary mortgage insurance
policy (a "Primary Mortgage Insurance Policy") as
described herein or in the related Prospectus
Supplement.
The Prospectus Supplement for each Series will
provide information with respect to (i) the
aggregate principal balance of the Mortgage Loans
comprising, with respect to each Series of
Certificates, the pool of Mortgage Loans
transferred by the Company to the Trustee (the
"Mortgage Pool"), as of the date specified in the
Prospectus Supplement (the "Cut-off Date"); (ii)
the weighted average of the interest rates
specified for each Mortgage Loan (the "Mortgage
Rate"), and, in the case of Adjustable Rate Loans,
the weighted average of the Adjustable Mortgage
Rates as of the Cut-off Date and maximum permitted
Adjustable Mortgage Rates, if any; (iii) the
average outstanding principal balance of the
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Mortgage Loans as of the Cut-off Date; (iv) the
weighted average term to maturity of the Mortgage
Loans as of the Cut-off Date and the range of the
terms to maturity; (v) the range of Mortgage
Loan-to-Value Ratios of the Mortgage Loans; (vi)
the aggregate outstanding principal balance, if
any, of Buy-Down Loans (hereinafter described) and
GPM Loans as of the Cut-off Date; (vii) the amount
of any Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy and Mortgagor Bankruptcy
Insurance (each as hereinafter described) to be
maintained with respect to the Mortgage Pool;
(viii) the amount of any Primary Mortgage Insurance
and Standard Hazard Insurance (hereinafter
described) required to be maintained with respect
to each Mortgage Loan; (ix) the aggregate
outstanding principal balance of Conventional
Mortgage Loans, FHA Mortgage Loans and VA Mortgage
Loans; (x) the amount, if any, and terms of any
other form of Alternate Credit Enhancement to be
provided with respect to all or any Mortgage Loans
or the Mortgage Pool; and (xi) the geographic
location and types of one- to four-family
residential properties securing the Mortgage Loans
(the "Mortgaged Properties").
The Mortgage Loans will be purchased by the Company
in the open market or in privately negotiated
transactions. either directly or through an
affiliate, from one or more Sellers.
Only to the extent described below and in the related
Prospectus Supplement, will the Mortgage Loans
comprising the Mortgage Pool relating to a Series
of Certificates evidencing interests in Mortgage
Loans be guaranteed or insured by any government
agency or other insurer.
B. The Agency Securities............ The Agency Securities evidenced by a Series of
Certificates will consist of (i) Mortgage
Participation Certificates issued and guaranteed as
to timely payment of interest and unless otherwise
specified in the related Prospectus Supplement,
ultimate payment of principal by FHLMC ("FHLMC
Certificates"), (ii) Guaranteed Mortgage
Pass-Through Certificates issued and guaranteed as
to timely payment of principal and interest by FNMA
("FNMA Certificates"), (iii) "fully modified pass-
through" mortgage-backed certificates guaranteed as
to timely payment of principal and interest by the
GNMA ("GNMA Certificates"), (iv) stripped
mortgage-backed securities representing an
undivided interest in all or a part of either the
principal distributions (but not the interest
distributions) or the interest distributions (but
not the principal distributions) or in some
specified portion of the principal and interest
distributions (but not all of such distributions)
on certain FHLMC, FNMA or
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
GNMA Certificates and, unless otherwise specified
in the related Prospectus Supplement. guaranteed to
the same extent as the underlying securities, (v)
another type of pass-through certificate issued or
guaranteed by GNMA, FNMA or FHLMC and described in
the related Prospectus Supplement or (vi) a
combination of such Agency Securities. All GNMA
Certificates will be backed by the full faith and
credit of the United States. Neither FHLMC nor FNMA
Certificates will be backed, directly or
indirectly, by the full faith and credit of the
United States.
The types, aggregate principal amounts and
characteristics of the Agency Securities evidenced
by a Series of Certificates will be described in
the related Prospectus Supplement. Each Agency
Security will evidence an interest in a pool of
mortgage loans of the type described herein and in
the related Prospectus Supplement. Substantially
all of the mortgage loans will be secured by one- to
four-family residences. The Agency Securities
included in a Trust Fund (hereinafter defined) will
be registered in the name of the Trustee for such
Trust Fund (or its nominee). See "The Trust
Fund--Agency Securities" herein.
The Agency Securities may consist of pass-through
securities issued under FHLMC's or FNMA's Cash or
Guarantor Program, the GNMA I Program, the GNMA II
Program or another program specified in the
Prospectus Supplement. Agency Securities may be
backed by fixed, variable or adjustable rate or
graduated payment mortgage loans.
Description of Certificates......... Each Class of Certificates within a Series will
evidence the interest specified in the related
Prospectus Supplement in the Trust Fund.
Each Series of Certificates may consist of one or
more Classes, one or more of which may be Senior
Certificates ("Senior Certificates") and one or
more of which may be Subordinated Certificates
("Subordinated Certificates"). A Class of
Certificates of a Series may be divided into two or
more Sub-classes, as and on the terms specified in
the related Prospectus Supplement. Each Class or
Sub-class of a Series may evidence the right to
receive a specified portion (which may be 0%) of
each distribution of principal or interest or both,
on the Mortgage Loans or Agency Securities. Each
Class or Sub-class of a Series may be assigned a
principal balance (the "Stated Balance") based on
the cash flow from the assets in the Trust Fund,
and a fixed, variable or adjustable stated annual
interest rate, and may be entitled to receive
distributions in reduction of Stated Balance to the
extent available therefor in the manner, priority
and amounts specified in the related Prospectus
Supplement. A Class
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
or Sub-class of Certificates may be Certificates on
which interest will accrue, but not be paid, for
the period set forth in the related Prospectus
Supplement (the "Compound Interest Certificates") .
The Certificates will be issuable in fully
registered form in the authorized denominations
specified in the related Prospectus Supplement. See
"Description of the Certificates." Certain Series
or Classes of Certificates may be enhanced by
mortgage pool insurance, letters of credit, surety
bonds, guarantees, or any combination thereof, or
other forms of credit enhancement, in each case as
described herein and in the related Prospectus
Supplement. The Subordinated Certificates of a
Series will be subordinated in certain respects to
the Senior Certificates of the same Series. If a
Series of Certificates contains more than one Class
of Subordinated Certificates, distributions and
losses will be allocated among such Classes in the
manner specified in the related Prospectus
Supplement. The Certificates will not be guaranteed
or insured by any government agency.
Subordinated Certificates and
Reserve Fund...................... One or more Classes of any Series evidencing
interests in Mortgage Loans may be Subordinated
Certificates, as specified in the related
Prospectus Supplement. The rights of the
Subordinated Certificateholders to receive any or a
specified portion of distributions with respect to
the Mortgage Loans will be subordinated to the
rights of Senior Certificateholders to the extent
of the amount specified in the related Prospectus
Supplement (the "Available Subordination Amount").
If a Series of Certificates contains more than one
Class of Subordinated Certificates, distributions
and losses will be allocated among such Classes in
the manner specified in the related Prospectus
Supplement. The rights of the Subordinated
Certificateholders, to the extent not subordinated,
may be on a parity with those of Senior
Certificateholders. The Available Subordination
Amount for each Class of Subordinated Certificates
of a Series will be dependent upon certain Mortgage
Pool characteristics and other factors and will be
set forth in the related Prospectus Supplement.
Alternatively, if so specified in the related
Prospectus Supplement, Senior Certificateholders
may be entitled to receive all or some portion of
the amounts otherwise allocable to Subordinated
Certificateholders under circumstances and for the
period of time specified in the Prospectus
Supplement, which will have the effect of
accelerating the amortization of the Senior
Certificates and thereby increasing over time the
interest evidenced by the Subordinated Certificates
in the related Trust Fund. This Subordination is
intended to enhance the likelihood of
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
regular receipt by Senior Certificateholders of the
full amount of scheduled monthly payments of
principal and interest due to them and to protect
the Senior Certificateholders against losses. The
Available Subordination Amount for each Class of
Subordinated Certificates of a Series will be
dependent upon certain Mortgage Pool
characteristics and other factors and will be set
forth in the related Prospectus Supplement. See
"Description of the Certificates Distributions on
Certificates."
The protection afforded to the Senior
Certificateholders by the preferential right of the
Senior Certificateholders to receive current
distributions from the Mortgage Pool up to the
Available Subordination Amount may be enhanced, to
the extent specified in the related Prospectus
Supplement, by the establishment of a fund to make
payments on the Certificates to the extent funds
are not otherwise available (the "Reserve Fund"),
which is funded by retention of a portion of such
amounts otherwise payable to the Subordinated
Certificateholders. The Reserve Fund may also be
funded, to the extent specified in the related
Prospectus Supplement, by one or more of an initial
cash deposit, the retention of specified periodic
distributions of principal, interest or both
otherwise payable to Subordinated
Certificateholders, or the provision of a letter of
credit, guarantee, insurance policy or other form
of credit enhancement or any combination thereof
and of the foregoing retained amounts. Unless
otherwise specified in the related Prospectus
Supplement, the Reserve Fund will be part of the
Trust Fund.
The subordination features and the Reserve Fund
described above are intended to enhance the
likelihood of timely payment of principal and
interest and to protect the Senior
Certificateholders against loss; however, in
certain circumstances the Reserve Fund could be
depleted and shortfalls could result. If, on a
particular date when a distribution is due the
Senior Certificateholders, the aggregate amount of
payments received from the obligors on the Mortgage
Loans and Advances by the Master Servicer (as
described below), if any, and from the Reserve Fund
of a Series, if any, do not provide sufficient
funds to make full distributions to the Senior
Certificateholders of a Series, the amount of the
shortfall, plus interest at the Remittance Rates
(hereinafter defined) of the Mortgage Loans to
which such shortfall is attributable or at the
weighted average Remittance Rate, as specified in
the related Prospectus Supplement, will be added to
the amount the Senior Certificateholders are
entitled to receive on the next date specified in
the related Prospectus Supplement for payments on
the Certificates
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
(the "Remittance Date"). Unless otherwise described
in the applicable Prospectus Supplement, in the
event the Reserve Fund, if any, is depleted before
the Available Subordination Amount is reduced to
zero, such Senior Certificateholders nevertheless
will have a preferential right to receive current
distributions from the Mortgage Pool to the extent
of the then Available Subordination Amount. Senior
Certificateholders will bear their proportionate
share of losses realized on the Mortgage Loans in
excess of the Available Subordination Amount.
Insurance and Credit Enhancement.... As an alternative, or in addition, to the credit
enhancement afforded by subordination of the
Subordinated Certificates, credit enhancement with
respect to a Series of Certificates evidencing
interests in Mortgage Loans may be provided by
mortgage pool insurance or other forms of credit
enhancement acceptable to each nationally
recognized rating agency rating a Series of
Certificates. Credit enhancement through mortgage
insurance or hazard insurance which may be
provided, as more fully described herein under the
caption "Description of Insurance" and in the
applicable Prospectus Supplement is summarized
below.
(i) Mortgage Pool Insurance Policy. A Mortgage Pool
Insurance Policy or Policies may be obtained for a
Series of Certificates evidencing interests in
Mortgage Loans and will be maintained by the Master
Servicer. The Mortgage Pool Insurance Policy will
be limited in scope, covering defaults on the
related Mortgage Loans in an initial amount of not
less than a specified percentage of the aggregate
principal balance as of the related Cut-off Date as
set forth in the related Prospectus Supplement.
(ii) Standard Hazard Insurance and Special Hazard
Insurance Policy. All of the Mortgage Loans will be
covered by Standard Hazard Insurance Policies
insuring against losses due to various causes,
including fire, lightning, and windstorm. With
respect to the Mortgage Loans, certain other
physical risks that are not otherwise insured
against may be covered by a Special Hazard
Insurance Policy or Policies, as specified in the
related Prospectus Supplement. Each Special Hazard
Insurance Policy will be limited in scope and will
cover losses in an initial amount equal to a set
percentage of the aggregate principal balance as of
the related Cut-off Date of the Mortgage Loans or
other maximum coverage, as set forth in the related
Prospectus Supplement. Any hazard losses not
covered by either Standard Hazard Insurance
Policies on the Mortgage Loans, or a Special Hazard
Insurance Policy on the Mortgage Loans will not be
insured against and therefore will be borne by the
related Certificateholders.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
(iii) Mortgagor Bankruptcy Insurance. As specified in
the related Prospectus Supplement, Mortgagor
Bankruptcy Insurance may be obtained for a Series
of Certificates evidencing interests in Mortgage
Loans covering certain losses resulting from action
which may be taken by a bankruptcy court in
connection with a Mortgage Loan. The level of
coverage of such insurance will be specified in the
applicable Prospectus Supplement.
(iv) FHA Insurance and VA Guarantee. To the extent
specified in the related Prospectus Supplement, all
or a portion of the Mortgage Loans may be subject
to FHA insurance or may be partially guaranteed by
the VA.
(v) Alternate Credit Enhancement. To the extent
specified in the related Prospectus Supplement, the
Company may provide for alternative credit
enhancement for all or part of the related Trust
Fund, Mortgage Pool, or all or any Mortgage Loans
included in the related Mortgage Pool, in the form
of a letter of credit, guarantee, surety bond or
insurance policy, or any combination thereof in
each case satisfactory to each rating agency rating
the Series of Certificates. See "Description of
Insurance--Alternate Credit Enhancement."
To the extent described in an applicable Prospectus
Supplement and to the extent that it will not
result in the downgrading of any rating on the
related Certificates by any nationally recognized
rating agency rating such Certificates, certain
insurance policies (or deposits in lieu thereof)
may secure more than one Series of Certificates.
With respect to any Series of Certificates, the
Company also will have the right to substitute
comparable coverage from another insurer or provide
equivalent protection for any of certain insurance
policies (or deposits in lieu thereof) securing
such Series of Certificates so long as such
substitution will not result in the downgrading of
any rating on the related Certificates by any
nationally recognized rating agency rating such
Certificates.
Advances............................ Unless otherwise specified in the related Prospectus
Supplement if the amount eligible for distribution
to the Certificateholders of a Series of
Certificates evidencing interests in Mortgage Loans
on any Remittance Date is less than the amount
which is due such Certificateholders on such
Remittance Date, the related Agreement will provide
that the Master Servicer is obligated to make
advances of cash (the "Advances") to the
Certificateholders, subject to the limitations
described in the applicable Prospectus Supplement,
to the extent that such deficiency is due to
delinquent payments of principal and interest
during the immediately preceding Due Period (as
defined herein) and only to the extent the Master
Servicer determines such Advances are
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
recoverable from future payments and collections on
the Mortgage Loans or otherwise. See "Description
of the Certificates."
Interest............................ Except as otherwise set forth in the related
Prospectus Supplement, interest on each Mortgage Loan
and Agency Security will be passed through on the
dates specified in the related Prospectus
Supplement (each, a "Remittance Date"), commencing
on the date and at the Remittance Rate or other
applicable rate for that Mortgage Loan or Agency
Security specified in the related Prospectus
Supplement. To the extent specified in the related
Prospectus Supplement, the Remittance Rate for each
Mortgage Loan and Agency Security will equal the
Mortgage Rate then borne by such Mortgage Loan or
the pass-through rate of the Agency Security, less
a fee for the servicing of the Mortgage Loan or
pool of Agency Securities and related expenses
specified in the related Prospectus Supplement (the
"Servicing Fee") and, to the extent specified in
the related Prospectus Supplement, less a fee for
providing credit enhancement (the "Guarantee Fee")
and an amount retained by the seller of the
Mortgage Loan or Agency Security or to be retained
by the Company or the Master Servicer or otherwise
sold as set forth in the Prospectus Supplement, if
any (the "Excess Interest") or, such Servicing Fee
and such Guarantee Fee, if any, and such Excess
Interest, if any, as may be deducted from the
distributions made on the Remittance Dates. To the
extent specified in the related Prospectus
Supplement, the Company may retain for its own
account or, under certain circumstances, dispose of
the Excess Interest, if any, in unrelated
transactions. See "Description of the Certificates
-- Compensation and Payment of Expenses." The
Servicing Fee may be fixed or may change as
specified in the related Prospectus Supplement. The
weighted average Remittance Rate or other
applicable rate with respect to Certificates which
evidence the right to receive distributions of
income at a variable Remittance Rate or other
applicable rate (the "Variable Rate Certificates")
relating to adjustable rate Agency Securities or a
Mortgage Pool containing Adjustable Rate Loans may
be expected to change as the pass-through rates on
the Mortgage Securities or Adjustable Mortgage
Rates and Remittance Rates or other applicable
rates on the Adjustable Rate Loans change, and,
with respect to Variable Rate Certificates relating
to a pool of fixed or adjustable rate Mortgage
Loans or Agency Securities, as payments of
principal, including prepayments, are made on
Mortgage Loans or Agency Securities, as the case
may be, bearing different Mortgage Rates or
pass-through rates, respectively. The related
Prospectus Supplement
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
will set forth for each Class or Sub-class of
Certificates that has a Stated Balance the interest
rate, if any, for each such Class or Sub-class or
the method of determining such interest rate. See
"Yield Considerations" and "Description of the
Certificates." As specified in the related
Prospectus Supplement, Classes of a Series of
Certificates or Sub-classes within a Class may be
entitled to receive no interest or interest which
is not proportionate to the principal allocable to
such Certificates.
Principal (Including Prepayments)... As described in the related Prospectus Supplement,
principal on each Mortgage Loan and Agency
Security, including any principal prepayments, will
be passed through on each Remittance Date. See
"Maturity and Prepayment Considerations" and
"Description of the Certificates." If so specified
in the Prospectus Supplement with respect to a
Class or Sub-class of a Series having a Stated
Balance, such distributions may be made in
reduction of the Stated Balance, in an amount equal
to the Certificate Remittance Amount (hereinafter
defined) and such other amounts as are specified in
the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, the
Certificate Remittance Amount for any Remittance
Date will equal the amount by which the Stated
Balance of such Class or Sub-class (before taking
into account the amount of interest accrued and
added on such Remittance Date to the Stated Balance
of any Class or Sub-class of Compound Interest
Certificates) exceeds the Asset Value (as defined
herein) of the Mortgage Loans in the related
Mortgage Pool or of the Agency Securities as of the
Business Day prior to the related Remittance Date.
See "Maturity and Prepayment Considerations" and
"Description of the Certificates--Payments on
Mortgage Loans," and "--Distributions on
Certificates."
If so specified in the Prospectus Supplement relating
to a Class or Sub-class of Certificates of such
Series having a Stated Balance and less frequent
than monthly Remittance Dates, such Certificates
may receive special distributions in reduction of
Stated Balance ( "Special Distributions") in any
month, other than a month in which a Remittance
Date occurs, if, as a result of principal
prepayments on the Mortgage Loans or the mortgage
loans underlying the Agency Securities in the
related Trust Fund or low reinvestment yields, the
Trustee determines, based on assumptions specified
in the related Agreement, that the amount of cash
anticipated to be on deposit in the Certificate
Account for such Series on the next Remittance Date
may be less than the sum of the interest
distributions and the amount of distributions in
reduction of Stated Balance otherwise required to
be
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
made on such Remittance Date. Unless otherwise
specified in the related Prospectus Supplement,
Special Distributions will be made on such
Certificates in the same priority and manner as
distributions in reduction of Stated Balance would
be made on the next Remittance Date for such
Certificates. See "Description of the
Certificates--Payments on the Mortgage Loans" and
"-- Special Distributions."
Optional Termination................ If so specified in the related Prospectus Supplement,
the Company or the Master Servicer at its option with
respect to any Series of Certificates may
repurchase all Mortgage Loans or Agency Securities
remaining outstanding at such time and under the
circumstances specified in such Prospectus
Supplement. Unless otherwise provided in the
related Prospectus Supplement, the repurchase price
will equal the principal amount of such Mortgage
Loans or Agency Securities plus accrued interest
from the first day of the month of repurchase to
the first day of the next succeeding month at the
Remittance Rates borne by such Mortgage Loans or
Agency Securities. See "Description of the
Certificates-- Termination."
Federal Income Tax Consequences..... If no election is made to treat the Trust Fund
relating to a Series of Certificates as a real estate
mortgage investment conduit ("REMIC") and the Trust
Fund does not constitute a "taxable mortgage pool"
(a "TMP"), the Trust Fund will be classified as a
grantor trust and not as an association taxable as
a corporation for federal income tax purposes, and
holders of Certificates therefore will be treated
as the owners of undivided pro rata interests in
the Mortgage Pool or pool of Agency Securities and
any other assets held by the Trust Fund. If an
election is made to treat the Trust Fund relating
to a Series of Certificates as a REMIC, each Class
of Certificates will constitute "regular interests"
in a REMIC or "residual interests" in a REMIC, as
specified in the related Prospectus Supplement.
Regardless of whether a REMIC election is made,
Certificates will be considered to represent assets
described in section 7701 (a) (19) (C) (v) of the
Internal Revenue Code of 1986, as amended (the
"Code"), "qualifying real property loans" within
the meaning of section 593(d)(1) of the Code and
"real estate assets" within the meaning of section
856(c) (5) (A) of the Code, in each case, to the
extent described herein and in the Prospectus
Supplement. If specified in the related Prospectus
Supplement, a separate REMIC Servicer may be
provided for, and be a party to, the Agreement. If
no REMIC election is made with respect to a Series
of Certificates, and the Trust Fund (or a portion
of the Trust Fund or such Series) is a TMP, such
Trust Fund (or Series) will be treated as a
corporation for federal income
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
tax purposes and the Certificates will not have the
tax characteristics that they would have had if the
Trust Fund were treated as a grantor trust. See
"Certain Federal Income Tax Consequences."
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 review
carefully with its legal advisors whether the
purchase or holding of Certificates could give rise
to a transaction prohibited or not otherwise
permissible under ERISA or the Code. See "ERISA
Considerations."
Legal Investment.................... The Prospectus Supplement for each Series of
Certificates will specify which, if any, of the
classes of Certificates offered thereby will
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of
Certificates that qualify as "mortgage related
securities" will be legal investments for certain
types of institutional investors to the extent
provided in SMMEA, subject, in any case, to any
other regulations that may govern investments by
such institutional investors. Institutions whose
investment authority is subject to legal
restrictions should consult with their own legal
advisors or the applicable authorities to determine
whether and to what extent an investment in a
particular class of Certificates (whether or not
such class constitutes a "mortgage related
security") constitutes legal investments for them.
See "Legal Investment" herein.
Use of Proceeds..................... Substantially all of the net proceeds from the sale
of a Series of Certificates offered hereby and by the
related Prospectus Supplement will be applied to
the simultaneous purchase of the Mortgage Loans or
Agency Securities evidenced by such Series of
Certificates and to reimburse the amounts
previously used to effect the purchase of the
Mortgage Loans or Agency Securities evidenced by
the Certificates, the costs of carrying the
Mortgage Loans or Agency Securities until sale of
the Certificates and to pay other expenses
connected with pooling the Mortgage Loans or Agency
Securities and issuing the Certificates. See "Use
of Proceeds."
Rating.............................. It is a condition to the issuance Certificates that
they be rated in one of the four highest rating
categories of at least one of Standard & Poor's
Ratings Services, a division of The McGraw-Hill
Companies, Inc., Moody's Investors Service, Inc.,
Fitch Investors Service, L.P. or Duff & Phelps
Credit Rating Co.
</TABLE>
14
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
1. General. An investment in Certificates evidencing interests in Mortgage
Loans may be affected, among other things, by a decline in real estate values or
changes in mortgage market rates. If the residential real estate market in the
locale of properties securing the Mortgage Loans should experience an overall
decline in property values such that the outstanding balances of the Mortgage
Loans, and any secondary financing on the Mortgaged Properties in a particular
Mortgage Pool, become equal to or greater than the value of Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. To
the extent that such losses are not covered by any Available Subordination
Amount, applicable insurance policies or Alternate Credit Enhancement, holders
of the Certificates of a Series evidencing interests in such Mortgage Pool will
bear all risk of loss resulting from default by mortgagors and will have to look
primarily to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest of the defaulted Mortgage Loans. See
"The Trust Fund--The Mortgage Pools."
2. Limited Obligations. The Certificates will not represent an interest in
or obligation of the Company. The Certificates will not be insured or guaranteed
by any government agency or instrumentality, nor, unless expressly provided in
the related Prospectus Supplement, by The Chase Manhattan Corporation or any of
its affiliates, including the Company, any Sub-servicer or the Master Servicer.
3. Limited Liquidity. There can be no assurance that a secondary market will
develop for the Certificates of any Series or, if it does develop, that it will
provide the holders of Certificates of such Series with liquidity of investment
or that it will remain for the term of such Series of Certificates. Although the
Certificateholders of each Series receive monthly statements containing certain
statistical information with respect to the related Mortgage Pool, the Company
publishes no information relating to the Certificates of any Series or any
Mortgage Pool. The limited availability of any such published information may
influence the liquidity of the Certificates.
4. Insurance and Alternate Credit Enhancement. If insurance policies or
Alternate Credit Enhancement are provided with respect to a Series of
Certificates, the insurance policies (including FHA insurance and the VA
guarantee) or Alternate Credit Enhancement on the Mortgage Loans, the Mortgage
Pools or all or any part of a Trust Fund will not cover all contingencies and
will cover certain contingencies only to a limited extent. See "Description of
Insurance--Mortgage Insurance on the Mortgage Loans," "Description of
Insurance--Hazard Insurance on the Mortgage Loans" and "Description of
Insurance--Alternate Credit Enhancement."
5. Prepayment Considerations. The prepayment experience on the Mortgage
Loans and the mortgage loans underlying the Agency Securities will affect the
average life of the Certificates or each Class of Certificates. Prepayments on
the Mortgage Loans and the mortgage loans underlying the Agency Securities may
be influenced by a variety of economic, geographic, social and other factors,
including the difference between the interest rates on the Mortgage Loans or the
mortgage loans underlying the Agency Securities and prevailing mortgage rates
(giving consideration to the cost of refinancing). In general, if mortgage
interest rates fall below the interest rates on the Mortgage Loans and the
mortgage loans underlying the Agency Securities, the rate of prepayment would be
expected to increase. Conversely, if mortgage interest rates rise above the
interest rates on the Mortgage Loans and the mortgage loans underlying the
Agency Securities, 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 "Maturity and
Prepayment Considerations."
6. Subordination. With respect to Certificates of a Series having a Class of
Subordinated Certificates, while the subordination feature is intended to
enhance the likelihood of timely payment of
15
<PAGE>
principal and interest to Senior Certificateholders, the Available Subordination
Amount may be limited, as specified in the Prospectus Supplement, the Reserve
Fund, if any, could be depleted in certain circumstances, and payments applied
to the Senior Certificates which are otherwise due to the Subordinated
Certificates may be less than losses.
7. FHLMC Guaranty. Payment of principal and interest on the FHLMC
Certificates relating to a Series will be guaranteed by the Federal Home Loan
Mortgage Corporation ("FHLMC") as specified herein. This guarantee will be
backed by the credit of FHLMC, a federally chartered corporation. The full faith
and credit of the United States will not, however, guarantee any payments on any
such FHLMC Certificates. Neither the United States nor any agency thereof is
obligated to finance FHLMC's operations or to assist FHLMC in any other manner.
8. FNMA Guaranty. Full and timely payment of interest and principal on the
FNMA Certificates relating to a Series will be guaranteed by the Federal
National Mortgage Association ("FNMA"). This guarantee will be backed by the
credit of FNMA, a federally chartered, privately owned corporation. The full
faith and credit of the United States will not, however, guarantee any payments
on any such FNMA Certificates. Neither the United States nor any agency thereof
will be obligated to finance FNMAs operations or to assist FNMA in any other
manner.
THE TRUST FUND
GENERAL
The Trust Fund for any Series of Certificates may include Mortgage Loans,
Agency Securities and participation or pass-through interests in Mortgage Loans.
Each Trust Fund also may include (i) the amounts held from time to time in an
account (the "Certificate Account") maintained by the Master Servicer, the REMIC
Servicer or the Trustee pursuant to the Agreement, (ii) any property which
initially secured a Mortgage Loan and which is acquired by foreclosure or deed
in lieu of foreclosure,(iii) if so specified in the related Prospectus
Supplement, a Reserve Fund, (iv) any insurance policies and any Alternate Credit
Enhancement with respect to the Certificates, the Mortgage Loans or all or any
part of the Trust Fund, required to be maintained pursuant to the related
Agreement and (v) such other property as specified in the related Prospectus
Supplement.
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in one Trust Fund, containing one pool of Agency
Securities or one Mortgage Pool, respectively, having the aggregate principal
balance as of the specified day of the month of the creation of the pool (the
"Cut-off Date") as set forth in the related Prospectus Supplement. Holders of
Certificates of a Series will have interests only in such Mortgage Pool or pool
of Agency Securities, and will have no interest in the Mortgage Pools or pools
of Agency Securities created with respect to any other Series of Certificates.
Mortgage Assets will be purchased by the Company or an affiliate in the open
market or in privately negotiated transactions, including transactions with
affiliates. The following is a brief description of the Mortgage Assets expected
to be included in the Trust Funds. If specific information respecting the
Mortgage Assets is not known to the Company at the time Certificates initially
are offered, more general information of the nature described below will be
provided in the 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 Pooling and Servicing Agreement with respect to each Series of
Certificates will be attached to the Form 8-K. A schedule of the Agency
Securities or Mortgage Loans, as appropriate, relating to such Series, will be
attached to the Pooling and Servicing Agreement delivered to the Trustee upon
delivery of the Certificates.
Whenever in this Prospectus terms such as "Mortgage Pool," "Trust Fund,"
"Agreement" or "Remittance Rate" are used, those terms respectively apply,
unless the context otherwise indicates, to one specific Mortgage Pool, Trust
Fund, each Agreement and the Remittance Rate applicable to the related Series of
Certificates.
16
<PAGE>
THE MORTGAGE POOLS
Each Mortgage Pool will consist of conventional mortgage loans, FHA-insured
mortgage loans or VA-guaranteed mortgage loans (the "Mortgage Loans") evidenced
by promissory notes (the "Mortgage Notes") secured by mortgages or deeds of
trust or other similar security instruments creating a first lien on one- to
four-family residential properties, including stock allocated to a dwelling unit
in a residential cooperative housing corporation (the "Mortgaged Properties").
The Mortgaged Properties will consist of detached individual dwelling units,
individual condominiums, individual cooperative apartment units, townhouses,
duplexes, row houses, individual units in planned-unit developments and other
attached dwelling units. To the extent specified in the related Prospectus
Supplement, the Mortgaged Properties may include investment properties and
vacation and second homes. The Company expects that the Mortgage Loans will have
been originated by FHA-approved mortgagees or FNMA/FHLMC-approved
seller/servicers in the ordinary course of their real estate lending activities.
For each such Series of Certificates, the Company will cause the Mortgage
Loans constituting the Mortgage Pool to be assigned to the trustee named in the
related Prospectus Supplement (the "Trustee"). The Master Servicer specified in
the related Prospectus Supplement (the "Master Servicer") will service the
Mortgage Loans, either by itself or through other mortgage servicing
institutions ("Sub-servicers"), pursuant to the Agreement. The Master Servicer
may be an affiliate of the Company. See "Description of
Certificates--Servicing." With respect to those Mortgage Loans serviced by the
Master Servicer through a Sub-servicer, the Master Servicer will remain liable
for its servicing obligations under the Agreement as if the Master Servicer
alone were servicing such Mortgage Loans. The Mortgage Loan documents may, as
specified in the related Prospectus Supplement, be held for the benefit of the
Trustee by a Custodian (the "Custodian") appointed pursuant to a Custodial
Agreement (the "Custodial Agreement") among the Company, the Trustee and the
Custodian.
Each Mortgage Pool will be composed of Mortgage Loans bearing interest at
the annual fixed, variable or adjustable rates of interest specified in the
Prospectus Supplement. The difference between a Mortgage Rate and the related
Remittance Rate (less sub-servicing compensation, certain expenses of servicing,
costs of any credit enhancement and the amount, if any, of Excess Interest ),
will be retained by the Master Servicer as servicing compensation to it. See
"Description of the Certificates--Servicing Compensation and Payment of
Expenses."
The related Prospectus Supplement will specify for the Mortgage Loans
expected to be contained in the related Mortgage Pool, to the extent known,
among other things, the dates of origination of the Mortgage Loans; the Mortgage
Rates, and in the case of Adjustable Rate Loans, the initial Adjustable Mortgage
Rates, the index or formula, if any, used to determine the Adjustable Mortgage
Rate, the maximum permitted Adjustable Mortgage Rate, if any, and then-current
Adjustable Mortgage Rate; the Loan-to-Value Ratios; the minimum and maximum
outstanding principal balances as of the Cut-off Date and the average
outstanding principal balance; the outstanding principal balances of the
Conventional Mortgage Loans, FHA Mortgage Loans and VA Mortgage Loans included
in the Mortgage Pool; and the original maturities of the Mortgage Loans and the
last maturity date of any Mortgage Loan.
With respect to the Mortgage Loans in a Mortgage Pool, the Company, the
Master Servicer or another party, as specified in the related Prospectus
Supplement, will make representations and warranties as to the types and
geographical distribution of such Mortgage Loans and as to the accuracy in all
material respects of certain information furnished to the Trustee in respect of
each such Mortgage Loan. In addition, the Company, the Master Servicer or such
other party, as specified in the related Prospectus Supplement, will represent
and warrant that, as of the Cut-off Date, no Mortgage Loan was more than 30 days
delinquent as to payment of principal and interest. Upon a breach of any
representation that materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, the Company, the Master Servicer or such
other party, as specified in the related Prospectus Supplement, will be
obligated either to cure the breach in all material respects or to purchase the
Mortgage Loan or, if so specified in the related Prospectus Supplement, to
substitute another Mortgage Loan as described below. This repurchase or
substitution obligation constitutes the sole remedy
17
<PAGE>
available to the Certificateholders or the Trustee for a breach of
representation by the Company, the Master Servicer or such other party,
respectively.
In addition to making certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
Agreement, the Master Servicer, to the extent specified in the related
Prospectus Supplement, will make certain representations and warranties to the
Trustee with respect to the enforceability of coverage under any applicable
Primary Mortgage Insurance Policy, Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy or Mortgagor Bankruptcy Insurance. See "Description of
Insurance" for information regarding the extent of coverage under certain of
such insurance policies. If so specified in the related Prospectus Supplement,
upon a breach of the insurability representation that materially and adversely
affects the interests of the Certificateholders in a Mortgage Loan, the Master
Servicer or such other party will be obligated either to cure the breach in all
material respects or to purchase such Mortgage Loan at a price equal to the
principal balance thereof as of the date of purchase plus accrued interest at
the Remittance Rate to the first day of the month following the month of
purchase. The purchase obligation, if any, constitutes the sole remedy available
to the Certificateholders or the Trustee for a breach of any insurability
representation.
If so provided in the related Prospectus Supplement, if the Company
discovers or receives notice of any breach of its representations and warranties
within two years or such other period as may be specified in the related
Prospectus Supplement of the date of the initial issuance of the Certificates,
the Company may, rather than repurchase the Mortgage Loan as provided above,
remove such Mortgage Loan from the Trust Fund ("Deleted Mortgage Loan") and
substitute in its place another Mortgage Loan ("Substitute Mortgage Loan"). Any
Substitute Mortgage Loan will, on the date of substitution, (i) have an
outstanding principal balance, after deduction of all scheduled payments due in
the month of substitution, not in excess of the outstanding principal balance of
the Deleted Mortgage Loan (the amount of any shortfall to be distributed to
Certificateholders in the month of substitution), (ii) have a Mortgage Rate not
less than (and not more than 1% greater than) the Mortgage Rate of the Deleted
Mortgage Loan, (iii) have a Remittance Rate equal to the Remittance Rate of the
Deleted Mortgage Loan, (iv) have a remaining term to maturity not greater than
(and not more than two years less than) that of the Deleted Mortgage Loan, and
(v) comply with all of the representations and warranties set forth in the
Agreement as of the date of substitution. The foregoing cure, repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for any such breach.
THE AGENCY SECURITIES
Government National Mortgage Association. GNMA is a wholly-owned corporate
instrumentality of the United States within the United States Department of
Housing and Urban Development ("HUD"). Section 306(g) of Title Ill of the
National Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
which are based on and backed by, and represent an interest in, a pool of
mortgage loans insured by FHA under the Housing Act, or Title V of the Housing
Act of 1949 ( "FHA Loans" ), or partially guaranteed by the VA under the
Servicemen's Readjustment Act of 1944, as amended, of Chapter 37 of Title 38,
United States Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guarantee under this subsection." In order to meet
its obligations under any such guarantee, GNMA, under Section 306 (d) of the
Housing Act, is authorized to borrow from the United States Treasury in an
amount which is at any time sufficient to enable GNMA, with no limitations as to
amount, to perform its obligations under its guarantee.
18
<PAGE>
GNMA Certificates. Each GNMA Certificate relating to a Series (which may be
issued under either the GNMA I program or the GNMA II program) will be a "fully
modified pass-through" mortgage-backed certificate issued and serviced by a
mortgage banking company or other financial concern ("GNMA Issuer") approved by
GNMA, FNMA as a seller-servicer of FHA Loans or VA Loans or both. Each GNMA
Certificate will be based on and backed by a pool of FHA Loans and/or VA Loans.
Each such mortgage loan will be secured by a one- to four-family residential
property.
The full and timely payment of principal of and interest on each GNMA
Certificate relating to a Series will be guaranteed by GNMA, which obligation is
backed by the full faith and credit of the United States. Each such GNMA
Certificate will have an original maturity of not more than 30 years (but may
have original maturities of substantially less than 30 years). Each such GNMA
Certificate will provide for the payment by or on behalf of the GNMA Issuer to
the registered holder of such GNMA Certificate of scheduled monthly payments of
principal and interest equal to the Certificateholder's proportionate interest
in the aggregate amount of the monthly principal and interest payment on each
FHA Loan or VA Loan backing such GNMA Certificate, less the applicable servicing
and guarantee fee which together equal the difference between the interest on
the FHA or VA Loans and the rate on the GNMA Certificates. In addition, each
payment to a GNMA Certificateholder will include proportionate pass-through
payments to such holder of any prepayments of principal on the FHA Loans or VA
Loans backing such GNMA Certificate and liquidation proceeds in the event of a
foreclosure or other disposition of any such FHA Loan or VA Loan.
GNMA will approve the issuance of each such GNMA Certificate in accordance
with a guarantee agreement (a "Guaranty Agreement") between GNMA and the GNMA
Issuer. Pursuant to its Guaranty Agreement, a GNMA Issuer will be required to
advance its own funds in order to make timely payments of all amounts due on
each such GNMA Certificate, even if the payments received by the GNMA Issuer on
the FHA Loans or VA Loans backing each such GNMA Certificate are less than the
amounts due on each such GNMA Certificate.
No GNMA Issuer will insure or guarantee any Series or the GNMA Certificate
relating to any Series. Each GNMA Issuer will be obligated under Guaranty
Agreements with GNMA to service the pooled FHA Loans and VA Loans in accordance
with FHA and VA requirements and with generally accepted practices in the
mortgage lending industry. Each GNMA Issuer's responsibilities with respect to
the pooled FHA Loans and VA Loans will include collection of all principal and
interest payments and payments made by borrowers toward escrows established for
taxes and insurance premiums; maintenance of necessary hazard insurance
policies; institution of all actions necessary to foreclose on, or take other
appropriate action with respect to, loans in default; and collection of FHA
insurance and VA guarantee benefits.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate
relating to a Series as it becomes due, it must promptly notify GNMA and request
GNMA to make such payment. Upon notification and request, GNMA will make such
payments to the registered holder of such GNMA Certificate. In the event no
payment is made by a GNMA Issuer and the GNMA Issuer fails to notify and request
GNMA to make such payment, the holder of such GNMA Certificate will have
recourse only against GNMA to obtain such payment. The Trustee or its nominee,
as registered holder of the GNMA Certificates relating to a Series, will have
the right to proceed directly against GNMA under the terms of the Guaranty
Agreements relating to such GNMA Certificates for any amounts that are not paid
when due.
Regular monthly installment payments on each GNMA Certificate relating to a
Series will be comprised of interest due as specified on such GNMA Certificate
plus the scheduled principal payments on the FHA Loans or VA Loans underlying
such GNMA Certificate due on the first day of the month in which the scheduled
monthly installment on such GNMA Certificate is due. Such regular monthly
installments on each such GNMA Certificate are required to be paid to the
Trustee as registered holder
19
<PAGE>
by the 15th day of each month in the case of a GNMA I Certificate and are
required to be mailed to the Trustee by the 20th day of each month in the case
of a GNMA II Certificate. Any principal prepayments on any FHA Loans or VA Loans
underlying a GNMA Certificate relating to a Series or any other early recovery
of principal on such loan will be passed through to the Trustee as the
registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or by
"buydown" mortgage loans for which funds will have been provided (and deposited
into escrow accounts) for application to the payment of a portion of the
borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from non-"buydown" GNMA Certificates and will include amounts
to be collected from both the borrower and the related escrow account. The
graduated payment mortgage loans will provide for graduated interest payments
that, during the early years of such mortgage loans, will be less than the
amount of stated interest on such mortgage loans. The interest not so paid will
be added to the principal of such graduated payment mortgage loans and, together
with interest thereon, will be paid in subsequent years. The obligations of GNMA
and the Servicer of a GNMA Certificate will be the same irrespective of whether
the GNMA Certificates securing a Series of Certificates are backed by graduated
payment mortgage loans or "buydown" mortgage loans. No statistics comparable to
the FHA's prepayment experience on level payment, non-"buydown" mortgage loans
are available in respect of graduated payment or "buydown" mortgages. GNMA
Certificates related to a Series of Certificates may be held in book-entry form.
Federal Home Loan Mortgage Corporation. FHLMC is a corporate instrumentality
of the United States created pursuant to Title III of the Emergency Home Finance
Act of 1970, as amended (the "FHLMC Act"). FHLMC's common stock is owned by the
Federal Home Loan Banks and its preferred stock is owned by the stockholders of
such Federal Home Loan Banks. FHLMC was established primarily for the purpose of
increasing the availability of mortgage credit for the financing of urgently
needed housing. It seeks to provide an enhanced degree of liquidity for
residential mortgage investments primarily by assisting in the development of
secondary markets for conventional mortgages. The principal activity of FHLMC
currently consists of the purchase of first lien conventional residential
mortgage loans or participation interests in such mortgage loans and the resale
of the mortgage loans so purchased in the form of mortgage securities, primarily
FHLMC Certificates. FHLMC is confined to purchasing, so far as practicable,
conventional mortgage loans and participation interests therein which it deems
to be of such quality, type and class as to meet generally the purchase
standards imposed by private institutional mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided interest
in a pool of mortgage loans that may consist of fixed rate, first lien
conventional loans, FHA Loans or VA Loans ("FHLMC Certificate group"). FHLMC
Certificates are sold under the terms of a Mortgage Participation Certificate
Agreement. A FHLMC Certificate may be issued under either FHLMC's Cash Program
or Guarantor Program.
Mortgage loans underlying the FHLMC Certificates relating to a Series will
consist of fixed rate mortgage loans with original terms to maturity of between
ten and 30 years. Each such mortgage loan must meet the applicable standards set
forth in the FHLMC Act. A FHLMC Certificate group may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and/or participations comprising another FHLMC Certificate group. Under the
Guarantor Program, any such FHLMC Certificate group may include only whole loans
or participation interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the timely
payment of interest on the underlying mortgage loans to the extent of the
applicable Certificate rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying
20
<PAGE>
mortgage loans in the FHLMC Certificate group represented by such FHLMC
Certificate, whether or not received. FHLMC also guarantees to each registered
holder of a FHLMC Certificate collection by such holder of all principal on the
underlying mortgage loans, without any offset or deduction, to the extent of
such holder's pro rata share thereof, but does not, except if and to the extent
specified in the Prospectus Supplement for a Series, guarantee the timely
payment of scheduled principal. Pursuant to its guarantees, FHLMC indemnifies
holders of FHLMC Certificates against any diminution in principal by reason of
charges for property repairs, maintenance and foreclosure. FHLMC may remit the
amount due on account of its guarantee of collection of principal at any time
after default on an underlying mortgage loan, but not later than (i) 30 days
following foreclosure sale, (ii) 30 days following payment of the claim by any
mortgage insurer, or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing of
demand for acceleration, FHLMC reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which it
has purchased but not sold. The length of time necessary for FHLMC to determine
that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and FHLMC has not adopted standards which
require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States or by any Federal
Home Loan Bank and do not constitute debts or obligations of the United States
or any Federal Home Loan Bank. The obligations of FHLMC under its guarantee are
obligations solely of FHLMC and are not backed by, nor entitled to, the full
faith and credit of the United States. If FHLMC were unable to satisfy such
obligations, distributions to holders of FHLMC Certificates would consist solely
of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial payments of principal, and principal received by FHLMC by virtue of
condemnation, insurance or foreclosure, and repurchases of the mortgage loans by
FHLMC or the sellers of the mortgage loans. FHLMC is required to remit to each
registered FHLMC Certificateholder its pro rata share of principal payments on
the underlying mortgage loans, interest at the FHLMC pass-through rate and any
other sums such as prepayment fees, within 60 days of the date on which such
payments are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, there is no limitation on the amount by which
interest rates on the mortgage loans underlying a FHLMC Certificate may exceed
the pass-through rate on the FHLMC Certificate. Under such program, FHLMC
purchases groups of whole mortgage loans from sellers at specified percentages
of their unpaid principal balances, adjusted for accrued or prepaid interest,
which when applied to the interest rate of the mortgage loans and participations
purchased, results in the yield (expressed as a percentage) required by FHLMC.
The required yield, which includes a minimum servicing fee retained by the
servicer, is calculated using the outstanding principal balance of the mortgage
loans, an assumed term and a prepayment period as determined by FHLMC. No loan
or participation is purchased by FHLMC at greater than 100% of the outstanding
principal balance. The range of interest rates on the mortgage loans and
participations in a FHLMC Certificate group under the Cash Program will vary
since mortgage loans and participations are purchased and assigned to a FHLMC
Certificate group based upon their yield to FHLMC rather than on the interest
rate on the underlying mortgage loans. Under FHLMC's Guarantor Program, the
pass-through rate on a FHLMC Certificate is established based upon the lowest
interest rate on the underlying mortgage loans, minus a minimum servicing fee
and the amount of FHLMC's management and guaranty income as agreed upon between
the seller and FHLMC.
21
<PAGE>
FHLMC Certificates duly presented for registration of transfer on or before
the last business day of a month are registered effective as of the first day of
that month. The first remittance check to a registered holder of a FHLMC
Certificate will be mailed so as to be received normally by the 15th day of the
second month following the month in which the purchaser became a registered
holder of the FHLMC Certificate. Thereafter checks will be mailed monthly to the
registered holder so as to be received normally by the 15th day of each month.
The Federal Reserve Bank of New York maintains book-entry accounts with respect
to FHLMC Certificates sold by FHLMC on or after January 2, 1985, and makes
payments of interest and principal each month to the registered holders thereof
in accordance with such holders' instructions.
The FHLMC Certificates relating to a Series may have other characteristics
and terms, different from those described above, so long as such FHLMC
Certificates and underlying mortgage loans meet the criteria of the rating
agency or agencies rating the Certificates of such Series. Such FHLMC
Certificates and underlying mortgage loans will be described in the related
Prospectus Supplement.
See "Additional Information" for the availability of further information
respecting FHLMC and FHLMC Certificates.
Federal National Mortgage Association. FNMA is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, as amended (the "Charter Act"). FNMA was
originally established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately managed corporation by legislation enacted in
1968.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from lenders, thereby replenishing their funds for additional
lending. It acquires funds to purchase loans from many capital market investors
that may not ordinarily invest in mortgage loans, thereby expanding the total
amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas. In
addition, FNMA issues mortgage-backed securities primarily in exchange for pools
of mortgage loans from lenders.
FNMA Certificates. FNMA Certificates are either Guaranteed Mortgage
Pass-Through Certificates or Stripped Mortgage Backed Securities. FNMA
Certificates represent fractional undivided interests in a pool of mortgage
loans formed by FNMA. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either provided
by FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.
Mortgage loans underlying FNMA Certificates relating to a Series will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be between either 8 to 15
years or 20 to 30 years. The original maturities of substantially all of the
fixed rate level payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate (and the series pass-through rate payable
with respect to a FNMA Stripped Mortgage Backed Security) is equal to the lowest
interest rate of any mortgage loan in the related pool, less a specified minimum
annual percentage representing servicing compensation and FNMA's guaranty fee.
Under a regular servicing option (pursuant to which the mortgagee or other
servicer assumes the entire risk of foreclosure losses) the annual interest
rates on the mortgage loans underlying a FNMA Certificate will be between 50
basis points and 250 basis points greater than its annual pass-through rate (or
the series pass-through rate payable with respect to a FNMA Stripped Mortgage
Backed Security), and under a special servicing option (pursuant to which FNMA
assumes the entire risk for foreclosure losses), the annual interest rates on
the mortgage loans underlying a FNMA Certificate will generally be between
22
<PAGE>
55 basis points and 255 basis points greater than the annual FNMA Certificate
pass-through rate (or the series pass-through rate, if a FNMA Stripped Mortgage
Backed Security).
FNMA guarantees to each registered holder of a FNMA Certificate that it will
distribute amounts representing such holder's proportionate share of scheduled
principal and interest payments at the applicable pass-through rate provided for
by such FNMA Certificate on the underlying mortgage loans, whether or not
received. and such holder's proportionate share of the full principal amount of
any foreclosed or other finally liquidated mortgage loan, whether or not such
principal amount is actually recovered. The obligations of FNMA under its
guarantees are obligations solely of FNMA and are not backed by, nor entitled
to, the full faith and credit of the United States. Although the Secretary of
the Treasury of the United States has discretionary authority to lend FNMA up to
$2.25 billion outstanding at any time, neither the United States nor any agency
thereof is obligated to finance FNMA's operations or to assist FNMA in any other
manner. If FNMA were unable to satisfy its obligations, distributions to holders
of FNMA Certificates would consist solely of payments and other recoveries on
the underlying mortgage loans and, accordingly, monthly distributions to holders
of FNMA Certificates would be affected by delinquent payments and defaults on
such mortgage loans.
FNMA Certificates evidencing interests in pools of mortgage loans formed on
or after May 1, 1985 (other than FNMA Certificates backed by pools containing
graduated payment mortgage loans or mortgage loans secured by multifamily
projects) are available in book-entry form only. Distributions of principal and
interest on each FNMA Certificate will be made by FNMA on the 25th day of each
month to the persons in whose name the FNMA Certificate is entered in the books
of the Federal Reserve Bank of New York (or registered on the FNMA Certificate
register in the case of fully registered FNMA Certificates) as of the close of
business on the last day of the preceding month. With respect to FNMA
Certificates issued in book-entry form, distributions thereon will be made by
wire, and with respect to fully registered FNMA Certificates, distributions
thereon will be made by check.
The FNMA Certificates relating to a Series may have other characteristics
and terms, different from those described above, so long as such FNMA
Certificates and underlying mortgage loans meet the criteria of the rating
agency or agencies rating the Certificates of such Series. Such FNMA
Certificates and underlying mortgage loans will be described in the related
Prospectus Supplement.
See "Additional Information" for the availability of further information
respecting FNMA and FNMA Certificates.
Other Agency Securities. If specified in the related Prospectus Supplement,
a Trust Fund may include other mortgage pass-through certificates issued or
guaranteed by GNMA, FNMA or FHLMC. The characteristics of any such mortgage
pass-through certificates will be described in such Prospectus Supplement. If so
specified, a combination of different types of Agency Securities may be held in
a Trust Fund.
SUBSTITUTION OF MORTGAGE ASSETS
Substitution of Mortgage Assets will be permitted in the event of breaches
of representations and warranties with respect to any original Mortgage Asset or
in the event the documentation with respect to any Mortgage Asset is determined
by the Trustee to be incomplete. The period during which such substitution will
be permitted generally will be indicated in the related Prospectus Supplement.
The related Prospectus Supplement will describe any other conditions upon which
Mortgage Assets may be substituted for Mortgage Assets initially included in the
Trust Fund.
23
<PAGE>
USE OF PROCEEDS
Unless otherwise specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be used to purchase the Mortgage Assets related to
such Series or to reimburse the amounts previously used to effect such a
purchase, the costs of carrying the Mortgage Assets until the sale of the
Certificates and other expenses connected with pooling the Mortgage Assets and
issuing the Certificates.
THE DEPOSITOR
MorServ, Inc. (the "Company") was incorporated in the State of Delaware on
December 2, 1993 as a wholly-owned, limited-purpose indirect finance subsidiary
of The Chase Manhattan Bank ("Chase"). The Company maintains its principal
office at 343 Thornall Street, Edison, New Jersey 08837. Its telephone number is
908-205-6000.
As described herein under "The Mortgage Pools," "Underwriting Policies," and
"Description of the Certificates--Representations and Warranties," the Company's
only obligations, if any, with respect to a Series of Certificates may be
pursuant to certain limited representations and warranties and limited
undertakings to repurchase or substitute Mortgage Loans or Agency Securities
under certain circumstances. The Company will have no ongoing servicing
obligations or responsibilities with respect to any Mortgage Pool or pool of
Agency Securities. The Company does not have, nor is it expected in the future
to have, any significant assets.
As specified in the related Prospectus Supplement, the Master Servicer with
respect to any Series of Certificates evidencing interests in Mortgage Loans may
be an affiliate of the Company. As described under "The Trust Fund--The Mortgage
Pools" and "--The Agency Securities," the Company anticipates that it will
acquire Mortgage Assets in the open market or in privately negotiated
transactions, which may be through or from an affiliate.
Unless otherwise specifically provided in the related Prospectus Supplement,
neither the Company, Chase nor The Chase Manhattan Corporation, nor any of its
affiliates, will insure or guarantee the Certificates of any Series.
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Company, either directly
or through affiliates, from Sellers. Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Loans so acquired by the Company will have
been originated in accordance with the underwriting criteria specified below
under "Underwriting Standards".
UNDERWRITING STANDARDS
Unless otherwise specified in the related Prospectus Supplement, each Seller
will represent and warrant that all Mortgage Loans originated and/or sold by it
to the Company or one of its affiliates will have been underwritten in
accordance with standards consistent with those utilized by mortgage lenders
generally during the period of origination for similar types of loans. As to any
Mortgage Loan insured by the FHA or partially guaranteed by the VA, the Seller
will represent that it has complied with underwriting policies of the FHA or the
VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the mortgaged property as collateral. In general, a prospective borrower
applying for a mortgage loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of
24
<PAGE>
the borrower's financial condition, the borrower generally is required to
provide a current list of assets and liabilities and a statement of income and
expenses, as well as an authorization to apply for a credit report which
summarizes the borrower's credit history with local merchants and lenders and
any record of bankruptcy. In most cases, an employment verification is obtained
from an independent source (typically the borrower's employer), which
verification reports the length of employment with that organization, the
borrower's current salary and whether it is expected that the borrower will
continue such employment in the future. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. The appraisal is based on the market
value of comparable homes, the estimated rental income (if considered applicable
by the appraiser) and the cost of replacing the home.
Once all applicable employment, credit and property information is received,
a determination generally is made as to whether the prospective borrower has
sufficient monthly income available (i) to meet the borrower's monthly
obligations on the proposed mortgage loan (generally determined on the basis of
the monthly payments due in the year of origination) and other expenses related
to the mortgaged property (such as property taxes and hazard insurance) and (ii)
to meet monthly housing expenses and other financial obligations and monthly
living expenses. The underwriting standards applied by Sellers, particularly
with respect to the level of loan documentation and the mortgagor's income and
credit history, may be varied in appropriate cases where factors such as low
Loan-to-Value Ratios or other favorable credit exist.
In the case of a Mortgage Loan secured by a leasehold interest in real
property, the title to which is held by a third party lessor, the Seller will
represent and warrant, among other things, that the remaining term of the lease
and any sublease is at least five years longer than the remaining term on the
Mortgage Note.
Certain of the types of Mortgage Loans that may be included in a Trust Fund
are recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of such Mortgage Loans may
provide for escalating or variable payments by the Mortgagor. These types of
Mortgage Loans are underwritten on the basis of a judgment that the Mortgagors
have the ability to make the monthly payments required initially. In some
instances, however, a Mortgagor's income may not be sufficient to permit
continued loan payments as such payments increase. These types of Mortgage Loans
may also be underwritten primarily upon the basis of Loan-to-Value Ratios or
other favorable credit factors.
QUALIFICATIONS OF SELLERS
Unless otherwise specified in the related Prospectus Supplement, each Seller
will be required to satisfy the qualifications set forth herein. Each Seller
must be an institution experienced in originating and servicing mortgage loans
of the type contained in the related Mortgage Pool in accordance with accepted
practices and prudent guidelines, and must maintain satisfactory facilities to
Originate and service those mortgage loans. Each Seller must be a
seller/servicer approved by either FNMA or FHLMC. Each Seller must be a
mortgagee approved by the FHA or an institution the deposit accounts in which
are insured by the Federal Deposit Insurance Corporation. The Resolution Trust
Corporation, acting in its capacity as conservator or receiver of a depository
institution, may be a Seller if so specified in the related Prospectus
Supplement.
25
<PAGE>
REPRESENTATIONS BY SELLERS; REPURCHASES
Each Seller will have made representations and warranties in respect of the
Mortgage Loans sold by such Seller and evidenced by a Series of Certificates.
Such representations and warranties unless otherwise provided in the related
Prospectus Supplement generally include, among other things: (i) that title
insurance (or in the case of Mortgaged Properties located in areas where such
policies are generally not available, an attorney's certificate of title) and
any required hazard insurance policy and Primary Mortgage Insurance Policy were
effective at the origination of each Mortgage Loan other than Cooperative Loans,
and that each policy (or certificate of title as applicable) remained in effect
on the date of purchase of the Mortgage Loan from the Seller by or on behalf of
the Company; (ii) that the Seller had good title to each such Mortgage Loan and
such Mortgage Loan was subject to no offsets, defenses, counterclaims or rights
of rescission except to the extent that any buydown agreement described herein
may forgive certain indebtedness of a Mortgagor; (iii) that each Mortgage Loan
constituted a valid first lien on, or a first perfected security interest with
respect to, the Mortgaged Property (subject only to permissible title insurance
exceptions, if applicable, and certain other exceptions described in the
Agreement) and that the Mortgaged Property was free from damage and was in good
repair; (iv) that there were no delinquent tax or assessment liens against the
Mortgaged Property; (v) that no more than one required payment on a Mortgage
Loan was more than 30 days delinquent at any time during the twelve months prior
to the Cut-off Date; and (vi) that each Mortgage Loan was made in compliance
with, and is enforceable under, all applicable local, state and federal laws and
regulations in all material respects.
Unless otherwise specified in the related Prospectus Supplement, the
representations and warranties of a Seller in respect of a Mortgage Loan will be
made not as of the Cut-off Date but as of the date on which such Seller sold the
Mortgage Loan to the Company or one of its affiliates. Under such circumstances,
a substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Certificates evidencing an interest in such
Mortgage Loan. Since the representations and warranties of a Seller do not
address events that may occur following the sale of a Mortgage Loan by such
Seller, its repurchase obligation described below will not arise if the relevant
event that would otherwise have given rise to such an obligation with respect to
a Mortgage Loan occurs after the date of sale of such Mortgage Loan by such
Seller to the Company or its affiliates. However, the Company will not include
any Mortgage Loan in the Trust Fund for any Series of Certificates if anything
has come to the Company's attention that would cause it to believe that the
representations and warranties of a Seller will not be accurate and complete in
all material respects in respect of such Mortgage Loan as of the date of initial
issuance of the related Series of Certificates. If the Master Servicer is also a
Seller of Mortgage Loans with respect to a particular Series, such
representations will be in addition to the representations and warranties made
by the Master Servicer in its capacity as the Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the Seller,
will promptly notify the relevant Seller of any breach of any representation or
warranty made by it in respect of a Mortgage Loan that materially and adversely
affects the interests of the Certificateholders in such Mortgage Loan. Unless
otherwise specified in the related Prospectus Supplement, if such Seller cannot
cure such breach within 90 days after notice from the Master Servicer or the
Trustee, as the case may be, then such Seller will be obligated to repurchase
such Mortgage Loan from the Trust Fund at a price (the "Purchase Price") equal
to 100% of the outstanding principal balance thereof as of the date of the
repurchase plus accrued interest thereon to the first day of the month in which
the Purchase Price is to be distributed at the Mortgage Rate (less any
unreimbursed Advances or amount payable as related servicing compensation if the
Seller is the Master Servicer with respect to such Mortgage Loan). If a REMIC
election is to be made with respect to a Trust Fund, unless otherwise provided
in the related Prospectus Supplement, the Master Servicer or a holder of the
related residual certificate will be obligated to pay any prohibited transaction
tax that may arise in connection with any such repurchase. The Master Servicer,
unless otherwise specified in the related Prospectus Supplement, will be
entitled to
26
<PAGE>
reimbursement for any such payment from the assets of the related Trust Fund or
from any holder of the related residual certificate. See "Description of the
Certificates--General" herein and in the related Prospectus Supplement. Except
in those cases in which the Master Servicer is the Seller, the Master Servicer
will be required under the applicable Agreement to enforce this obligation for
the benefit of the Trustee and the Certificateholders, following the practices
it would employ in its good faith business judgment were it the owner of such
Mortgage Loan. In those cases where the Master Servicer is also the Seller, the
Trustee will be required to enforce this obligation for the benefit of the
Certificateholders, following the practices it would employ in its good faith
business judgment were it the owner of such Mortgage Loan. This repurchase
obligation will constitute the sole remedy available to Certificateholders or
the Trustee for a breach of representation by a Seller.
Neither the Company nor the Master Servicer (unless the Master Servicer is
the Seller) will be obligated to purchase a Mortgage Loan if a Seller defaults
on its obligation to do so, and no assurance can be given that Sellers will
carry out their respective repurchase obligations with respect to Mortgage
Loans.
The only representations and warranties, if any, to be made for the benefit
of Certificateholders in respect of any Mortgage Loan relating to the period
commencing on the date of sale of such Mortgage Loan (if such sale is prior to
the issuance of the Certificates) to the Company or its affiliate will be
certain limited representations of the Company and of the Master Servicer
described above under "The Trust Fund--The Mortgage Pools."
Unless otherwise provided in the related Prospectus Supplement, neither the
Company nor the Master Servicer will be obligated to purchase a Mortgage Loan if
the Seller defaults on its obligation to do so, and no assurance can be given
that sellers will carry out their respective repurchase obligations with respect
to Mortgage Loans. However, to the extent that a breach of the representations
and warranties of a seller may also constitute a breach of a representation made
by the Company, the Company may have a purchase obligation as described above
under "The Trust Fund--The Mortgage Pools."
YIELD CONSIDERATIONS
The Remittance Rates and the weighted average Remittance Rate or other
applicable rate of the Mortgage Loans and Agency Securities relating to each
Series of Certificates will be set forth in the related Prospectus Supplement.
The weighted average Remittance Rate with respect to Mortgage Pools containing
Adjustable Rate Loans and with respect to pools of variable and adjustable rate
Agency Securities may change with any changes in the Adjustable Mortgage Rates
borne by the Adjustable Rate Loans and variable or adjustable pass-through rates
borne by the variable and adjustable rate Mortgage Securities or with
prepayments of the Mortgage Loans or mortgage loans underlying the Mortgage
Securities. The Remittance Rate or other applicable rate with respect to all
other Mortgage Loans and Agency Securities may be fixed based upon the lowest
Mortgage Rate for any Mortgage Loan and the lowest pass-through rate for any
Agency Security, respectively, or may change as Mortgage Loans bearing differing
Mortgage Rates and Agency Securities bearing differing pass-through rates,
respectively, prepay, as specified in the related Prospectus Supplement, or may
be otherwise determined based on the parameters set forth in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
monthly accrual of interest on a Mortgage Loan and a mortgage loan underlying an
Agency Security is calculated as one-twelfth of the product of the applicable
Mortgage Rate at the time of such calculation and the principal balance
outstanding on the scheduled payment date for such mortgage loan in the
preceding month. Unless otherwise specified in the related Prospectus
Supplement, the Remittance Rate or other applicable rate with respect to each
Mortgage Loan and Agency Security will be calculated similarly on a loan-by-loan
or security-by-security basis, after subtracting the Excess Interest, if any,
and the Servicing Fee and
27
<PAGE>
related expenses (including fees with respect to credit enhancement) applicable
to each Mortgage Loan or Agency Security from the applicable Mortgage Rate or
pass-through rate or such Excess Interest, Servicing Fee, related expenses or
other fees may be deducted from the distributions on the Remittance Dates.
Unless otherwise specified in the related Prospectus Supplement, when a
Mortgage Loan is prepaid between regular payment dates, the Mortgagor may be
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. In addition, unless otherwise specified in the related
Prospectus Supplement, prepayments are not passed through until the month
following receipt. The effect of these provisions is to reduce the aggregate
amount of interest which would be otherwise passed through to
Certificateholders. To mitigate this reduction in yield, an Agreement, as
specified in the related Prospectus Supplement, may provide that with respect to
any principal prepayment received in advance of the scheduled payment date of
the related Mortgage Loan, the Master Servicer or other party specified will pay
to the Certificateholders or the Senior Certificateholders of a Series, such
amount, if any, as may be necessary to assure that the distributions made to
such Certificateholders on the following Remittance Date include an amount equal
to a full month's interest with respect to the prepaid Mortgage Loan at the
relevant Remittance Rate. The Master Servicer's obligations, if any, to pay such
amounts may be limited in amount, as described in the related Prospectus
Supplement, and may be limited to corresponding amounts received from any
Sub-servicers. See "Description of the Certificates--Advances in Connection with
Prepaid Mortgage Loans."
If a Class of Certificates of a Series is divided into two or more
Sub-classes, the Prospectus Supplement for such Series will indicate that a
lower rate of principal prepayments than anticipated would negatively affect the
total return to investors of any Class or such Sub-class of Certificates that is
offered at a discount to its principal amount, and a higher rate of principal
prepayments than anticipated would negatively affect the total return to
investors of any such Class or Sub-class of Certificates that is offered at a
premium to its principal amount or without any principal amount.
If a Series of Certificates contains Classes or Sub-classes of Certificates
assigned a Stated Balance and specified interest rate, and entitled to receive
distributions of principal or interest or both, in a specified order other than
as a specified percentage of each distribution of principal or interest or both,
the Prospectus Supplement will set forth information, measured relative to a
prepayment standard or model specified in such Prospectus Supplement, with
respect to the projected weighted average life of each such Class or Sub-class
and the percentage of the original Stated Balance of each such Class or
Sub-class that would be outstanding on specified Remittance Dates for such
Series based on the assumptions stated in such Prospectus Supplement, including
assumptions that prepayments on the Mortgage Loans or on the mortgage loans
underlying the Agency Securities in the related Trust Fund are made at rates
corresponding to the various percentages of such prepayment standard or model.
MATURITY AND PREPAYMENT CONSIDERATIONS
MATURITY
Unless otherwise described in an applicable Prospectus Supplement, all of
the Mortgage Loans and mortgage loans underlying the Agency Securities will have
maturities at origination of not more than 30 years.
PREPAYMENT CONSIDERATIONS
Mortgage Loans and mortgage loans underlying the Agency Securities generally
may be prepaid in full or in part without penalty. FHA Mortgage Loans and VA
Mortgage Loans may be prepaid at any time without penalty. The Company
anticipates that a significant number of the Mortgage Loans and mortgage loans
underlying the Agency Securities will be paid in full prior to maturity. A
number of factors, including homeowner mobility, national and local economic
conditions, age of the mortgages, interest and annual percentage rates and the
availability of mortgage funds may affect the prepayment experience of a
particular pool of Mortgage Loans and mortgage loans underlying the Agency
Securities.
28
<PAGE>
The Master Servicer with respect to a Mortgage Pool, to the extent it has
knowledge of any conveyance or prospective conveyance by any Mortgagor of any
property securing a Mortgage Loan, will exercise the right to accelerate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable to such
loan to the extent, under the circumstances, and in the manner the Master
Servicer enforces such clauses with respect to other loans held in its own
portfolio or in the manner specified in the Prospectus Supplement. The Master
Servicer, however, will not exercise any such right if prohibited by law from
doing so or if the exercise of such rights would impair or threaten to impair
any recovery under any applicable insurance policy; If the Master Servicer
determines not to enforce such "due-on-sale" clause, the Master Servicer will
enter into an assumption and modification agreement from or with the person to
whom such property has been conveyed or is proposed to be conveyed, pursuant to
which such person becomes liable under the Mortgage Loan and, to the extent
permitted by applicable state law and deemed appropriate in the Master
Servicer's reasonable judgment, the Mortgagor remains liable thereon. FHA
Mortgage Loans and VA Mortgage Loans are not permitted to contain "due-on-sale"
clauses, and so are freely assumable. The rate of prepayments of FHA Mortgage
Loans and VA Mortgage Loans therefore may be lower than Conventional Mortgage
Loans bearing interest at comparable rates. See "Description of the
Certificates--Enforcement of Due-on-Sale Clause; Realization Upon Defaulted
Mortgage Loans."
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of varying
maturities that will remain outstanding on each anniversary of the original date
of such mortgage loans (assuming they all have the same origination date) ("FHA
Experience").
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the interest rates at the time of origination, the Mortgage
Loans and mortgage loans underlying the Agency Securities are likely to be
subject to higher prepayment rates than if prevailing interest rates remain at
or above the interest rates at the time the Mortgage Loans and mortgage loans
underlying the Agency Securities were originated. However, there can be no
assurance that any Mortgage Pool or pool of mortgage loans underlying the Agency
Securities will conform to past prepayment experience or any published
prepayment forecast.
It is customary in the mortgage industry in quoting yields (a) on a pool of
30-year fixed-rate, level payment mortgages, to compute the yield as if the pool
were a single loan that is amortized according to a 30-year schedule and is then
prepaid in full at the end of the 12th year and (b) on a pool of 15-year
fixed-rate, level payment mortgages, to compute the yield as if the pool were a
single loan that is amortized according to a 15-year schedule and then is
prepaid in full at the end of the seventh year.
Prepayments on mortgage loans are also commonly measured relative to a
prepayment standard or model. If so specified in the Prospectus Supplement
relating to a Series of Certificates, the model used in a Prospectus Supplement
will be the Prepayment Model (the "Prepayment Model"). The Prepayment Model
represents an assumed rate of prepayment relative to the then outstanding
principal balance of a pool of mortgages. A prepayment assumption of 100% of
Prepayment Model assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgages in the first month of the life
of the mortgages and an additional 0.2% per annum in each month thereafter until
the thirtieth month, and in each month thereafter during the life of the
mortgages, 100% of Prepayment Model assumes a constant prepayment rate of 6% per
annum each month.
29
<PAGE>
Information regarding FHA Experience, other published information, the
Prepayment Model or any other rate of assumed prepayment, as applicable, will be
set forth in the Prospectus Supplement with respect to a Series of Certificates.
See "Description of the Certificates--Optional Termination" for a
description of the Company's or the Master Servicer's option to repurchase the
Mortgage Assets comprising part of a Trust Fund when the aggregate outstanding
principal balance of such Mortgage Assets is less than a specified percentage of
the initial aggregate outstanding principal balance of such Mortgage Assets as
of the related Cut-off Date. See also "The Trust Fund- The Mortgage Pools" for a
description of the obligations of the Company, the Master Servicer or another
party, as specified in the related Prospectus Supplement, to repurchase a
Mortgage Loan in case of a breach of a representation or warranty relative to
such Mortgage Loan.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Agreement") among the Company, as Seller, the Master
Servicer named in the related Prospectus Supplement with respect to a Series of
Certificates evidencing interests in Mortgage Loans, the REMIC Servicer, if any,
named in the related Prospectus Supplement with respect to a Series of
Certificates evidencing interests in Agency Securities and the Trustee named in
the related Prospectus Supplement, a copy of the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
Prospectus Supplement for each Series will describe any provisions of the
particular Agreement relating to such Series which differ materially from the
form of the Agreement filed as an exhibit to the Registration Statement.
Each Series of Certificates will have been rated in the rating category by
the rating agency or agencies specified in the related Prospectus Supplement.
The following summaries describe certain provisions common to each Series of
Certificates. The summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
Agreement relating to the Series of Certificates. When particular provisions or
terms used in the Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference.
GENERAL
The Certificates of each Series will be issued in fully registered form only
and will represent the interests specified in the related Prospectus Supplement
in a separate Trust Fund created pursuant to the related Agreement. The Trust
Fund will be held by the Trustee for the benefit of the Certificateholders. Each
Trust Fund, to the extent specified in the related Prospectus Supplement, will
consist of (i) the Mortgage Loans, Agency Securities or participation or
pass-through interests in Mortgage Loans which are subject to the Agreement from
time to time, (ii) the amounts held in the Certificate Account from time to
time, (iii) with respect to a Series of Certificates evidencing interests in
Mortgage Loans, (a) property which secures a Mortgage Loan and which is acquired
by foreclosure or deed in lieu of foreclosure, (b) the Mortgage Pool Insurance
Policy, if any, (c) the Special Hazard Insurance Policy, if any, (d) the
Mortgagor Bankruptcy Insurance, if any, (e) any Primary Mortgage Insurance
Policies, FHA insurance and VA guarantees, (f) the Buy-Down Fund and GPM Fund,
if any, and (g) if specified in the related Prospectus Supplement, the Reserve
Fund, if any, (iv) any letter of credit, guarantee surety bond, insurance policy
or other credit enhancement securing payment of all or part of a Series of
Certificates ("Alternate Credit Enhancement") and (v) such other property as may
be specified in the related Prospectus Supplement. The Certificates will be
freely transferable and exchangeable at the corporate trust office of the
Trustee at the address set forth in the related Prospectus Supplement. No
30
<PAGE>
service charge will be made for any registration of exchange or transfer of
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.
Ownership of each Mortgage Pool or pool of Agency Securities may be
evidenced by one or more Classes of Certificates, each representing the interest
in the Mortgage Pool or pool of Agency Securities specified in the related
Prospectus Supplement. One or more Classes of Certificates evidencing interests
in Mortgage Loans may be Subordinated Certificates, evidencing the right of the
holders thereof to receive any or a portion of distributions of principal or
interest, or both, on the Mortgage Loans subordinate to the rights of the
holders of other Classes of Certificates ("Senior Certificates") as provided in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the Subordinated Certificates will not be offered hereby.
If a Series of Certificates contains more than one Class of Subordinated
Certificates, losses will be allocated among such Classes in the manner
described in the Prospectus Supplement.
A Series of Certificates may consist of Variable Rate Certificates, which
may evidence interests in Mortgage Loans bearing interest at differing Mortgage
Rates or rates which change periodically or in Agency Securities having
differing pass-through rates or having pass-through rates which change
periodically, all as set forth in the related Prospectus Supplement. A Series of
Certificates may consist of Classes of Certificates evidencing the right to
receive distributions of principal or interest or both in the order specified in
the related Prospectus Supplement. A Class of Certificates of a Series may be
divided into two or more Sub-classes. The related Prospectus Supplement will
specify whether a Class has been so divided and the terms of each Sub-class. The
holders of each Sub-class of a Class of Certificates will be entitled to the
percentages of principal or interest payments or both on the related Mortgage
Loans or Agency Securities as are specified in the related Prospectus
Supplement. The related Prospectus Supplement will specify the minimum
denomination or initial principal amount of Mortgage Loans evidenced by a single
Certificate of each Class of Certificates of a Series (a "Single Certificate").
Distributions of principal and interest on the Certificates will be made on
the payment dates set forth in the related Prospectus Supplement (each, a
"Remittance Date") to the persons in whose names the Certificates are registered
at the close of business on the related record date specified in the related
Prospectus Supplement (the "Record Date"). Distributions will be made by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register, or, to the extent described in the related Agreement, by
wire transfer, except that the final distribution in retirement of Certificates
will be made only upon presentation and surrender of the Certificates at the
office or agency of the Trustee specified in the final distribution notice to
Certificateholders.
CERTIFICATES EVIDENCING INTERESTS IN MORTGAGE LOANS
Assignment of Mortgage Loans. With respect to any Series of Certificates,
the Company will cause the Mortgage Loans constituting the Mortgage Pool to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Mortgage Loans after the Cut-off Date specified in the related
Prospectus Supplement. The Trustee will, concurrently with such assignment,
authenticate and deliver the Certificates. Each Mortgage Loan will be identified
in a schedule appearing as an exhibit to the Agreement (the "Mortgage Loan
Schedule"). The Mortgage Loan Schedule will specify, with respect to each
Mortgage Loan: the original principal amount and the adjusted principal balance
as of the close of business on the Cut-off Date; the Mortgage Rate; the current
scheduled monthly level payment of principal and interest; the maturity of the
Mortgage Note; if the Mortgage Loan is an Adjustable Rate Loan, the initial
Adjustable Mortgage Rate, the maximum permitted Adjustable Mortgage Rate, if
any, the then-current Adjustable Mortgage Rate, and the original and current
index, if any; and if the Mortgage Loan is a Buy-Down Loan or a GPM Loan, the
terms thereof.
31
<PAGE>
In addition, the Company will, as to each Mortgage Loan, deliver or cause to
be delivered to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the Mortgage Note endorsed without recourse in blank
or to the order of the Trustee or Custodian, the original Mortgage with evidence
of recording indicated thereon (except for any Mortgage not returned from the
public recording office, in which case a copy of such Mortgage will be
delivered, together with a certificate of the seller of the Mortgage Loan that
the original of such Mortgage was delivered to such recording office) and an
assignment of the Mortgage in recordable form (but not recorded).
The Trustee, or, if so specified in the related Prospectus Supplement, the
Custodian, will review and hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise provided in the related Prospectus
Supplement, if any such document is found to be defective in any material
respect and the seller, as the case may be, does not cure such defect within 60
days, or within such other period specified in the related Prospectus
Supplement, the seller or other specified party will, not later than 90 days or
within such other period specified in the related Prospectus Supplement, after
notice from the Company or the Master Servicer of the defect, repurchase the
related Mortgage Loan or any property acquired in respect thereof from the
Trustee at a price equal to the remaining unpaid principal balance of such
Mortgage Loan (or, in the case of a foreclosed Mortgage Loan, the unpaid
principal of such Mortgage Loan immediately prior to foreclosure ), plus accrued
but unpaid interest to the date of the next scheduled payment on such Mortgage
Loan at the related Remittance Rate, less any unreimbursed Advances made by the
seller or other specified party respecting such Mortgage Loan. Unless otherwise
provided in the related Prospectus Supplement, the repurchase obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for a material defect in a Mortgage Loan document.
If so specified in the related Prospectus Supplement, the Company will, at
the time of delivery of the Certificates, cause assignments to the Trustee of
the Mortgage Loans constituting a Mortgage Pool to be recorded in the
appropriate public office for real property records, except in states where, in
the opinion of counsel acceptable to the Trustee, such recording is not required
to protect the Trustee's interest in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Company, the seller
or the originator of such Mortgage Loan. Unless otherwise specified in the
related Prospectus Supplement, the Company will cause such assignments to be so
recorded within the time after delivery of the Certificates as is specified in
the related Prospectus Supplement, in which event, the Agreement may, as
specified in the related Prospectus Supplement, require the Master Servicer to
repurchase from the Trustee any Mortgage Loan required to be recorded but not
recorded within such time, at the price described above with respect to
repurchase by reason of defective documentation. Unless otherwise provided in
the related Prospectus Supplement, the repurchase obligation would constitute
the sole remedy available to the Certificateholders or the Trustee for the
failure of a Mortgage Loan to be recorded.
Servicing. Pursuant to the Agreement, the Master Servicer will service and
administer the Mortgage Loans assigned to the Trustee as more fully set forth
below. The Master Servicer may be an affiliate of the Company.
The Master Servicer and each Sub-servicer, if any, subject to general
supervision by the Master Servicer, will be required to perform diligently all
services and duties specified in each Agreement, in the same manner as prudent
mortgage lending institutions of mortgages of the same type as the Mortgage
Loans in those jurisdictions where the related Mortgaged Properties are located.
The Master Servicer will be responsible for monitoring the performance of each
Sub-servicer, if any, and will have the right to remove a Sub-servicer at any
time if it considers such removal to be in the best interest of the related
Certificateholders. The duties to be performed by the Master Servicer, directly
or through a Sub-servicer, will include collection and remittance of principal
and interest payments, administration of mortgage escrow accounts, collection of
insurance claims and, if necessary, foreclosure. If a Sub-servicer is terminated
by the Master Servicer, the servicing function of the Sub-servicer will be
either
32
<PAGE>
transferred to a substitute Sub-servicer or performed by the Master Servicer.
The Master Servicer will be entitled to retain the portion of the Servicing Fee
paid to the Sub-servicer under a terminated Servicing Agreement if the Master
Servicer elects to perform such servicing functions itself.
The Master Servicer will be paid a Servicing Fee for the performance of its
services and duties under each Agreement as specified in the related Prospectus
Supplement. Each Sub-servicer, if any, will be entitled to receive a portion of
the Servicing Fee. In addition, the Master Servicer or Sub-servicer may be
entitled to retain late charges, assumption fees and similar charges to the
extent collected from Mortgagors. The Company expects that such fees and charges
will not be significant in amount.
Payments on Mortgage Loans. A Certificate Account will be an account, which,
unless otherwise specified in the related Prospectus Supplement, will be
non-interest bearing, established by the Master Servicer as to each Series of
Certificates in the name of the Trustee (i) with a depository institution, the
long-term unsecured debt obligations of which at the time of any deposit therein
are rated within the two highest rating categories or such other rating category
as will not adversely affect the ratings assigned to the Certificates by each
rating agency rating the Certificates of such Series, (ii) in an account or
accounts the deposits in which are fully insured by the Federal Deposit
Insurance Corporation (the "FDIC"), (iii) in an account or accounts the deposits
in which are insured by the FDIC (to the limits established by the FDIC), the
uninsured deposits in which are otherwise secured such that, as evidenced by an
opinion of counsel, the Certificateholders have a claim with respect to the
funds in the Certificate Account or a perfected first priority security interest
against any collateral securing such funds that is superior to the claims of any
other depositors or general creditors of the depository institution with which
the Certificate Account is maintained or (iv) otherwise acceptable to each
rating agency rating the Certificates without reduction or withdrawal of the
rating assigned to the Certificates. The collateral eligible to secure amounts
in the Certificate Account is limited to United States government securities and
other high-quality investments ("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 Remittance Date in Eligible Investments. If so provided in the
related Prospectus Supplement, the Master 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. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will deposit in the
Certificate Account on a daily basis the following payments and collections
received or made by it subsequent to the Cut-off Date (including scheduled
payments of principal and interest due after the Cut-off Date but received by
the Master Servicer on or before the Cut-off Date):
(i) all Mortgagor payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all Mortgagor payments on account of interest on the Mortgage
Loans, adjusted to the Remittance Rate, together with moneys transferred
from the Buy-Down Account or GPM Account, if any;
(iii) all amounts received and retained in connection with the
liquidation of defaulted Mortgage Loans or property acquired in respect
thereof by foreclosure or otherwise ("Liquidation Proceeds") (to the extent
specified in the related Prospectus Supplement, exclusive of the portion
thereof attributable to the Excess Interest, if any, in respect of the
related Mortgage Loans);
(iv) all proceeds received under any title, hazard or other insurance
policy covering any Mortgage Loan, other than proceeds to be applied to the
restoration or repair of the Mortgaged Property or released to the
Mortgagor;
33
<PAGE>
(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 "Advances" and certain other
amounts required under the Agreement to be deposited in the Certificate
Account;
(vii) all proceeds of any Mortgage Loan or property acquired in respect
thereof repurchased by the Master Servicer, the Company or otherwise as
described above or under "Termination" below; and
(viii) all amounts, if any, required to be transferred to the
Certificate Account from a Reserve Fund pursuant to the Agreement.
In those cases where a Sub-servicer is servicing a Mortgage Loan, the
Sub-servicer will establish and maintain an account ("Sub-servicing Account")
that will comply with the standards set forth above, and which is otherwise
acceptable to the Master Servicer. The Sub-servicer is required to deposit into
the Sub-servicing Account on a daily basis all amounts enumerated in the
preceding paragraph in respect of the Mortgage Loans received by the
Sub-servicer, less its servicing compensation. On the date specified in the
related Prospectus Supplement, the Sub-servicer shall remit to the Master
Servicer all funds held in the Sub-servicing Account with respect to each
Mortgage Loan. The Sub-servicer may, to the extent described in the related
Prospectus Supplement, be required to advance any monthly installment of
principal and interest that was not received, less its servicing fee, by the
date specified in the related Prospectus Supplement.
Except as otherwise provided in the related Prospectus Supplement with
respect to each Buy-Down Loan, the Master Servicer will deposit the amounts in a
custodial account (which may be interest-bearing) complying with the
requirements set forth above for the Certificate Account (the "Buy-Down
Account"). The amount of such deposit, together with investment earnings thereon
at the rate specified in the related Prospectus Supplement, will provide funds
sufficient to support the payments on such Buy-Down Loan on a level debt service
basis. The Master Servicer will not be obligated to add to the Buy-Down Account
should investment earnings prove insufficient to maintain the scheduled level of
payments on the Buy-Down Loans, in which event, distributions to the
Certificateholders may be affected.
With respect to each GPM Loan, the Master Servicer will, if and to the
extent provided in the related Prospectus Supplement, deposit in a custodial
account (which may be interest-bearing) complying with the requirements set
forth above for the Certificate Account an amount which, together with
investment earnings thereon at the rate set forth in the related Prospectus
Supplement, will provide funds sufficient to support the payments thereon on a
level debt service basis (the "GPM Account"). The Master Servicer will not be
obligated to supplement the GPM Account should investment earnings thereon prove
insufficient to maintain the scheduled level of payments, in which event,
distributions to the Certificateholders may be affected.
Distributions on Certificates. Except as otherwise provided in the related
Prospectus Supplement, on each Remittance Date, the Master Servicer will
withdraw from the applicable Certificate Account and distribute to the
Certificateholders of each Class (other than a Series having a Class of
Subordinated Certificates, as described below), either the specified interest of
such Class in the Mortgage Pool times the aggregate of all amounts on deposit in
the Certificate Account as of the 16th day of the month of the Remittance Date
or such other date as may be specified in the related Prospectus Supplement (the
"Determination Date"), or, in the case of a Series of Certificates comprised of
Classes which have been assigned a Stated Balance and Interest Rate, payments of
interest and payments in reduction of the Stated Balance from all amounts on
deposit in the Certificate Account on the Determination Date, in the priority
and calculated in the manner set forth in the related Prospectus Supplement,
except, in each case: (i) all payments on the Mortgage Loans that were due on or
before the Cut-off Date; (ii) all
34
<PAGE>
Principal Prepayments, Liquidation Proceeds and Insurance Proceeds received
after the period specified in the related Prospectus Supplement (the "Principal
Prepayment Period"); (iii) all scheduled payments of principal and interest due
on a date or dates subsequent to the Determination Date; (iv) amounts
representing reimbursement for Advances, such reimbursement being limited, if so
specified in the related Prospectus Supplement, to amounts received on
particular Mortgage Loans as Late Collections of principal or interest as to
which the Master Servicer has made an unreimbursed Advance; (v) amounts
representing reimbursement for any unpaid Servicing Fee and expenses from
Liquidation Proceeds, condemnation proceeds and proceeds of insurance policies
with respect to the related Mortgage Loans; (vi) all income from Eligible
Investments held in the Certificate Account for the benefit of the Master
Servicer; and (vii) any Advances deposited in the Certificate Account prior to
the applicable Remittance Date.
The amounts on deposit in the Certificate Account on a Determination Date,
less the amounts specified in (i) through (vii) above, with respect to a Series
of Certificates having a Class of Subordinated Certificates, are referred to
herein as the "Available Distribution Amount."
Unless otherwise specified in the related Prospectus Supplement, with
respect to a Series of Certificates having a Class of Subordinated Certificates,
on each Remittance Date, the Master Servicer will withdraw from the applicable
Certificate Account and distribute to the holders of Senior Certificates, in the
aggregate, the lesser of (i) the applicable Senior Distribution Amount plus the
applicable Outstanding Senior Shortfall (each defined below), or (ii) the
percentage interest of the Classes of Senior Certificates times the Available
Distribution Amount plus (a) the percentage interest of the Classes of
Subordinated Certificates times the Available Distribution Amount, not to exceed
the Available Subordination Amount, as defined in the related Prospectus
Supplement, (b) Advances, if any, made by the Master Servicer, and (c) transfers
from the Reserve Fund, if any. If so specified in the related Prospectus
Supplement, Senior Certificateholders may alternatively be entitled to receive
all or some portion of the amounts otherwise distributable to Subordinated
Certificateholders under circumstances and for the period of time specified in
such Prospectus Supplement, which will have the effect of accelerating the
amortization of the Senior Certificates and thereby increasing over time the
interest evidenced by the Subordinated Certificates in the related Trust Fund.
The distribution made to the Certificateholders of each Class or Sub-class of
Senior Certificates shall be calculated as described in the related Prospectus
Supplement and may vary as to the allocation of principal or interest or both.
Unless otherwise specified in the related Prospectus Supplement, the Senior
Distribution Amount is an amount equal to the percentage interest of the Classes
of Senior Certificates of:
(i) all regularly scheduled payments of principal of and interest on the
Mortgage Loans due during the related Due Period, whether or not received,
with the interest portions thereof adjusted to the Remittance Rate;
(ii) all Principal Prepayments made by the Mortgagor during the related
Principal Prepayment Period (together with interest thereon at the
Remittance Rate to the date of prepayment, unless, as specified in the
related Prospectus Supplement, the Master Servicer is obligated to adjust
its Servicing Fee to the extent necessary to distribute a full month's
interest, as described below);
(iii) with respect to each Mortgage Loan not described in (iv) below,
all insurance proceeds, all condemnation awards and any other cash proceeds
from a source other than the Mortgagor, to the extent required to be
deposited in the Certificate Account, which were received during the related
Principal Prepayment Period, net of related unreimbursed Advances and net of
any portion thereof which, as to any Mortgage Loan, constitutes Late
Collections;
(iv) with respect to each Mortgage Loan as to which a receipt of such
Liquidation Proceeds or Insurance Proceeds has been received during the
related Principal Prepayment Period or other event of termination of the
Mortgage Loan as a result of payments of insurance or condemnation proceeds
has occurred during the related Principal Prepayment Period, an amount equal
to the
35
<PAGE>
principal amount of the Mortgage Loan outstanding immediately prior to the
date of receipt of such Liquidation Proceeds or Insurance Proceeds or such
other event of termination, reduced by the principal portion of any unpaid
payments due on or before such date to the extent previously advanced
against or otherwise received by the Certificateholder, plus interest
thereon from the most recent Due Date to the date of receipt at the
Remittance Rate;
(v) all amounts required to be distributed on the Remittance Date from
any account maintained with respect to a Mortgaged Property acquired by
foreclosure or deed in lieu of foreclosure;
(vi) with respect to each Mortgaged Property acquired by foreclosure or
deed in lieu of foreclosure, as to which a disposition occurred during the
related Principal Prepayment Period, an amount generally equal to the
excess, if any, of (a) the principal amount of the Mortgage Loan outstanding
on the date of acquisition of the Mortgaged Property reduced by the
principal portion of any unpaid payments due on or before such date, plus
(b) interest thereon at the Remittance Rate from the last Due Date prior to
the date of such acquisition through the date of the disposition, over (c)
all amounts previously distributed to the Certificateholders in connection
with such Mortgaged Property; and
(vii) with respect to each Mortgage Loan repurchased by the Master
Servicer, Company or a seller for which the repurchase price was not
distributed previously, an amount equal to the principal amount of the
Mortgage Loan outstanding on the date of such repurchase reduced by the
principal portion of any unpaid payments due on or before such date (but
only to the extent advanced against or otherwise received by the
Certificateholders), plus interest thereon from the most recent Due Date to
the date of repurchase at the Remittance Rate.
The Outstanding Senior Shortfall for any Sub-class of Senior Certificates means
as of any date, to the extent not previously paid, the aggregate of the amounts
by which the Senior Distribution Amount for such Sub-class for any Remittance
Date exceeded the amount actually paid on such Remittance Date plus interest at
the Remittance Rate.
Unless otherwise specified in the related Prospectus Supplement, on each
Remittance Date, the Master Servicer shall distribute to the Classes of
Subordinated Certificateholders, in the order set forth in the related
Prospectus Supplement, the balance of the Available Distribution Amount, if any,
after the payment to the Senior Certificateholders and the making of the
required deposit to the Reserve Fund, if any, as described above.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or Sub-classes of which have been assigned
a Stated Balance, distributions in reduction of the Stated Balance of such
Certificates will be made on each Remittance Date to the Certificateholders of
the Class or Sub-class then entitled to receive such distributions until the
aggregate amount of such distributions have reduced the Stated Balance of the
Certificates of such Class or Sub-class to zero. Allocation of distributions in
reduction of Stated Balance will be made to each Class or Sub-class of such
Certificates in the order specified in the related Prospectus Supplement, which,
if so specified in such Prospectus Supplement, may be concurrently. Unless
otherwise specified in the related Prospectus Supplement, distributions in
reduction of the Stated Balance of each Certificate of a Class or Sub-class then
entitled to receive such distributions will be made pro rata among the
Certificates of such Class or Sub-class.
Unless otherwise specified in the related Prospectus Supplement, the maximum
amount which will be distributed in reduction of the Stated Balance to holders
of Certificates of a Class or sub-class then entitled thereto on any Remittance
Date will equal, to the extent funds are available, the sum of (i) the amount of
interest, if any, that has accrued but is not yet payable on the Compound
Interest Certificates of such Series, if any, from the prior Remittance Date (or
since the date specified in the related
36
<PAGE>
Prospectus Supplement in the case of first Remittance Date) (the "Accrual
Remittance Amount"); (ii) the Certificate Remittance Amount; and (iii) the
applicable percentage of the Excess Cash Flow, if any, specified in such
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificate Remittance Amount with respect to a Remittance Date will equal the
amount, if any, by which the then outstanding Stated Balance of the Certificates
of the related Classes or Sub-classes of such Series (before taking into account
the amount of interest accrued on any Class or Sub-class of Compound Interest
Certificates of such Series to be added to the Stated Balance thereof on such
Remittance Date) exceeds the Asset Value, as defined in the related Prospectus
Supplement, of the Mortgage Loans as of the end of the applicable Due Period
specified in the related Prospectus Supplement. For purposes of determining the
Certificate Remittance Amount with respect to a Remittance Date, the Asset Value
of the Mortgage Loans will be reduced to take into account the interest
evidenced by such Classes or Sub-classes of Certificates in the principal
distributions on or with respect to such Mortgage Loans received by the Trustee
during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or Sub-classes of which have been assigned
a Stated Balance, Excess Cash Flow represents the excess of (i) the interest
evidenced by such Classes or Sub-classes of Certificates in the distributions
received on the Mortgage Loans underlying such Series in the Due Period
preceding a Remittance Date for such Series (and, in the case of the first Due
Period, the amount deposited in the Certificate Account on the closing date for
the sale of such Certificates), together with any available income from the
reinvestment thereof, and, to the extent specified in such Prospectus
Supplement, the amount of cash withdrawn from any Reserve, GPM or Buy-Down Fund
for such Series in the Due Period preceding such Remittance Date, over (ii) the
sum of all interest accrued, whether or not then payable, on the Certificates of
such Classes or Sub-classes since the preceding Remittance Date (or since the
date specified in the related Prospectus Supplement in the case of the first
Remittance Date), the Certificate Remittance Amount for the then current
Remittance Date and, if applicable, any payments made on any Certificates of
such Class or Sub-class pursuant to any special distributions in reduction of
Stated Balance during such Due Period.
Unless otherwise provided in the related Prospectus Supplement, within the
time specified in the Agreement and described in the related Prospectus
Supplement, the Master Servicer will furnish a statement to the Trustee setting
forth the amount to be distributed on the related Remittance Date on account of
principal and interest, stated separately, and a statement setting forth certain
information with respect to the Mortgage Loans.
Unless otherwise provided in the related Prospectus Supplement, if there are
not sufficient funds in the Certificate Account to make the full distribution to
Certificateholders described above on any Remittance Date, the Master Servicer
will distribute the funds available for distribution to the Certificateholders
of each Class in accordance with the respective interests therein, except that
Subordinated Certificateholders, if any, will not, subject to the limitations
described in the related Prospectus Supplement, receive any distributions (other
than their share of distributions in respect of any Mortgage Loan or any
property acquired in respect thereof repurchased by the Master Servicer by
reason of defective documentation or the Master Servicer's breach of warranty)
until Senior Certificateholders receive the Senior Distribution Amount plus the
Outstanding Senior Shortfall. The difference between the amount which the
Certificateholders would have received if there had been sufficient eligible
funds in the Certificate Account and the amount actually distributed will be
added to the amount which the Certificateholders are entitled to receive on the
next Remittance Date.
Special Distributions. To the extent specified in the Prospectus Supplement
relating to a Series of Certificates, one or more Classes or Sub-classes of
which have been assigned a Stated Balance and having less frequent than monthly
Remittance Dates, such Classes or Sub-classes may receive Special
37
<PAGE>
Distributions in reduction of Stated Balance ("Special Distributions") in any
month, other than a month in which a Remittance Date occurs, if, as a result of
principal prepayments on the Mortgage Loans in the related Mortgage Pool or low
reinvestment yields, the Trustee determines, based on assumptions specified in
the related Agreement, that the amount of cash anticipated to be on deposit in
the Certificate Account on the next Remittance Date for such Series and
available to be distributed to the holders of the Certificates of such Classes
or Sub-classes may be less than the sum of (i) the interest scheduled to be
distributed to holders of the Certificates of such Classes or Sub-classes and
(ii) the amount to be distributed in reduction of Stated Balance of such
Certificates on such Remittance Date. Any such Special Distributions will be
made in the same priority and manner as distributions in reduction of Stated
Balance would be made on the next Remittance Date.
Subordinated Certificates; Reserve Fund. The rights of the Subordinated
Certificateholders to receive any or a specified portion of distributions with
respect to the Mortgage Loans will be subordinated to the rights of Senior
Certificateholders to the extent of the amount specified in the related
Prospectus Supplement. If a Series of Certificates contains more than one Class
of Subordinated Certificates, distributions and losses will be allocated among
such Classes in the manner specified in the related Prospectus Supplement. The
rights of the Subordinated Certificateholders, to the extent not subordinated,
may be on a parity with those of Senior Certificateholders. The Available
Subordination Amount for each Class of Subordinated Certificates of a Series
will be dependent upon certain Mortgage Pool characteristics and other factors
and will be set forth in the related Prospectus Supplement. Alternatively, if so
specified in the related Prospectus Supplement, Senior Certificateholders may be
entitled to receive all or some portion of the amounts otherwise allocable to
Subordinated Certificateholders under circumstances and for the period of time
specified in the Prospectus Supplement, which will have the effect of
accelerating the amortization of the Senior Certificates and thereby increasing
over time the interest evidenced by the Subordinated Certificates in the related
Trust Fund. This Subordination is intended to enhance the likelihood of regular
receipt by Senior Certificateholders of the full amount of scheduled monthly
payments of principal and interest due to them and to protect the Senior
Certificateholders against losses. See "Description of the
Certificates--Distributions on Certificates."
The protection afforded to the Senior Certificateholders by the preferential
right of the Senior Certificateholders to receive current distributions from the
Mortgage Pool up to the Available Subordination Amount may be enhanced to the
extent specified in the related Prospectus Supplement by the establishment of a
fund to make payments on the Certificates to the extent funds are not otherwise
available (the "Reserve Fund"), which is funded by retention of a portion of
such amounts otherwise payable to the Subordinated Certificateholders. The
Reserve Fund may also be funded, to the extent specified in the related
Prospectus Supplement, by one or more of an initial cash deposit or the
provision of a letter of credit, guarantee, insurance policy or other form of
credit enhancement or any combination thereof and of the foregoing retained
amounts. Unless otherwise specified in the related Prospectus Supplement, the
Reserve Fund will be part of the Trust Fund. The Reserve Fund may be invested in
Eligible Investments for the benefit of the Subordinated Certificateholders.
Advances. To the extent provided in the related Prospectus Supplement, the
Master Servicer may be obligated to make periodic Advances of cash from its own
funds, funds advanced by Sub-servicers or from excess funds in the Certificate
Account not then required to be distributed to Certificateholders, for
distribution to the Certificateholders in an amount equal to the difference
between the amount due to them and the amount in the Certificate Account
eligible for distribution to them pursuant to the Agreement, but only to the
extent such difference is due to delinquent payments of principal and interest
for the preceding Due Period and only to the extent the Master Servicer
determines such advances are recoverable from future payments and collections on
the Mortgage Loans or otherwise. The Master Servicer's obligation to make
Advances, if any, may, as specified in the related Prospectus Supplement, be
limited in amount or may be limited to advances received from Sub-servicers. If
so specified in the related Prospectus Supplement, the Master Servicer will not
be obligated to make
38
<PAGE>
Advances until all or a specified portion of the Reserve Fund is depleted.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to the Certificateholders, not to guarantee or insure against
losses. Accordingly, any funds so advanced are recoverable by the Master
Servicer out of amounts received on particular Mortgage Loans which represent
late recoveries of principal or interest respecting which any such Advance was
made and may be recoverable, if so specified in the related Prospectus
Supplement, from the Mortgage Pool generally.
Advances in Connection with Prepaid Mortgage Loans. With respect to each
Mortgage Pool, when a Mortgagor makes a Principal Prepayment between scheduled
payment dates, the Mortgagor may be required to pay interest on the principal
balance only to the date of prepayment. If and to the extent provided in the
related Prospectus Supplement, in order that one or more Classes of the
Certificateholders of a Series will not be affected adversely by any resulting
shortfall in interest, the amount of the Servicing Fee may be reduced, or the
Master Servicer may be obligated otherwise to advance moneys from its own funds
or any reserve maintained for such purpose, to the extent necessary to include
an amount equal to a full month's interest payment at the Remittance Rate with
respect to such prepaid Mortgage Loan. Any such Principal Prepayment, together
with a full month's interest thereon at the Remittance Rate, will be paid to
such Certificateholders on the applicable Remittance Date. Partial Principal
Prepayments may be treated as having been received on the next Due Date and, if
so, no reduction in interest payable to such Certificateholders will occur
unless such partial Principal Prepayment on the Remittance Date was received by
the Master Servicer after the 20th day of a month and the Master Servicer elects
to distribute such partial Principal Prepayment in the second month following
receipt. In such event, each Agreement may, to the extent described in the
related Prospectus Supplement, provide that an advance will be made as described
above to the extent necessary to assure that distribution to such
Certificateholders on the Remittance Date includes interest through the end of
the month preceding the month of distribution. See "Yield Considerations."
Example of Distributions. The following is an example of the flow of funds
as it would relate to a hypothetical series of Certificates with a Cut-off Date
occurring in January 1996 (all days are assumed to be Business Days):
<TABLE>
<S> <C> <C>
January 1......................... (1) Cut-off Date.
January 2-31...................... (2) Sub-servicers, if any, or Master
Servicer receive(s) any Principal
Prepayments and interest thereon.
January 30........................ (3) Record Date.
February 15....................... (4) Sub-servicers, if any, remit to
the Master Servicer scheduled
payments of principal and interest
due on February 1 and received by
them.
February 16....................... (5) Determination Date. Distribution
amount determined.
February 25....................... (6) Remittance Date.
Succeeding months follow the pattern of (2) through (6). The flow of funds
with respect to any Series of Certificates may differ from the above example,
as specified in the related Prospectus Supplement.
</TABLE>
- ------------
(1) The initial principal balance of the Mortgage Pool will be the aggregate
principal balance of the Mortgage Loans at the close of business on January
1, 1996, after deducting principal payments due on or before such date,
which, together with corresponding interest payments, are not part of the
Mortgage Pool and will not be passed through to Certificateholders.
(Footnotes continued on following page)
39
<PAGE>
(Footnotes continued from preceding page)
(2) Principal Prepayments may be received at any time during this period and
will be deposited in the Certificate Account as described in (4) below for
distribution to Certificateholders. When a Mortgage Loan is prepaid in full,
interest on the amount prepaid is collected from the Mortgagor only to the
date of payment; provided that, if so specified in the related Prospectus
Supplement, the Master Servicer may be required to advance an amount
necessary to provide for a full month's interest. See "Advances in
Connection with Prepaid Mortgage Loans," above.
(3) Distributions on February 25 will be made to Certificateholders of record at
the close of business on the last Business Day of the month immediately
preceding the month of distribution.
(4) Payments due on February 1 from Mortgagors will be deposited by the
Sub-servicers in Sub-servicing Accounts, or, if no Sub-servicers, by the
Master Servicer in the Certificate Account, as received and will include the
scheduled principal payments plus interest on the January balances (with the
exception of interest from the date of prepayment of any Mortgage Loan
prepaid in full during January). Funds required to be remitted from the
Sub-servicing Accounts to the Certificate Account will be so remitted prior
to February 16 (except that Principal Prepayments in full received by
Sub-servicers during the month of January will have been remitted to the
Certificate Account within five business days of receipt).
(5) On February 16, the Master Servicer will determine the amounts of principal
and interest which will be passed through on February 25, which will include
those payments due February 1 which have been received from Sub-servicers
prior to February 16, as well as all Principal Prepayments received on
Mortgage Loans in January (with interest adjusted to the applicable
Remittance Rate). In addition, the Master Servicer may advance funds to
cover any delinquencies, in which event the distribution to
Certificateholders on February 25 will include the full amounts of principal
and interest (adjusted to the applicable Remittance Rate and decreased by
the effect of Principal Prepayments in full during January) due on February
1. The Master Servicer will also calculate any changes in the relative
interests evidenced by the Senior Certificates and the Subordinated
Certificates in the Trust Fund.
(6) On February 25, the amounts determined on February 16 will be distributed to
Certificateholders. If a payment due February 1 is received from a
Sub-servicer or, if none, by the Master Servicer, after February 15 and an
advance of the Master Servicer's funds has been made, the Master Servicer
will reimburse itself, to the extent permitted by the Agreement, by
withdrawing the amount of such payment from the Certificate Account. If no
advance has been made, such late payment will be passed through to
Certificateholders at the time of the next distribution following receipt of
such late payment.
-------------------
Collection Procedures. The Master Servicer, directly or through
Sub-servicers, will make reasonable efforts to collect all payments called for
under the Mortgage Loans and, consistent with the Agreement and any Mortgage
Pool Insurance Policy, any Primary Insurance Policy, FHA insurance, VA guaranty
and Mortgagor Bankruptcy Bond, will follow such collection procedures as it
follows with respect to mortgage loans serviced by it that are comparable to the
Mortgage Loans.
Unless otherwise specified in the related Prospectus Supplement, under the
Agreement the Master Servicer, either directly or through Sub-servicers, to the
extent permitted by law, will establish and maintain an escrow account (the
"Escrow Account") in which mortgagors will be required to deposit amounts
sufficient to pay taxes, assessments, mortgage and hazard insurance premiums and
other comparable items. Withdrawals from the Escrow Account maintained for
mortgagors may be made to effect timely payment of taxes, assessments, mortgage
and hazard insurance, to refund to mortgagors amounts determined to be overages,
to pay interest to mortgagors on balances in the Escrow Account to the extent
required by law, to repair or otherwise protect the mortgaged property and to
clear and terminate such account. The Master Servicer will be responsible for
the administration of the Escrow Account and will be obligated to make advances
to such account when a deficiency exists therein.
40
<PAGE>
Maintenance of Insurance Policies and Other Servicing Procedures. Standard
Hazard Insurance. Except as otherwise specified in the related Prospectus
Supplement, the Master Servicer and each Sub-servicer, as applicable, will cause
to be maintained for the Mortgage Loans comprising the Mortgage Pool for each
Series of Certificates, and on property acquired upon foreclosure, or deed in
lieu of foreclosure, or use its best reasonable efforts to cause each
Sub-servicer of a Mortgage Loan to maintain, a Standard Hazard Insurance Policy
as described under "Description of Insurance--Hazard Insurance on the Mortgage
Loans--Standard Hazard Insurance Policies."
Other Insurance. The Master Servicer will, if and to the extent required by
the related Agreement and as described in the related Prospectus Supplement, be
required to maintain and keep a Special Hazard Insurance Policy, a Mortgage Pool
Insurance Policy, a Primary Mortgage Loan Insurance Policy or Mortgagor
Bankruptcy Insurance or a combination thereof. See "Description of Insurance."
In addition, to the extent specified in the related Prospectus Supplement, all
or a portion of the Mortgage Loans comprising a Mortgage Pool may be insured by
the FHA or guaranteed by the VA. The Master Servicer and any Sub-servicers will
take such steps as are reasonably necessary to keep such insurance and
guarantees in full force and effect. See "Description of Insurance--FHA
Insurance and VA Guarantees."
Alternate Credit Enhancement. To the extent provided in the related
Prospectus Supplement, the Company, the Master Servicer or other party, from
time to time, may be required to obtain or cause to be obtained an insurance
policy, guarantee, letter of credit or surety bond (or make deposits in lieu
thereof) to enhance the credit rating of the related Series of Certificates. The
type and amount, which may be limited, of such alternate credit enhancement will
be described in the related Prospectus Supplement.
Enforcement of Due-On-Sale Clauses; Realization Upon Defaulted Mortgage
Loans. The Agreement will provide that, when any Mortgaged Property securing a
Conventional Mortgage Loan is about to be conveyed by the Mortgagor, unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will, to the extent it has knowledge of such prospective conveyance and prior to
the time of the consummation of such conveyance, exercise its rights to
accelerate the maturity of such Mortgage Loan under the applicable "due-on-sale"
clause, if any, unless it is not exercisable under applicable law or if such
exercise would result in loss of coverage under any Primary Insurance Policy. In
such case, and in the case of FHA Mortgage Loans and VA Mortgage Loans, the
Master Servicer is authorized to take or enter into an assumption agreement from
or with the person to whom such Mortgaged Property has been or is about to be
conveyed, pursuant to which such person becomes liable under the Mortgage Note
and, unless determined to be materially adverse to the interests of
Certificateholders and the Mortgagor with the prior approval of the Pool
Insurer, to enter into a substitution of liability agreement with such person,
pursuant to which the original Mortgagor is released from liability and such
person is substituted as Mortgagor and becomes liable under the Mortgage Note.
Where authorized by the Mortgage, the Mortgage Rate may, upon assumption, be
increased to the then-prevailing market rate, but shall not be decreased.
Under the Agreement, the Master Servicer will foreclose upon or otherwise
comparably convert the ownership of properties securing such of the related
Mortgage Loans 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 foreclosure or other conversion, the Master Servicer will
follow such practices and procedures as it shall deem necessary or advisable and
as shall be normal and usual in its general mortgage servicing activities.
However, the Master Servicer will not be required to expend its own funds in
connection with any foreclosure or towards the restoration of any property
unless it determines (i) that such restoration or foreclosure will increase the
proceeds of liquidation of the related Mortgage Loan to the Certificateholders
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. If a REMIC election is made with respect to a Series of Certificates,
the Master Servicer shall be required to dispose of any Mortgaged Property
acquired in foreclosure within one year of acquisition, or such longer period as
indicated in an opinion of counsel would not cause the Trust Fund to fail to be
treated as a REMIC.
41
<PAGE>
Servicing Compensation and Payment of Expenses. Except as otherwise provided
in the related Prospectus Supplement, the Master Servicer will be entitled to a
servicing fee in an amount equal to the difference between the Mortgage Rate and
the related Remittance Rate (less any sub-servicing compensation, Excess
Interest or fee for credit enhancement, if any). As compensation for its
servicing duties, a Sub-servicer will be entitled to the servicing fee (which
will be a part of the "Servicing Fee," as that term is used herein) described in
the related Prospectus Supplement. The Servicing Fee may be fixed or variable,
as specified in the related Prospectus Supplement. In addition, as described in
the related Prospectus Supplement, the Master Servicer or a Sub-servicer may be
entitled to servicing compensation in the form of assumption fees, late payment
charges or otherwise, which shall be retained by the Master Servicer or a
Sub-servicer to the extent not required to be deposited in the Certificate
Account.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will pay from its servicing compensation certain expenses incurred in
connection with the servicing of the Mortgage Loans, including, without
limitation, payment of the fees and expenses of the Trustee, payment of
insurance policy premiums and payment of expenses incurred in enforcing the
obligations of Sub-servicers. Certain of these expenses may be reimbursable
pursuant to the terms of the Agreement from Liquidation Proceeds and Insurance
Proceeds, and, in the case of enforcement of the obligations of Sub-servicers,
from any recoveries in excess of amounts due with respect to the related
Mortgage Loans or from specific recoveries of costs.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be entitled to reimbursement for certain expenses incurred by it
in connection with the liquidation of defaulted Mortgage Loans. The related
Trust Fund will suffer no loss by reason of such expenses to the extent claims
are paid under the related Insurance Policies. If claims are either not made or
paid under such Insurance Policies or if coverage thereunder has ceased, the
related Trust Fund will suffer a loss to the extent that the proceeds of the
liquidation proceedings, after reimbursement of the Master Servicer's expenses,
are less than the principal balance of the related Mortgage Loan. In addition,
the Master Servicer will be entitled to reimbursement of expenditures incurred
by it in connection with the restoration of Mortgaged Property, such right of
reimbursement being prior to the rights of the Certificateholders to receive any
related Insurance Proceeds or Liquidation Proceeds.
Evidence as to Compliance. Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer will, with respect to each Series of
Certificates relating to Mortgage Loans, deliver to the Trustee each year an
Officer's Certificate stating that (i) a review of the activities of the Master
Servicer and the Sub-servicers during the preceding calendar year and of
performance under the Agreement has been made under the supervision of such
officer, and (ii) the Master Servicer has fulfilled all its obligations under
the Agreement throughout such year, and, to the best of such officer's
knowledge, based on such review, each Sub-servicer has fulfilled its obligations
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. Such Officer's Certificate shall be accompanied by a
statement of a firm of independent public accountants to the effect that, on the
basis of an examination of certain documents and records relating to servicing
of the Mortgage Loans, conducted in accordance with generally accepted
accounting principles in the mortgage banking industry, the Master Servicer's
duties and duties of the Sub-servicers have been conducted in compliance with
the provisions of the Agreement, except for (i) such exceptions as such firm
believes to be immaterial and (ii) such other exceptions as are set forth in
such statement. Copies of the annual Officer's Certificate and accountants'
statement may be obtained without charge upon written request to the Master
Servicer.
Certain Matters Regarding the Master Servicer. The Master Servicer under
each Agreement will be specified in the related Prospectus Supplement. The
Master Servicer may be an affiliate of the Company, and may have other business
relationships with the Company and its affiliates.
42
<PAGE>
The Master Servicer may not resign from its obligations and duties under an
Agreement except with the consent of all Certificateholders or upon a
determination that its duties thereunder are no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under such Agreement.
Each Agreement will also provide that neither the Master Servicer, nor any
director, officer, employee or agent of the Master Servicer, will be under any
liability to the Trust Fund or the Certificateholders for any action taken or
for refraining from the taking of any action in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the Master
Servicer nor any such person will be protected against any liability which would
otherwise be imposed by reason of the failure to perform its obligations in
strict compliance with the standards of care set forth in the Agreement. The
Master Servicer may, in its discretion, undertake any such action which it may
deem necessary or desirable with respect to the Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Fund and the Master Servicer will be entitled to be reimbursed therefor
out of the Certificate Account.
CERTIFICATES EVIDENCING INTERESTS IN AGENCY SECURITIES
General. The Company will cause the Agency Securities to be registered in
the name of the Trustee or its nominee, and the Trustee concurrently will
authenticate and deliver the Certificates. Each Mortgage Security will be
identified in a schedule appearing as an exhibit to the Agreement (the "Agency
Securities Schedule"), which will specify as to each Agency Security the
original principal amount and outstanding principal balance as of the Cut-off
Date; the annual pass-through rate and the maturity date.
Unless otherwise specified in the related Prospectus Supplement or in the
Agreement, the Company will represent and warrant to the Trustee, among other
things, the information contained in the Agency Securities Schedule and that
immediately prior to the transfer of the Agency Securities to the Trustee, the
Company had good title to, and was the sole owner of, each Agency Security and
there had been no other sale or assignment thereof.
Payments on the Agency Securities. A Certificate Account meeting the
requirements set forth under "Description of the Certificates--Certificates
Evidencing Interests in Mortgage Loans--Payments on Mortgage Loans" will be
established in the name of the Trustee. The Trustee will deposit in the
Certificate Account as received all payments on the Agency Securities received
in respect of periods after the Cut-off Date.
Distributions on Certificates. Except as otherwise provided in the related
Prospectus Supplement, on each Remittance Date, the Trustee will withdraw from
the applicable Certificate Account and distribute to the Certificateholders of
each Class either the specified interest of such Class in the distributions on
the pool of Agency Securities times the aggregate of all amounts representing
principal or interest or both, on deposit in the Certificate Account as of the
Remittance Date or any other date set forth in the related Prospectus Supplement
(the "Determination Date"), less the Servicing Fee and certain other amounts
specified in the related agreement, or, in the case of a Series of Certificates
comprised of Classes which have been assigned a Stated Balance and Interest
Rate, payments of interest and payments in reduction of the Stated Balance in
the priority and amounts and calculated in the manner set forth in the related
Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or Sub-classes of which have been assigned
a Stated Balance, distributions in reduction of the Stated Balance of such
Certificates will be made on each Remittance Date for such Series to the
Certificates of the holders of the Class or Sub-class then entitled to receive
such Certificate distributions
43
<PAGE>
until the aggregate amount of such distributions have reduced the Stated Balance
of such Certificate to zero. Allocation of distributions in reduction of Stated
Balance will be made to each Class or Sub-class of such Certificates in the
order specified in the related Prospectus Supplement, which, if so specified in
such Prospectus Supplement, may be concurrently. Unless otherwise specified in
the related Prospectus Supplement, distributions in reduction of the Stated
Balance of each Certificate of a Class or Sub-class then entitled to receive
such distributions will be made pro rata among the Certificates of such Class or
Sub-class.
Unless otherwise specified in the related Prospectus Supplement, the maximum
amount which will be distributed in reduction of Stated Balance to holders of
Certificates of a Class or Sub-class then entitled thereto on any Remittance
Date will equal, to the extent funds are available, the sum of (i) the amount of
the interest, if any, that has accrued but is not yet payable on the Compound
Interest Certificates of such Series from the prior Remittance Date (or since
the date specified in the related Prospectus Supplement in the case of the first
Remittance Date) (the "Accrual Remittance Amount"); (ii) the Certificate
Remittance Amount; and (iii) to the extent specified in the related Prospectus
Supplement, the applicable percentage of the Excess Cash Flow specified in such
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificate Remittance Amount with respect to a Remittance Date will equal the
amount, if any, by which the then outstanding Stated Balance of the Certificates
of the related Classes or Sub-classes of such Series (before taking into account
the amount of interest accrued on any Class or Sub-class of Compound Interest
Certificates of such Series to be added to the Stated Balance thereof on such
Remittance Date) exceeds the Asset Value, as defined in the related Prospectus
Supplement of the Agency Securities relating to such Securities as of the end of
the related Due Period specified in the related Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or Sub-classes of which have been assigned
a Stated Balance, Excess Cash Flow represents the excess of (i) the interest
evidenced by such Classes or Sub-classes of Certificates in the distributions
received on the Agency Securities relating to such Series in the Due Period
preceding a Remittance Date for such Series (and, in the case of the first Due
Period, the amount deposited in the Certificate Account on the closing date for
the sale of such Certificates), together with income from the reinvestment
thereof, over (ii) the sum of all interest accrued, whether or not then payable,
on the Certificates of such Classes or Sub-classes since the preceding
Remittance Date (or since the date specified in the related Prospectus
Supplement in the case of the first Remittance Date), the Certificate Remittance
Amount for the then current Remittance Date and, if applicable, any payments
made on any Certificates of such Class or Sub-class pursuant to any special
distributions in reduction of Stated Balance during such Due Period.
The Stated Balance of a Certificate of a Series at any time represents the
maximum specified dollar amount (exclusive of interest at the related Interest
Rate) to which the holder thereof is entitled from the cash flow on the Agency
Securities for such Series, and will decline to the extent distributions in
reduction of Stated Balance are received by such holder. The Original Stated
Balance of each Class or Sub-class within a Series that has been assigned a
Stated Balance will be specified in the related Prospectus Supplement.
Special Distributions. To the extent specified in the Prospectus Supplement
relating to a Series of Certificates, one or more Classes or Sub-classes of
which have been assigned a Stated Balance and having other than monthly
Remittance Dates, such Classes or Sub-classes may receive Special Distributions
in reduction of Stated Balance ("Special Distributions") in any month, other
than a month in which a Remittance Date occurs, if, as a result of principal
prepayments on the mortgage loans underlying the Agency Securities or low
reinvestment yields, the Trustee determines, based on assumptions specified in
the related Agreement, that the amount of cash anticipated to be on deposit in
44
<PAGE>
the Certificate Account on the next Remittance Date for such Series and
available to be distributed to the holders of the Certificates of such Classes
or Sub-classes may be less than the sum of (i) the interest scheduled to be
distributed to the holders of the Certificates of such Classes or Sub-classes
and (ii) the amount to be distributed in reduction of Principal Balance of such
Certificates on such Remittance Date. Any such Special Distributions will be
made in the same priority and manner as distributions in reduction of Principal
Balance would be made on the next Remittance Date.
MISCELLANEOUS
Substitution of Mortgage Loans and Agency Securities. Unless otherwise
specified in the related Prospectus Supplement, if the Company is required to
repurchase a Mortgage Loan or Agency Security, the Company, rather than
repurchase the Mortgage Loan or Agency Security as described above, may remove
such Mortgage Loan or Agency Security from the Trust Fund and substitute in its
place another Mortgage Loan or Agency Security, subject to the limitations
described in such Prospectus Supplement. The repurchase or substitution
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for any such breach.
Reports to Certificateholders. The Master Servicer or the Trustee, as
applicable, will forward to each Certificateholder on each Remittance Date, or
as soon thereafter as is practicable, as specified in the related Prospectus
Supplement, a statement setting forth, among other things:
(i) the amount of such distribution allocable to principal on the
Mortgage Loans or Agency Securities;
(ii) the amount of such distribution allocable to interest on the
Mortgage Loans or Agency Securities;
(iii) if the distribution to the Certificateholders is less than the
full amount that would be distributable to such Certificateholders if there
were sufficient eligible funds in the Certificate Account, the percentage
difference between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds in the Certificate Account and the amounts actually distributed;
(iv) the aggregate amount of Advances, if any, by the Master Servicer
included in the amounts actually distributed to the Certificateholders;
(v) if the Certificateholder is a Senior Certificateholder, the amount
of such distribution otherwise distributable to the Subordinated
Certificateholders included in amounts actually distributed to the Senior
Certificateholders and the amount of withdrawal from any Reserve Fund, if
any, included in amounts actually distributed to such Class or Sub-class of
Certificateholders;
(vi) in the case of Certificates evidencing interests in Mortgage Loans,
the approximate weighted average Remittance Rate of the Mortgage Loans
during the Due Period immediately preceding such Remittance Date.
In addition, to the extent applicable, such report shall include:
(i) in the case of Certificates evidencing interests in Mortgage Loans,
the amount of servicing advances, if any, paid by the Master Servicer and
any Sub-servicer during such period;
(ii) in the case of Certificates evidencing interests in Mortgage Loans,
the number and aggregate principal balances of Mortgage Loans delinquent (a)
one month and (b) two or more months, as of the close of business on the
last business day of the calendar month next preceding the Remittance Date;
45
<PAGE>
(iii) in the case of Certificates evidencing interests in Mortgage
Loans, the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure as of the close of business on the
last business day of the calendar month next preceding the Remittance Date;
(iv) in the case of Certificates evidencing interests in Mortgage Loans,
the amount of coverage under any Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy and Mortgagor Bankruptcy Insurance as of the close
of business on the applicable Remittance Date;
(v) in the case of Certificates subject to Alternate Credit Enhancement
described in a Prospectus Supplement, the amount of coverage of such credit
enhancement as of the close of business on the applicable Remittance Date;
(vi) the Available Subordination Amount, if any, determined as of the
related Determination Date;
(vii) the balance of the Reserve Fund, if any, on such Remittance Date,
after giving effect to distributions made on such date;
(viii) in the case of Certificates which are assigned a Stated Balance,
the Stated Balance of each such Class of Certificates and a Single
Certificate of the holder's Class after giving effect to the distribution in
reduction of Stated Balance made on such Remittance Date and, unless
otherwise specified in the related Prospectus Supplement, after giving
effect to all Special Distributions Distributions since the preceding
Remittance Date or since the Closing Date in the case of the first
Remittance Date;
(ix) in the case of Certificates which are assigned a Stated Balance,
the amount of the interest distribution being made with respect to a Single
Certificate; and
(x) with respect to a Compound Interest Certificate (but only if the
holder thereof shall not have received on such Remittance Date a
distribution of interest equal to the entire amount of interest accrued on
such Certificate during the related Due Period with respect to such
Remittance Date),
(a) the interest accrued on such Class of Compound Interest
Certificates and on a Single Certificate of such Class during the Due
Period (or specified interest accrual period) with respect to such
Remittance Date and added to the Stated Balance of such Compound Interest
Certificates; and
(b) the Stated Balance of such Class of Compound Interest
Certificates and of a Single Certificate of such Class after giving
effect to the addition thereto of all interest accrued thereon during the
Due Period (or specified interest accrual period) with respect to such
Remittance Date.
Except as otherwise provided in the related Prospectus Supplement, in
addition, not more than 45 days after the end of each calendar year, the Master
Servicer or the Trustee will furnish a report to each Certificateholder of
record at any time during such calendar year (a) such information as is required
by the Code and (b) with respect to Mortgage Loans, a listing of the principal
balances of the Mortgage Loans outstanding at the end of such calendar year.
Information in the monthly and annual reports provided to the Certificateholders
will not have been examined and reported upon by an independent public
accountant except as otherwise provided in the related Prospectus Supplement.
However, with respect to Mortgage Loans, the Master Servicer will provide to the
Trustee annually a report by independent public accountants with respect to the
servicing of the Mortgage Loans. See "Evidence as to Compliance" below.
Events of Default with Respect to Mortgage Loans. Unless otherwise
specified in the related Prospectus Supplement, Events of Default under each
Agreement relating to Mortgage Loans will
46
<PAGE>
consist of (i) any failure by the Master Servicer to distribute to the
Certificateholders any required payment which continues unremedied for 5 days
(or such other period specified in the related Prospectus Supplement) after the
giving of written notice; (ii) any failure by the Master Servicer or the REMIC
Servicer, duly to observe or perform in any material respect any other of its
covenants or agreements in the Agreement or any breach of any representation and
warranty made by the Master Servicer (other than a breach of its insurability
representation) that materially and adversely affects the interests of
Certificateholders, which, in either case, continues unremedied for 60 days (or
such other period specified in the related Prospectus Supplement) after the
giving of written notice of such failure or breach; and (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the Master Servicer. Notice as used herein shall
mean notice to the Master Servicer by the Trustee or the Company, or to the
Company, the Master Servicer, if any, and the Trustee by the holders of
Certificates representing interests aggregating not less than 25% of the Trust
Fund.
Rights Upon Event of Default with Respect to Mortgage Loans. So long as an
Event of Default remains unremedied, the Trustee may, and at the written
direction of the Certificateholders of each Series evidencing interests
aggregating not less than a stated percentage of the Trust Fund, shall,
terminate all of the rights and obligations of the Master Servicer or REMIC
Servicer, as the case may be, under the related Agreement, whereupon (subject to
applicable law regarding the Trustee's ability to make advances) the Trustee or
a successor Master Servicer or REMIC Servicer under the Agreement will succeed
to all the responsibilities, duties and liabilities of the Master Servicer under
the Agreement and will be entitled to similar compensation arrangements. Unless
otherwise provided in the related Prospectus Supplement, in the event that the
Trustee would be obligated to succeed the Master Servicer or REMIC Servicer but
is unwilling or unable so to act, it may appoint, or petition to a court of
competent jurisdiction for the appointment of a master servicer or a REMIC
servicer. Pending such appointment, the Trustee is obligated to act in such
capacity. Unless otherwise provided in the related Prospectus Supplement, the
Trustee and such successor may agree upon the servicing compensation to be paid,
which in no event may be greater than the compensation to the Master Servicer or
REMIC Servicer under the Agreement.
Amendment. Unless otherwise specified in the related Prospectus Supplement,
the Agreement may be amended by the Company, the Master Servicer, if any, the
REMIC Servicer, if any, and the Trustee without the consent of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provision therein that may be inconsistent with any other provision therein,
(iii) to make any other provision with respect to matters or questions arising
under such Agreement that are not inconsistent with the provisions thereof or to
comply with any requirements imposed by the Code, or (iv) if a REMIC election
has been made with respect to a Series of Certificates, to maintain the REMIC
status of the Trust Fund and to avoid the imposition of certain taxes on the
REMIC, provided that such action will not adversely affect in any material
respect the interests of the Certificateholders of the related Series. Unless
otherwise specified in the related Prospectus Supplement, the Agreement may also
be amended by the Company, the Master Servicer, if any, the REMIC Servicer, if
any, and the Trustee with the consent of the Certificateholders evidencing
interests aggregating not less than 66% of each Class of Certificates affected
thereby for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Agreement or of modifying in any
manner the rights of the Certificateholders; provided, however, that no such
amendment that reduces in any manner the amount of, or delays the timing of, any
payment received on or with respect to Mortgage Loans or Agency Securities which
are required to be distributed on any Certificate may be effective without the
consent of the holders of each such Certificate.
Termination. The obligations created by each Agreement will terminate upon
the date calculated as specified in the Agreement, generally (i) the later of
the final payment or other liquidation of the last Mortgage Loan or Agency
Security subject thereto and the disposition of all property acquired upon
foreclosure of any Mortgage Loan and (ii) the payment to the Certificateholders
of all amounts held by
47
<PAGE>
the Master Servicer or the Trustee and required to be paid to it pursuant to the
Agreement. In addition, unless otherwise specified in the related Prospectus
Supplement, the Company may at its option with respect to any Series of
Certificates, repurchase all Certificates, Agency Securities or Mortgage Loans
remaining outstanding at such time as the aggregate unpaid principal balance of
such Mortgage Loans or Agency Securities is less than the percentage of the
aggregate unpaid principal balance of the Mortgage Loans or Mortgage Securities
on the Cut-off Date specified with respect to such Series in the related
Prospectus Supplement. In the case of a Trust Fund for which an election to be
treated as a REMIC is made, a termination may be effected by the making of such
optional repurchases only if the Trustee has received an opinion of counsel that
the termination of the Trust Fund will constitute a "qualified liquidation"
within the meaning of section 860F (a) (4) of the Code and the repurchases of
the Agency Securities will not constitute "prohibited transactions" within the
meaning of section 860F(a) (2) of the Code. In no event shall the trust created
by an Agreement for a Series of Certificates continue beyond the expiration of
21 years from the death of the survivor of the persons named in the Agreement.
Unless otherwise provided in the related Prospectus Supplement, the repurchase
price will equal the principal amount of such Mortgage Loans or Agency
Securities plus accrued interest from the first day of the month of repurchase
to the first day of the next succeeding month at the Remittance Rates borne by
such Mortgage Loans or Agency Securities or at the weighted average of such
Remittance Rates.
The Trustee. The Prospectus Supplement for a Series of Certificates will
specify the Trustee under the related Agreement. The Trustee may have normal
banking relationships with the Company or its affiliates, the Master Servicer or
its affiliates and an originator or seller or its affiliates.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. The Trustee may also be removed
at any time, with respect to any Class of Certificates, by the holders of
Certificates evidencing interests aggregating over 50% of the interests of such
Class in the related Trust Fund as specified in the Agreement. 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.
DESCRIPTION OF INSURANCE
As specified in the related Prospectus Supplement, the Certificates, the
Mortgage Loans comprising the Mortgage Pool, or all or any part of the Trust
Fund with respect to a Series of Certificates may be subject to the insurance
policies or Alternate Credit Enhancement described below. Any material changes
from such description in the insurance policies or Alternate Credit Enhancement
with respect to a Series will be described in the related Prospectus Supplement.
MORTGAGE INSURANCE ON THE MORTGAGE LOANS
Mortgage Loans relating to a Series of Certificates will, to the extent
described in the related Prospectus Supplement, be covered by primary mortgage
insurance policies ("Primary Mortgage Insurance Policies"), FHA insurance, VA
guarantees or one or more mortgage pool insurance policies (the "Mortgage Pool
Insurance Policy") or any combination thereof (together, the "Mortgage Insurance
Policies").
Unless otherwise provided in the related Prospectus Supplement, all
Conventional Mortgage Loans with initial Mortgage Loan-to-Value Ratios of
greater than 80% will be covered by Primary Mortgage Insurance Policies
providing coverage on at least the amount of each such Mortgage Loan in excess
of 75% of the original Appraised Value (defined below) of the Mortgaged Property
and remaining in force until the principal balance of such Mortgage Loan is
reduced to 80% of such original Appraised Value (defined below). Certain other
Mortgage Loans may also be covered by Primary
48
<PAGE>
Mortgage Insurance Policies. Certain Primary Mortgage Insurance Policies may, to
the extent required by the related Prospectus Supplement, and subject to their
provisions and certain conditions and exclusions described below, provide full
coverage against any loss sustained by reason of nonpayments by the mortgagors
(a "Full Coverage Insurance Policy").
The initial Mortgage Loan-to-Value Ratio of any Mortgage Loan represents
the ratio of the principal amount of the Mortgage Loan outstanding at the
origination of such loan divided by the lesser of the sales price (in the case
of a purchase money mortgage) or the value of the Mortgaged Property, as shown
in the appraisal prepared in connection with origination of the Mortgage Loan
(the "Appraised Value").
The FHA Mortgage Loans will be insured by the FHA as authorized under the
Housing Act and the United States Housing Act of 1937, as amended. Such Mortgage
Loans will be insured under various FHA programs including the standard FHA
203-b program to finance the acquisition of one- to four-family housing units
and the FHA 245 graduated payment mortgage program. FHA Mortgage Loans generally
require a minimum down payment of approximately 5% of the original principal
amount of the Mortgage Loan. No FHA Mortgage Loan relating to a Series may have
an interest rate or original principal amount exceeding the applicable FHA
limits at the time of origination of such Mortgage Loan.
The VA Mortgage Loans will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended. The Servicemen's Readjustment
Act of 1944, as amended, permits a veteran (or in certain instances the spouse
of a veteran) to obtain a mortgage loan guarantee by the VA covering mortgage
financing of the purchase of a one- to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guarantee of mortgage loans of
up to 30 years' duration. However, no such VA Mortgage Loan will have an
original principal amount greater than five times the partial VA guarantee for
such Mortgage Loan.
The Mortgage Pool Insurance Policy or Policies for a Series will be
designed to provide coverage for all Conventional Mortgage Loans which are not
covered by Full Coverage Insurance Policies. However, neither the Primary
Mortgage Insurance Policies nor the Mortgage Pool Insurance Policies will insure
against certain losses sustained in the event of a personal bankruptcy of the
mortgagor under a Mortgage Loan. See "Certain Legal Aspects of Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders." Such
losses may be covered to the extent provided by the Mortgagor Bankruptcy
Insurance, if any, described below for such Series.
The Mortgage Insurance Policies will not provide coverage against hazard
losses. Each Mortgage Loan will be covered by a Standard Hazard Insurance
Policy, as described below, and, to the extent required by the related
Prospectus Supplement, the Mortgage Loans evidenced by Certificates of a Series
may be subject to a Special Hazard Insurance Policy, which will not cover all
risks and which will be limited in amount. See "Description of Insurance--Hazard
Insurance on the Mortgage Loans" below. Certain hazard risks will, as a result,
not be insured and thus may affect payments to holders of Certificates of such
Series.
To the extent that the Primary Mortgage Insurance Policies, the FHA
insurance or the VA guarantees do not cover all losses on a defaulted or
foreclosed Mortgage Loan, and to the extent such losses are not covered by the
Mortgage Pool Insurance Policy for the related Series of Certificates, if any,
such losses would affect payments to holders of Certificates of such Series.
The Primary Mortgage Insurance Policies with respect to the Mortgage Pool
will be issued by the insurance company or companies specified in the related
Prospectus Supplement (the "Mortgage Insurer") and any Mortgage Pool Insurance
Policy with respect to a Series will be issued by the insurance company or
companies specified in the related Prospectus Supplement (the "Pool Insurer").
The following descriptions of such policies and the coverage thereunder are
provided for general informational purposes only. They are general descriptions
of typical types of such policies only and do not purport to be complete. There
can be no assurance that the actual policies and coverage with respect to a
specific Series will comply with these descriptions.
49
<PAGE>
Primary Mortgage Insurance. Each Primary Mortgage Insurance Policy covering
Mortgage Loans evidenced by a Series of Certificates will be issued by the
related Mortgage Insurer pursuant to the Mortgage Insurer's applicable master
policy. The Company and the Trustee as assignee of the lender under such
Mortgage Loans will be the insureds or assignees of record (the "Insured"), as
their interests may appear, under each such Primary Mortgage Insurance Policy.
Each Agreement with respect to such Series will require the Master Servicer and
any Sub-servicer to cause a Primary Mortgage Insurance Policy to be maintained
in full force and effect with respect to each Mortgage Loan covered by an
Agreement requiring such insurance and to act on behalf of the Insured with
respect to all actions required to be taken by the Insured under each such
Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the amount
of a claim for benefits under a Primary Mortgage Insurance Policy covering a
Mortgage Loan evidenced by a Series of Certificates (herein referred to as the
"Loss") will consist of the insured portion of the unpaid principal amount of
the covered Mortgage Loan (as described herein), accrued and unpaid interest
thereon and certain advances made by the Insured as described below, less (i)
all rents or other payments collected or received by the Insured (other than the
proceeds of hazard insurance) that are derived from or in any way related to the
Mortgaged Property, (ii) hazard insurance proceeds in excess of the amount
required to restore the Mortgaged Property and which have not been applied to
the payment of the Mortgage Loan, (iii) amounts expended but not approved by the
Mortgage Insurer, (iv) claim payments previously made by the Mortgage Insurer,
and (v) unpaid premiums.
Unless otherwise specified in the related Prospectus Supplement, as
conditions precedent to the filing of or payment of a claim under a Primary
Mortgage Insurance Policy covering a Mortgage Loan evidenced by a Series of
Certificates, the Insured will be required to (i) advance or discharge (a) all
hazard insurance premiums and (b) as necessary and approved in advance by the
Mortgage Insurer, (1) real estate property taxes, (2) all expenses required to
maintain such Mortgaged Property in at least as good a condition as existed at
the effective date of such Primary Mortgage Insurance Policy, ordinary wear and
tear excepted, (3) foreclosure costs, including court costs and reasonable
attorneys' fees and (4) any other amounts expended approved by the Mortgage
Insurer; (ii) in the event of any physical loss or damage to the Mortgaged
Property, have restored and repaired the Mortgaged Property to at least as good
a condition as existed at the effective date of such Primary Mortgage Insurance
Policy, ordinary wear and tear excepted; and (iii) tender to the Mortgage
Insurer good and merchantable title to and possession of the Mortgaged Property.
Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary Mortgage Insurance Policy covering a
Mortgage Loan evidenced by a Series of Certificates generally will provide that:
(a) no change may be made in the terms of such Mortgage Loan without the consent
of the Mortgage Insurer; (b) written notice must be given to the Mortgage
Insurer within 10 days after the Insured becomes aware that a mortgagor is
delinquent in the payment of a sum equal to the aggregate of three monthly
payments due under such Mortgage Loan or that any proceedings affecting the
mortgagor's interest in the Mortgaged Property securing such Mortgage Loan have
been commenced, and thereafter the Insured must report monthly to the Mortgage
Insurer the status of any such Mortgage Loan until such Mortgage Loan is brought
current, such proceedings are terminated or a claim is filed; (c) the Mortgage
Insurer will have the right to purchase such Mortgage Loan, at any time after
the 10 days' notice described in (b) above and prior to the commencement of
foreclosure proceedings, at a price equal to the unpaid principal amount of the
Mortgage Loan plus accrued and unpaid interest thereon and amounts expended by
the Insured (and not reimbursed) for the real estate taxes and fire and extended
coverage insurance on the Mortgaged Property for a period not exceeding 12
months; (d) the Insured must commence proceedings at certain times specified in
the policy and diligently proceed to obtain good and merchantable title to and
possession of the Mortgaged Property; (e) the Insured must notify the Mortgage
Insurer of the institution of such proceedings, provide it with copies of
documents relating thereto, notify the Mortgage Insurer of the price amounts
specified in (c) above at least 15 days prior to the sale of the Mortgaged
Property by foreclosure, and bid
50
<PAGE>
such amount unless the Mortgage Insurer specifies a lower or higher amount; and
(f) the Insured may accept a conveyance of the Mortgaged Property in lieu of
foreclosure with written approval of the Mortgage Insurer.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Insurer will be required to pay to the Insured the insured percentage
of the loss. Any rents or other payments collected or received by the Insured
which are derived from or are in any way related to the Mortgaged Property will
be deducted from any claim payment.
The Master Servicer will not cancel or refuse to renew any such Primary
Mortgage Insurance Policy in effect at the date of the initial issuance of the
Certificates that is required to be kept in force under the Agreement unless the
replacement Primary Mortgage Insurance Policy for such cancelled or nonrenewed
policy is maintained with a qualified insurer.
FHA Insurance and VA Guarantees. The FHA is responsible for administering
various federal programs, including mortgage insurance, authorized under the
Housing Act, as amended, and the United States Housing Act of 1937, as amended.
The insurance premiums for FHA Mortgage Loans are collected by HUD approved
lenders or by the Master Servicer or any Sub-servicers and are paid to the FHA.
The regulations governing FHA single-family mortgage insurance programs provide
that insurance benefits are payable either upon foreclosure (or other
acquisition of possession) and conveyance of the mortgaged premises to HUD or
upon assignment of the defaulted Mortgage Loan to HUD. With respect to a
defaulted FHA Mortgage Loan. the Master Servicer or any Sub-servicer is limited
in its ability to initiate foreclosure proceedings. When it is determined,
either by the Master Servicer or any Sub-servicer or HUD, that default was
caused by circumstances beyond the mortgagor's control, the Master Servicer or
any Sub-servicer is expected to make an effort to avoid foreclosure by entering,
if feasible, into one of a number of available forms of forbearance plans with
the mortgagor. Such plans may involve the reduction or suspension of regular
mortgage payments for a specified period, with such payments to be made up on or
before the maturity date of the mortgage, or the recasting of payments due under
the mortgage up to or beyond the maturity date. In addition, when a default
caused by such circumstances is accompanied by certain other criteria, HUD may
provide relief by making payments to the Master Servicer or any Sub-servicer in
partial or full satisfaction of amounts due under the Mortgage Loan (which
payments are to be repaid by the mortgagor to HUD) or by accepting assignment of
the loan from the Master Servicer or any Sub-servicer. With certain exceptions,
at least three full monthly installments must be due and unpaid under the
Mortgage Loan, and HUD must have rejected any request for relief from the
mortgagor before the Master Servicer or any Sub-servicer may initiate
foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Master Servicer or any Sub-servicer of each FHA
Mortgage Loan will be obligated to purchase any such debenture issued in
satisfaction of a defaulted FHA Mortgage Loan serviced by it for an amount equal
to the principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Master Servicer or Sub-servicer for certain costs and expenses and
to deduct certain amounts received or retained by the Master Servicer or
Sub-servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession ) and conveyance to HUD, the
Master Servicer or Sub-servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for interest accrued and unpaid prior
to such date but in general only to the extent it was allowed pursuant to a
forbearance plan approved by HUD. When entitlement to insurance benefits results
from assignment of the Mortgage Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the
51
<PAGE>
assignment date. The insurance payment itself, upon foreclosure of an FHA
Mortgage Loan, bears interest from a date 30 days after the mortgagor's first
uncorrected failure to perform any obligation or make any payment due under the
Mortgage Loan and, upon assignment, from the date of assignment, to the date of
payment of the claim, in each case at the same interest rate as the applicable
HUD debenture interest rate as described above.
The maximum guaranty that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 1803(a), as amended. As of
January 1, 1990, the maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $46,000. The liability on the
guaranty is reduced or increased pro rata with any reduction or increase in the
amount of indebtedness, but in no event will the amount payable on the guaranty
exceed the amount of the original guaranty. The VA may, at its option and
without regard to the guaranty, make full payment to a mortgage holder of
unsatisfied indebtedness on a mortgage upon its assignment the the VA.
With respect to a defaulted VA Mortgage Loan, the Master Servicer or
Sub-servicer is, absent exceptional circumstances, authorized to announce its
intention to foreclose only when the default has continued for three months.
Generally, a claim for the guarantee is submitted after liquidation of the
Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA
Mortgage Loan originally guaranteed applied to indebtedness outstanding as of
the applicable date of computation specified in the VA regulations. Payments
under the guarantee will be equal to the unpaid principal amount of the loan,
interest accrued on the unpaid balance of the loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to the
extent that such amounts have not been recovered through liquidation of the
mortgaged property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
Mortgage Pool Insurance Policy. If required by the related Prospectus
Supplement, if any Mortgage Loan comprising a part of the Mortgage Pool for a
Series is not covered by a Full Coverage Insurance Policy, the Company will
obtain a Mortgage Pool Insurance Policy to cover any loss (subject to the
limitations described below) by reason of default by the mortgagors of the
Mortgage Loans to the extent not covered by any Primary Mortgage Insurance
Policy. The amount of the Mortgage Pool Insurance Policy (or Policies) for a
Series, if any, will be specified in the related Prospectus Supplement. The
Master Servicer will agree to pay the premiums for such Mortgage Pool Insurance
Policy on a timely basis. If the Mortgage Pool insurer ceases to be a qualified
insurer because it is not approved as an insurer by FHLMC or FNMA or because its
claims-paying ability is no longer rated in the category required by the related
Prospectus Supplement, the Master Servicer will agree to review, not less often
than monthly, the financial condition of the Mortgage Pool insurer to determine
whether recoveries under the Mortgage Pool Insurance Policy are jeopardized. If
the Master Servicer so determines, it will exercise its best reasonable efforts
to obtain from another qualified insurer a replacement insurance policy under
the above-stated limitations.
A Mortgage Pool Insurance Policy for a Series, however, will not be a
blanket policy against loss, because claims thereunder may only be made for
particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below.
The Master Servicer will be required to maintain the Mortgage Pool Insurance
Policies for such Series and to present or cause the Sub-servicers, if any, to
present claims to the Pool Insurer on behalf of the Trustee and the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, the responsibilities of the Master Servicer, the amount of claim for
benefits, the conditions precedent to the filing or payment of a claim, the
policy provisions and the payment of claims under a Mortgage Pool Insurance
Policy generally will be similar to those described above for Primary Mortgage
Insurance
52
<PAGE>
Policies, subject to the aggregate limit on the amount of coverage. Except as
otherwise described in the related Prospectus Supplement, it also will be a
condition precedent to the payment of any claim under the Mortgage Pool
Insurance Policy that the Insured maintain a Primary Mortgage Insurance Policy
that is acceptable to the Pool Insurer on all Mortgage Loans in the related
Mortgage Pool that have Loan-to-Value Ratios at the time of origination in
excess of 80%. Assuming satisfaction of these conditions, the Pool insurer will
pay to the Insured the amount of the "loss" which will generally be (a) the
amount of the unpaid principal balance of the Mortgage Loan immediately prior to
the sale of the Mortgaged Property, (b) the amount of the accumulated unpaid
interest on such Mortgage Loan to the date of claim settlement at the
contractual rate of interest and (c) certain advances made by the Insured, less
certain payments. An "approved sale" is (1) a sale of the Mortgaged Property
acquired by the Insured because of a default by the borrower to which the Pool
Insurer has given prior approval, (2) a foreclosure or trustee's sale of the
Mortgaged Property at a price exceeding the maximum amount specified by the Pool
Insurer, (3) the acquisition of the Mortgaged Property under the Primary
Mortgage Insurance Policy by the Mortgage Insurer or (4) the acquisition of the
Mortgaged Property by the Pool insurer. The Insured must as a condition
precedent to the payment of any "loss," provide the Pool Insurer with good and
merchantable title to the Mortgaged Property. If any property securing a
defaulted Mortgage Loan is damaged and the proceeds, if any, from the related
Standard Hazard Insurance Policy or the applicable Special Hazard Insurance
Policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under the Mortgage Pool Insurance Policy, the
Master Servicer will not be required to expend its own funds to restore the
damaged Mortgaged Property unless it determines (A) that such restoration will
increase the proceeds on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (B) that such expenses will be
recoverable by it through Liquidation Proceeds or Insurance Proceeds.
The original amount of coverage under the Mortgage Pool Insurance Policy
securing a Series will be reduced over the life of the Certificates of such
Series by the aggregate dollar amount of claims paid, less the aggregate of net
amounts realized by the Pool Insurer upon disposition of all foreclosed
Mortgaged Properties covered thereby. The amount of claims paid includes certain
expenses incurred by the Master Servicer as well as accrued interest on
delinquent Mortgage Loans to the date of payment of the claim. See "Certain
Legal Aspects of Mortgage Loans--Foreclosure." Accordingly, if aggregate net
claims paid under a Mortgage Pool Insurance Policy reach the original policy
limit, coverage under the Mortgage Pool Insurance Policy will lapse and any
further losses will be borne by the Trust Fund, and thus may affect adversely
payments to holders of Certificates of such Series. In addition, unless the
Master Servicer can determine that an Advance in respect of a delinquent
Mortgage Loan would be recoverable to it from the proceeds of the liquidation of
such Mortgage Loan or otherwise, neither the Sub-servicer nor the Master
Servicer may be obligated to make an Advance respecting any such delinquency
since the Advance would not be ultimately recoverable to it from either the
Mortgage Pool Insurance Policy or from any other related source. See
"Description of the Certificates--Advances."
HAZARD INSURANCE ON THE MORTGAGE LOANS
The following descriptions are provided for informational purposes only.
They are general and do not purport to be complete. There can be no assurance
that the actual policies and coverage with respect to a specific Series will
comply with these descriptions.
Standard Hazard Insurance Policies. Except as otherwise specified in the
related Prospectus Supplement, the Master Servicer and each Sub-servicer, as
applicable, will cause to be maintained for the Mortgage Loans comprising the
Mortgage Pool for each Series of Certificates, and on property acquired upon
foreclosure, or deed in lieu of foreclosure, or use its best reasonable efforts
to cause each Sub-servicer of a Mortgage Loan to maintain, a Standard Hazard
Insurance Policy in an amount at least equal to 80% of the maximum insurable
value of the Mortgaged Property or the principal balance of such Mortgage Loan,
whichever is greater. The Master Servicer also shall maintain on property
acquired upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan,
a Standard Hazard
53
<PAGE>
Insurance Policy in an amount that is at least equal to the maximum insurable
value of the Mortgaged Property. Any amounts collected by the Master Servicer,
or the Sub-servicer, as the case may be, under any such policies (other than
amounts to be applied to the restoration or repair of the Mortgaged Property or
released to the Mortgagor in accordance with normal servicing procedures) shall
be deposited in the Certificate Account. Any cost incurred in maintaining any
such insurance shall not, for the purpose of calculating monthly distributions
to Certificateholders, be added to the amount owing under the Mortgage Loan,
notwithstanding that the terms of the Mortgage Loan so permit. Such cost shall
be recoverable by the Master Servicer only by withdrawal of funds from the
Certificate Account as described in the Agreement, No earthquake or other
additional insurance is to be required of any Mortgagor or maintained on
property acquired in respect of a Mortgage Loan, other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. When the Mortgaged Property is located at the
time of origination of the Mortgage Loan in a federally designated special flood
hazard area, the Master Servicer will cause to be maintained, or to use its best
reasonable efforts to cause the related Sub-servicer to obtain, flood insurance,
limited, under certain circumstances, to availability under the National Flood
Insurance Act of 1968, as amended. In the event that the Master Servicer obtains
and maintains a blanket policy insuring against hazard losses on all of the
related Mortgage Loans, it will be deemed conclusively to have satisfied its
obligations to cause to be maintained a Standard Hazard Insurance Policy for
each Mortgage Loan. This blanket policy may contain a deductible clause, in
which case the Master Servicer will, in the event that there has been a loss
that would have been covered by such policy absent such deductible, deposit in
the Certificate Account the amount not otherwise payable under the blanket
policy because of the application of such deductible clause.
The coverage of each Standard Hazard Insurance Policy will be in an amount
not less than the amount required in order for a Mortgagor not to be deemed a
co-insurer with respect to a hazard loss on the Mortgaged Property. All amounts
collected by the Master Servicer (or any Sub-servicer) under any Standard Hazard
Insurance Policy (less amounts to be applied to the restoration or repair of the
Mortgaged Property and other amounts necessary to reimburse the Master Servicer
for previously incurred advances or approved expenses, which may be retained by
the Master Servicer) will be deposited to the applicable Escrow Account
maintained with respect to such Mortgage Loan.
The Standard Hazard Insurance Policies will provide for coverage at least
equal to the applicable state standard form of fire insurance policy with
extended coverage. In general, the standard form of fire and extended coverage
policy will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Because the Standard Hazard Insurance Policies
relating to the Mortgage Loans relating to any Series of Certificates will be
underwritten by different insurers and will cover Mortgaged Properties located
in various states, such policies will not contain identical terms and
conditions. The basic terms, however, generally will be determined by state law
and generally will be similar. Most such policies typically will not cover any
physical damage resulting from war, revolution, governmental actions, floods and
other water-related causes, earth movement (including earthquakes, landslides,
and mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. When a Mortgaged Property is located in a flood area identified
by the Federal Emergency Management Agency pursuant to the National Flood
Insurance Act of 1968, as amended, the Agreement will require that the Master
Servicer cause to be maintained flood insurance with respect to such Mortgaged
Property.
54
<PAGE>
The Standard Hazard Insurance Policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "co-insurance" clause which, in
effect, will require the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the Mortgaged Property in order
to recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause will provide that the insurer's
liability in the event of partial loss will not exceed the greater of (i) the
actual cash value (the replacement cost less physical depreciation) of the
dwellings, structures and other improvements damaged or destroyed or (ii) such
proportion of the loss, without deduction for depreciation, as the amount of
insurance carried bears to the specified percentage of the full replacement cost
of such dwellings, structures and other improvements.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and floods) or insufficient hazard insurance
proceeds may, to the extent such losses are not covered by the Special Hazard
Insurance Policy for a Series, affect payments to holders of Certificates of
such Series.
Special Hazard Insurance Policy. The Master Servicer will, if and to the
extent required by the related Agreement and as described in the related
Prospectus Supplement, be required to maintain and keep a Special Hazard
Insurance Policy, in the amount set forth in the related Prospectus Supplement,
in full force and effect. The Master Servicer will agree to pay the premium for
any Special Hazard Insurance Policy on a timely basis. If the Special Hazard
Insurance Policy is cancelled or terminated for any reason (other than the
exhaustion of total policy coverage), the Master Servicer will exercise its best
reasonable efforts to obtain from another insurer a replacement policy
comparable to the Special Hazard Insurance Policy with a total coverage which is
equal to the then existing coverage of the Special Hazard Insurance Policy;
provided that if the cost of any such replacement policy is greater than the
cost of the terminated Special Hazard Insurance Policy, the amount of coverage
under the replacement Policy may be reduced to a level such that the applicable
premium will not exceed the cost of the Special Hazard Insurance Policy that was
replaced. The Master Servicer will agree to present, on behalf of itself, the
Trustee and the Certificateholders, claims to the Special Hazard Insurer under
the Special Hazard Insurance Policy and, in this regard, to take such reasonable
action as will be necessary to permit recovery under the Special Hazard
Insurance Policy respecting the Mortgage Loans. Any amounts collected by the
Master Servicer under the Special Hazard Insurance Policy that are in the nature
of Insurance Proceeds will be deposited in the Collection Account. Any other
amounts collected by the Master Servicer under the Special Hazard Insurance
Policy shall be applied by it towards the restoration of the related Mortgaged
Property to a condition requisite to the presentation of claims on the related
Mortgage Loan to the Mortgage Pool Insurer under the Mortgage Pool Insurance
Policy.
To the extent provided in the related Prospectus Supplement, a "Special
Hazard Insurance Policy" will be obtained from the insurer or insurers specified
in the related Prospectus Supplement (the "Special Hazard Insurer"). The Special
Hazard Insurer will, subject to the limitations described below, insure against
(i) loss by reason of damage to Mortgaged Properties underlying defaulted
Mortgage Loans caused by certain hazards (including vandalism and earthquakes
and, except where the mortgagor is required to obtain flood insurance, floods
and mudflows) not insured against under the Standard Hazard Insurance Policies
covering such Mortgage Loans and (ii) loss from partial damage to the Mortgaged
Properties securing such defaulted Mortgage Loans caused by reason of the
application of the coinsurance clause contained in the applicable Standard
Hazard Insurance Policies. The Special Hazard Insurance Policy for a Series,
however, will not cover losses occasioned by war, certain governmental actions,
nuclear reaction and certain other perils. The amount of coverage, if any, under
the Special Hazard Insurance Policy with respect to a Series will be specified
in the related Prospectus Supplement.
Subject to the foregoing limitations, the Special Hazard Insurance Policy
with respect to a Series will provide that, when there has been damage to
Mortgaged Property securing a defaulted Mortgage
55
<PAGE>
Loan and such damage is not covered by the Standard Hazard Insurance Policy
maintained by the mortgagor or the Master Servicer, the Special Hazard Insurer
will pay the lesser of (a) the cost of repair of such property or (b) upon
transfer of such property to it, the unpaid principal amount of such Mortgage
Loan at the time of the acquisition of such property, plus accrued interest to
the date of claim settlement (excluding late charges and penalty interest) and
certain expenses incurred in respect of such property. No claim may be validly
presented under a Special Hazard Insurance Policy unless the Standard Hazard
Insurance Policy on the Mortgaged Property securing the Mortgage Loan has been
kept in force and other reimbursable protection, preservation and foreclosure
expenses have been paid (all of which must be approved in advance as necessary
by the Special Hazard Insurer). If the sum of the unpaid principal amount plus
accrued interest and certain expenses is paid by the Special Hazard Insurer, the
amount of further coverage under the Special Hazard Insurance Policy will be
reduced by such amount less any net proceeds from the sale of the Mortgaged
Property. Any amount paid as the cost of repair of the Mortgaged Property may
reduce coverage by such amount.
The Agreement with respect to a Series will, to the extent described in the
related Prospectus Supplement, require the Master Servicer to maintain the
Special Hazard Insurance Policy for such Series in full force and effect,
subject to certain conditions. See "Servicing of the Mortgage Loans--
Maintenance of Insurance Policies." The Master Servicer also must present
claims, on behalf of the Certificateholders and the Trustee, for all losses not
otherwise covered by the applicable Standard Hazard Insurance Policies and take
all reasonable steps necessary to permit recoveries on such claims. See
"Servicing of the Mortgage Loans."
To the extent provided in the Prospectus Supplement, in lieu of Special
Hazard Insurance, partially or entirely, a deposit of cash, a certificate of
deposit, a letter of credit or any other instrument acceptable to each rating
agency rating the Series may be provided in an amount and for a term acceptable
to each such rating agency. Such a deposit will be credited to a Special Hazard
or similar fund and the Trustee or Master Servicer will be permitted to draw on
the fund to recover losses that would otherwise be covered by a Special Hazard
Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, a Special
Hazard Insurance Policy may insure against losses on Mortgage Loans evidenced by
multiple Series of Certificates, provided, however, that the extension of
coverage to any other Series does not result in the downgrading of the credit
rating of any outstanding Series.
MORTGAGOR BANKRUPTCY INSURANCE
The Master Servicer will, if and to the extent provided in the related
Prospectus Supplement, exercise its best reasonable efforts to maintain and keep
Mortgagor Bankruptcy Insurance in full force and effect throughout the term of
the related Agreement, unless coverage thereunder has been exhausted through
payment of claims. The related Agreement may, to the extent described in the
Prospectus Supplement, require the Master Servicer to pay from its servicing
compensation the premiums for the Mortgagor Bankruptcy Insurance on a timely
basis. At the request of the Company, coverage under the Mortgagor Bankruptcy
Insurance will be cancelled or reduced by the Master Servicer to the extent
permitted by the rating agency rating the related Series, provided that such
cancellation or reduction does not adversely affect the then current rating of
the related series of Certificates.
In the event of a personal bankruptcy of a mortgagor, the bankruptcy court
may establish the value of the Mortgaged Property at an amount less than the
then outstanding principal balance of the Mortgage Loan secured by such
Mortgaged Property. 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 Mortgaged Property by the bankruptcy court.
In addition, certain other modifications of the terms of a
56
<PAGE>
Mortgage Loan can result from a bankruptcy proceeding. See "Certain Legal
Aspects of Mortgage Loans--Anti-Deficiency Legislation and Other Limitations on
Lenders." Losses resulting from a bankruptcy proceeding affecting Mortgage Loans
of a Series will, to the extent specified in the related Prospectus Supplement,
be covered by mortgagor bankruptcy insurance for such Series (or any other
instrument that will not result in a down-grading of the rating of the Series by
any rating agency rating the Series) (the "Mortgagor Bankruptcy Insurance"). The
amount and term of any Mortgagor Bankruptcy Insurance for a Series must be
acceptable to each rating agency rating the Series. Subject to the terms of the
Mortgagor Bankruptcy Insurance, the insurer may have the right to purchase any
Mortgage Loan with respect to which a payment or drawing has been made or may be
made for an amount equal to the outstanding principal amount of such Mortgage
Loan plus accrued and unpaid interest thereon. The Company may, partially or
entirely in lieu of Mortgagor Bankruptcy Insurance, as specified in the related
Prospectus Supplement, deposit or cause to be deposited cash, a certificate of
deposit, a letter of credit or any other instrument acceptable to each rating
agency rating the Series. Such a deposit will be credited to a Mortgagor
Bankruptcy or similar fund and the Trustee or Master Servicer will be able to
draw on the fund to recover losses that would be insured against by Mortgage
Bankruptcy Insurance. The amount of the Mortgagor Bankruptcy Insurance for a
Series or deposit in lieu thereof may be reduced as long as any such reduction
will not result in a reduction of the then applicable rating of the Series by
any rating agency rating the Series.
A form of the Mortgagor Bankruptcy Insurance has been filed as an exhibit
to, or incorporated by reference into, the Registration Statement of which this
Prospectus forms a part. The foregoing description does not purport to be
complete and is qualified in its entirety by reference to such forms and to the
description of any material variances therefrom contained in the related
Prospectus Supplement.
PRESENTATION OF CLAIMS
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to each Pool Insurer, to each Special
Hazard Insurance Insurer, to the issuer of the Mortgagor Bankruptcy Insurance,
to each Primary Insurer, to the FHA and to the VA, and take such reasonable
steps as are necessary to permit recovery under such Insurance Policies
respecting defaulted Mortgage Loans or Mortgage Loans that are the subject of a
bankruptcy proceeding. As set forth above, all collections by the Master
Servicer under any Mortgage Pool Insurance Policy, any Primary Insurance Policy,
any FHA insurance or any VA guarantee or any Mortgagor Bankruptcy Insurance and,
where the related property has not been restored, any Special Hazard Insurance
Policy, are to be deposited in the Certificate Account for the related Series
and are subject to withdrawal as described above. In those cases in which a
Mortgage Loan is serviced by a Sub-servicer, the Sub-servicer, on behalf of
itself, the Trustee and the Certificateholders will present claims to the
applicable insurer, and all collections shall be deposited in the Sub-servicing
Account for deposit into the Certificate Account.
If any property securing a defaulted Mortgage Loan is damaged and proceeds,
if any, from the related Standard Hazard Insurance Policy or the applicable
Special Hazard Insurance Policy are insufficient to restore the damaged property
to a condition sufficient to permit recovery under the Mortgage Pool Insurance
Policy or any Primary Insurance Policy, any FHA insurance or any VA guarantee,
as the case may be, the Master Servicer is not required to expend its own funds
to restore the damaged property unless it determines (i) that such restoration
will increase the proceeds to the Certificateholders on liquidation of the
Mortgage Loan after reimbursement of the expenses incurred by the Master
Servicer and (ii) that such expenses will be recoverable by it through proceeds
of the sale of the property or proceeds of the related Mortgage Pool Insurance
Policy or any related Primary Insurance Policy, any FHA insurance, or any VA
guarantee, as the case may be.
If recovery under the Mortgage Pool Insurance Policy or any related Primary
Insurance Policy, any FHA insurance, or any VA guarantee, as the case may be, is
not available because the Master
57
<PAGE>
Servicer has been unable to make the above determinations or otherwise, the
Master Servicer nevertheless is obligated to follow such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Mortgage Loan. If the proceeds of any liquidation of the Mortgaged Property are
less than the principal balance of the defaulted Mortgage Loan plus interest
accrued thereon at the Remittance Rate, the related Trust Fund will realize a
loss in the amount of such difference plus the aggregate of expenses incurred by
the Master Servicer in connection with such proceedings and which are
reimbursable under the Agreement. In the event that any such proceedings result
in a total recovery which is, after reimbursement to the Master Servicer of its
expenses, in excess of the principal balance of the related Mortgage Loan,
together with accrued and unpaid interest thereon at the Remittance Rate, the
Master Servicer will be entitled to withdraw amounts representing its normal
servicing compensation on such Mortgage Loan from the Certificate Account. Any
amounts remaining in the Certificate Account after such foreclosure,
repossession or liquidation, as the case may be, and attributable to such
Mortgage Loan will be retained by the Master Servicer or distributed in such
manner as may be specified in the related Prospectus Supplement.
ALTERNATIVE CREDIT ENHANCEMENT
The Company or the Master Servicer, from time to time, may obtain or cause
to be obtained further insurance policies, guarantees, letters of credit, or
surety bonds (or make deposits in lieu thereof) to enhance the credit rating of
the Certificates. To the extent any such other enhancements are obtained for a
Series of Certificates, or deposits are made in lieu thereof, a description
thereof will be set forth in the related Prospectus Supplement.
58
<PAGE>
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed 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 is situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Mortgage Loans. Certain aspects of Co-op Loans (defined below) may differ from
this general description.
General. The Mortgage Loans will be secured by either first mortgages or
deeds of trust, depending upon the prevailing practice in the state in which the
underlying property is located. A mortgage creates a lien upon the real property
described in the mortgage. There are two parties to a mortgage, the mortgagor,
who is the borrower and homeowner, and the mortgagee, who is the lender. In a
mortgage state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties; the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed of
trust or mortgage, applicable law, and, in some cases, with respect to the deed
of trust, the directions of the beneficiary.
Foreclosure. Foreclosure of a mortgage is generally accomplished by judicial
action. Generally, the action is initiated by the service of legal pleadings
upon all parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to foreclosure
is contested, the legal proceedings necessary to resolve the issue can be time
consuming. After the completion of a judicial foreclosure proceeding, the court
may issue a judgment of foreclosure and appoint a receiver or other officer to
conduct the sale of the property. In some states, mortgages may also be
foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a nonjudicial
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 certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states the trustee must record a notice of
default and send a copy to the borrower-trustor and to 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 of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. 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 of record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
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. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
59
<PAGE>
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
not common for a third party to purchase the property at the foreclosure sale.
Rather, the lender generally purchases the property from the trustee or receiver
for an amount equal to the unpaid principal amount of the note, accrued and
unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a 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 mortgage
insurance proceeds. See "Description of Insurance--Mortgage Insurance on the
Mortgage Loans" and "Description of Insurance--Hazard Insurance on the Mortgage
Loans."
Rights of Redemption. In some states, after sale pursuant to a deed of trust
or foreclosure of a mortgage, the borrower and certain foreclosed junior lienors
are given a statutory period in which to redeem the property from the
foreclosure sale. In certain other states, this right of redemption applies only
to sale following judicial foreclosure, and not to sale pursuant to a
nonjudicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In some states, the right to redeem
is an equitable right. The effect of a right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The exercise of a right
of redemption would defeat the title of any purchaser at a foreclosure sale, or
of any purchaser from the lender subsequent to judicial foreclosure or sale
under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to maintain the property and pay the expenses of
ownership until the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain states
have imposed statutory restrictions 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 is a personal judgment against the borrower equal in most
cases to the difference between the amount due to the lender and the net amount
realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is 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 foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
60
<PAGE>
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a Chapter
13 proceeding under the federal Bankruptcy Code, when a court determines that
the value of a home is less than the principal balance of the loan, the court
may prevent a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the value
of the home as it exists at the time of the proceeding, leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Certain court decisions have applied such
relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service 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.
"Due-on-Sale" Clauses. The forms of note, mortgage and deed of trust
relating to conventional Mortgage Loans may contain a "due-on-sale" clause
permitting acceleration of the maturity of a loan if the borrower transfers its
interest in the property. In recent years, court decisions and legislative
actions placed substantial restrictions on the right of lenders to enforce such
clauses in many states. However, effective October 15, 1982, Congress enacted
the Garn-St. Germain Depository Institutions Act of 1982 (the "Act") which
purports to pre-empt state laws which prohibit the enforcement of "due-on-sale"
clauses by providing among other matters, that "due-on-sale" clauses in certain
loans (which loans include the conventional Mortgage Loans) made after the
effective date of the Act are enforceable, within certain limitations as set
forth in the Act and the regulations promulgated thereunder.
By virtue of the Act, the Master Servicer or a Sub-servicer may generally be
permitted to accelerate any conventional Mortgage Loan which contains a
"due-on-sale" clause upon transfer of an interest in the property subject to the
mortgage or deed of trust. With respect to any Mortgage Loan secured by a
residence occupied or to be occupied by the Mortgagor, this ability to
accelerate will not apply to certain types of transfers, including (i) the
granting of a leasehold interest which has a term of three years or less and
which does not contain an option to purchase, (ii) a transfer to a relative
resulting from the death of a borrower, or a transfer where the spouse or
child(ren) becomes an owner of the property in each case where the transferee(s)
will occupy the property, (iii) a transfer resulting from a decree of
dissolution of marriage, legal separation agreement or from an incidental
property settlement agreement by which a spouse becomes an owner of the
property, (iv) the creation of a lien or other encumbrance subordinate to the
lender's security instrument which does not relate to a transfer of rights of
occupancy in the property (provided that such lien or encumbrance is not created
pursuant to a contract for deed), (v) a transfer by devise, descent or operation
of law on the death of a joint tenant or tenant by the entirety, and (vi) other
transfers as set forth in the Act and the regulations thereunder. As a result, a
lesser number of Mortgage Loans which contain "due-on-sale" clauses may extend
to full maturity than recent experience would indicate with respect to
single-family mortgage loans. The extent of the effect of the Act on the average
lives and delinquency rates of the Mortgage Loans, however, cannot be predicted.
See "Description of the Certificates--Maturity and Prepayment Considerations."
61
<PAGE>
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 substances released or disposed of on the
property. Such a lien will generally have priority over all subsequent liens on
the property and, in certain of these states, will have priority over prior
recorded liens including the lien of a mortgage. In addition, under federal
environmental legislation and under state law in a number of states, a secured
party which takes a deed in lieu of foreclosure or acquires a mortgaged property
at a foreclosure sale or becomes involved in the operations of 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 lender
(such as a Trust Fund ) secured by residential real property. In the event that
title to a Mortgaged Property securing a Mortgage Loan in a Trust Fund was
acquired by the Trust Fund and cleanup costs were incurred in respect of the
Mortgaged Property, the holders of the related series of Certificates might
realize a loss if such costs were required to be paid by the Trust Fund.
Adjustable Rate Loans. The laws of certain states may provide that mortgage
notes relating to adjustable rate loans are not negotiable instruments under the
Uniform Commercial Code. In such event the Trustee will not be deemed to be a
"holder in due course" within the meaning of the Uniform Commercial Code 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.
Enforceability of Certain Provisions. The standard forms of note, mortgage
and deed of trust used by the Master Servicer 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 Master Servicer) will be retained by the Master Servicer as
additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative 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 required lenders to reinstate loans or recast payment schedules to
accommodate borrowers who are suffering from temporary financial disability. In
some cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second mortgage or
deed of trust affecting the property. In other cases, some courts have been
faced with the issue whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers under
the deeds of trust receive notices in addition to statutorily-prescribed minimum
requirements. 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.
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters into military service after
the origination of such borrower's mortgage loan (including a borrower who is a
member of the National Guard or is in reserve status at the time of the
origination of the mortgage loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. In addition, the Relief Act imposes limitations which would impair the
ability of the Master Servicer to foreclose on an affected Mortgage Loan during
the Mortgager's period of active duty status.
62
<PAGE>
Co-op Loans. To the extent set forth in the Prospectus Supplement, certain
of the Mortgage Loans may have been made in connection with a purchase or
refinance of cooperative apartments. Such loans ("Co-op Loans") are not secured
by liens on real estate. The "owner" of a cooperative apartment does not own the
real estate constituting the apartment but owns shares of stock in a corporation
which holds title to the building in which the apartment is located, and by
virtue of owning such stock is entitled to a proprietary lease to occupy the
specific apartment (the "Lease"). Thus, a co-op loan is a personal loan secured
by a lien on the shares and an assignment of the Lease. If the borrower defaults
on a Co-op Loan, the lender's remedies are similar to the remedies which apply
to a foreclosure of a mortgage or deed of trust, in that the lender can
foreclose the loan and assume "ownership" of the apartment.
There are certain risks which arise as a result of the cooperative form of
ownership which differentiate Co-op Loans from other types of Mortgage Loans.
For example, the power of the board of directors of most cooperative
corporations to reject a proposed purchaser of a unit owner's shares (and
prevent the sale of an apartment) for any reason (other than reasons based upon
unlawful discrimination) or for no reason, significantly reduces the universe of
potential purchasers in the event of a foreclosure. Moreover, cooperative
apartment owners run a special risk in buildings where the "sponsor" (i.e., the
owner of the unsold shares in the corporation) holds a significant number of
unsold apartments if the sponsor were to go into default on a loan which is
secured by a mortgage on the building. In such event the unit owners would be
forced by special assessment to make the payments on the delinquent loan or risk
losing their apartments in a foreclosure proceeding brought by the holder of the
mortgage on the building. Not only would the value attributable to the right to
occupy a particular apartment be adversely affected by the special assessment,
but the foreclosure of a mortgage on the building in which the apartment is
located could result in a total loss of the shareholder's equity in the building
(and a corresponding loss of the lender's security for its Co-op Loan).
63
<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
imposes certain requirements on employee benefit plans subject to ERISA
("Plans") and on persons who are fiduciaries with respect to such Plans. Certain
employee benefit plans, such as governmental plans (as defined in ERISA Section
3(32) ) and certain church plans (as defined in ERISA Section 3(33) ), are not
subject to ERISA but such plans may be subject to other applicable federal and
state law.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
Internal Revenue Code of 1986, as amended ("Code"), prohibit a broad range of
transactions involving Plan assets (including assets of individual retirement
accounts) and persons having certain specified relationships to a Plan ("parties
in interest" and "disqualified persons"). Such transactions are treated as
"prohibited transactions" under Sections 406 and 407 of ERISA and excise taxes
are imposed upon such persons by Section 4975 of the Code. An investment in
Certificates by a Plan might constitute a prohibited transaction under the
foregoing provisions unless an administrative exemption applies. In addition, if
an investing Plan's assets were deemed to include an interest in the assets of
the Mortgage Pool and not merely an interest in the Certificates, transactions
occurring in the operation of the Mortgage Pool might constitute prohibited
transactions unless an administrative exemption applies. Certain such exemptions
which may be applicable to the acquisition and holding of the Certificates or to
the servicing and operation of the Mortgage Pool are noted below.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of 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 investing plan unless certain exceptions apply.
There can be no assurance that any of the exceptions set forth in the
regulation will apply to the purchase of Certificates offered hereby, and, as a
result, an investing plan's assets could be considered to include an undivided
interest in the Mortgage Loans, the Agency Securities, and any other assets held
in the Mortgage Pool. However, pursuant to the regulation, the investing plan's
assets would not, merely by reason of the purchase of a Certificate, include the
mortgage loans underlying the Agency Securities. In the event that assets of a
Mortgage Pool are considered assets of an investing Plan, the Company, the
Master Servicer, the Trustee and other persons, in providing services with
respect to the Mortgage Loans and the Agency Securities, may be considered
fiduciaries to such plan and to be subject to the fiduciary responsibility
provisions of Title I of ERISA and the prohibited transaction provisions of
Section 4975 of the Code with respect to transactions involving such assets
unless a statutory or administrative exemption applies. In addition, a
prohibited transaction could arise if a Mortgagor is a party in interest or
disqualified person with respect to an investing Plan.
Furthermore, certain affiliates of the Company, including The Chase
Manhattan Bank, the Company's parent, may be considered to be parties in
interest or disqualified persons with respect to many Plans. An investment by
such a Plan in Certificates may be a prohibited transaction under ERISA and the
Code unless such investment is subject to a statutory or administrative
exemption.
The DOL has issued Prohibited Transaction Class Exemption ("PTCE") 83-1,
exempting certain transactions involving mortgage pool investment trusts holding
mortgages on certain residential property from the prohibited transaction
provisions of ERISA and the Code. PTCE 83-1 exempts, subject to certain
conditions, transactions related to the origination, maintenance and termination
of mortgage pool investment trusts and the acquisition and holding of certain
mortgage pass-through certificates by Plans.
64
<PAGE>
Three general conditions must be satisfied for any transaction to be
eligible for exemption under PTCE 83-1: (1) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and the property
securing such loans, and for indemnifying certificate holders against reductions
in pass-through payments due to property damage or defaults in loan payments;
(2) the existence of a pool trustee who is not an affiliate of the pool sponsor;
and (3) a limitation on the amount of the payment retained by the pool sponsor
together with other benefits inuring to it to not more than adequate
consideration for selling the mortgage loans and reasonable compensation for
services provided by the pool sponsor to the mortgage pool. PTCE 83-1 also
imposes additional specific conditions for certain types of transactions and
where certain Parties in Interest are fiduciaries.
While the Trustee is not affiliated with the pool sponsor, there can be no
assurance that the first and third general conditions will be satisfied with
respect to the Certificates. In addition, the cited class exemption applies to
"certificates" which entitle the holder to pass-through payments of both
principal and interest from pooled mortgage loans (less any fees retained by the
pool sponsor). Because certain of the Certificates may, if specified in the
related Prospectus Supplement, evidence an interest in distributions of
principal only or interest only from the related Mortgage Loans or an interest
in a pool of assets that itself is treated for federal income tax purposes as
consisting of interests in a real estate mortgage investment conduit, PTCE 83-1
may not be applicable to such Certificates. In addition, PTCE 83-1 may not be
applicable in respect of Certificates which, if specified in the related
Prospectus Supplement, represent interests in Co-op Loans; by its terms, PTCE
83-1 exempts only investment pools the corpus of which consists solely of
interest bearing obligations secured by either first or second mortgages or
deeds of trust on "single-family residential property" (defined as non-farm
property comprising one to four dwelling units and condominiums), property which
had secured such obligation and which had been acquired by foreclosure, and
undistributed cash.
One or more exemptions may be available, however, with respect to certain
prohibited transactions to which PTCE 83-1 is not applicable, depending in part
upon the type of Plan fiduciary making the decision to acquire a Certificate and
the circumstances under which such decision is made, including but not limited
to: PTCE 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 91-38, regarding investments by bank collective investment funds;
or PTCE 84-14, regarding transactions effected by a "qualified professional
asset manager" or PTCE 96-23, regarding transactions effected by an "in-house
asset manager". However, even if the conditions specified in one or more of
these exemptions are met, the scope of the relief provided by these exemptions
might or might not cover all acts which might be construed as prohibited
transactions.
Any Plan fiduciary considering the purchase of a Certificate should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment and should independently determine if its purchase and
holding of a Certificate will require an exemption, and if so whether an
exemption is available. Moreover, each Plan fiduciary should 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.
The sale of Certificates to a Plan is in no respect a representation by the
Company that this investment meets all relevant legal requirements with respect
to investments by Plans generally or by any particular Plan, or that this
investment is appropriate for Plans generally or for any particular Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership and disposition of the
Certificates. This discussion is based on current law and on certain temporary
and proposed Treasury regulations, both of which are subject to changes that
65
<PAGE>
prospectively or retroactively could modify or affect adversely the tax
consequences summarized below. The discussion does not address all of the tax
consequences relevant to a particular Certificateholder in light of that
Certificateholder's circumstances, and some Certificateholders may be subject to
special tax rules and limitations not discussed below. Prospective purchasers of
the Certificates should consult their own tax advisors in determining the
federal, state, local and foreign tax consequences to them of the purchase,
ownership and disposition of the Certificates.
REMIC ELECTIONS
An election may be made with respect to a particular Series of Certificates,
to treat the Trust Fund as a real estate mortgage investment conduit ("REMIC")
within the meaning of section 860D(a) of the Code. With respect to each Series
of Certificates for which a REMIC election is made, Morgan, Lewis & Bockius LLP,
counsel to the Company ("Counsel"), will have advised the Company that in its
opinion, under the law as in effect at the time assuming (i) the making of that
election and (ii) ongoing compliance with the Agreement, the Trust Fund will
qualify as a REMIC, and the Certificates in such a Series ("REMIC Certificates")
will be treated either as regular interests in a REMIC within the meaning of
section 860G(a)(1) of the Code ("Regular Certificates") or as residual interests
in a REMIC within the meaning of section 860G(a)(2) of the Code ("Residual
Certificates"). Regular Certificates generally will be treated as debt
instruments issued by the REMIC. The holder of a Residual Certificate will be
subject to the special rules described below under which the holder generally
will take into account for federal income tax purposes its pro rata share of the
net income or loss of the REMIC.
With respect to Certificates that are part of a Series for which no REMIC
election is made or a valid REMIC election cannot be made ("Non-REMIC
Certificates"), Counsel will have advised the Company that in its opinion, the
Trust Fund relating to the Non-REMIC Certificates will be treated either as a
grantor trust for federal income tax purposes and not as an association taxable
as a corporation or as a "taxable mortgage pool" as defined in section 7701 (i)
of the Code (a "TMP"). If the Trust Fund is treated as a grantor trust, holders
of Non-REMIC Certificates, other than "Stripped Certificates" (discussed below)
generally will be required to include in their gross income for federal income
tax purposes their proportionate shares of income derived from the assets held
by the Trust Fund and will be permitted (subject to certain limitations for
individuals, estates and trusts) to deduct their proportionate shares of
expenses incurred by the Trust Fund.
If the Trust Fund is treated as a TMP, Certificates will be treated either
as indebtedness of, or equity in, a corporation, with the result that an entity
level tax could be imposed on the Trust Fund, thereby reducing the amount
available for distribution to Certificateholders.
The Prospectus Supplement for each Series of Certificates will indicate
whether a REMIC election will be made for that Series.
TAXATION OF REMIC CERTIFICATES
Special Tax Attributes of the REMIC Certificates
In general, REMIC Certificates will constitute (i) "qualifying real property
loans" within the meaning of section 593(d)(1) of the Code, (ii) assets
described in section 7701(a)(19)(C) of the Code and (iii) "real estate assets"
within the meaning of section 856(c)(5)(A) of the Code in each case as long as
the portion of the Trust Fund qualifying for the corresponding status is at
least 95 percent of the assets of the REM IC (determined for each calendar
quarter by reference to the average adjusted basis of the REMIC's assets for
that quarter). However, in the event that the portion of the assets held in the
Trust Fund qualifying for the status described in (i) , (ii) or (iii) above
falls below 95 percent of the assets of the REMIC at any time during a taxable
year, then the REMIC Certificates may be treated as
66
<PAGE>
so qualifying on a proportionate basis. 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 section 856(c) (3) (B) of
the Code to the same extent that the REMIC Certificates are treated as real
estate assets. If a real estate investment trust (a "REIT") holds a Residual
Interest issued with respect to a Mortgage Pool that contains shared
appreciation mortgages for a principal purpose of avoiding the limitations that
apply to a REIT's holding of such mortgages, that REIT will be treated as though
it directly held the shared appreciation mortgages. REMIC Certificates held by a
regulated investment company will not constitute "Government securities" within
the meaning of section 851(b)(4)(A)(i) of the Code, and REMIC Certificates held
by certain financial institutions subject to section 582(c)(1) of the Code will
constitute an "evidence of indebtedness" within the meaning of that section.
Regular Certificates
General. In general, stated interest, original issue discount and market
discount received or accrued on a Regular Certificate will be ordinary income,
and principal payments on a Regular Certificate will be a return of capital to
the extent of the Certificateholder's basis in the Regular Certificate allocable
to those payments. A holder of a Regular Certificate must use the accrual method
of accounting with respect to that Certificate regardless of its regular method
of accounting.
Original Issue Discount. All Compound Interest Certificates (other than a
Residual Certificate that is a Compound Interest Certificate) will, and the
Regular Certificates of certain other Classes of a Series may, be issued with
"original issue discount." A holder of a Regular Certificate having original
issue discount generally must include original issue discount in ordinary income
as it accrues in advance of receipt of the cash attributable to the discount,
regardless of its regular method of accounting.
The amount of original issue discount on a Regular Certificate is the excess
of its "stated redemption price at maturity" over its "issue price." The issue
price of a Regular Certificate in a particutal Class is the price at which a
substantial amount of the Regular Certificates of that Class are first sold to
the public. The stated redemption price at maturity of a Regular Certificate is
the total of all payments on the Regular Certificate other than "qualified
stated interest" payments. A qualified stated interest payment generally is
stated interest that is unconditionally payable in cash or in property at least
annually at a single fixed rate, or a single objective rate or a qualified
floating rate (a "Variable Rate"). No payments of interest on a Compound
Interest Certificate, and no payment of interest on any other Regular
Certificates that may be deferred and added to principal will constitute
qualified stated interest payments. Accordingly, the stated redemption price at
maturity of those Regular Certificates includes all payments (i.e., principal
and interest) to be received thereon.
Regular Certificates may provide that interest that would be otherwise
payable in the month in which they are issued will be paid on the interest
payment date in the next succeeding month. Since a REMIC will not compound
interest on the deferred interest, the yield for the initial period will be
slightly less than the yield for all subsequent periods. If, but for such
deferral, the interest on the Regular Certificate would otherwise be qualified
stated interest, the dollar amount of such shortfall in yield (over any discount
reflected in the issue price) will be added to the stated redemption price of
such Regular Interest in determining if the Regular Interest has been issued
with a de minimis amount of OID. If the Regular Certificate otherwise is issued
with OID, such shortfall will prevent all or a portion of the stated interest
payments from being considered qualified stated interest payments. Unless
otherwise required by applicable regulations, in those cases in which the yield
shortfall would cause a Certificate to be considered to have been issued with
OID, each REMIC will add a portion of the interest payable with respect to the
period prior to the issuance of the Regular Certificate to the interest payable
on the first interest payment date to cause the yield for the period from the
issuance of the Regular Certificate until the first payment date to be at least
equal to the yield for all subsequent monthly periods and thereby cause all
interest to be considered "qualified stated interest."
67
<PAGE>
If all or a portion of two or more Classes of Regular Certificates of a
Series are not separately traded on an established securities market, it is
possible that part or all of those Regular Certificates may be treated together
as a single debt instrument with a single issue price, maturity date, yield to
maturity and stated redemption price at maturity for purposes of determining
original issue discount. If so, it is possible that Regular Certificates of a
particular class may be treated as having original issue discount even if they
would not be so treated absent such aggregation.
One or more classes of Regular Certificates may entitle the holder to
payments of a portion of the interest but not a corresponding portion of the
principal of mortgage loans held in the Trust Fund ("Stripped REMIC
Certificates") or otherwise provide for interest that is disproportionately high
relative to the principal amount of the Stripped REMIC Certificates. Although
the matter is not free from doubt, the Company intends to treat all of the
payments on such Certificates as part of their stated redemption price at
maturity. It appears that a Certificateholder would not be entitled to recognize
a loss until the final payment is made with respect to Stripped REMIC
Certificates notwithstanding that prior to such time, it can be reasonably
determined that the Certificateholder's adjusted basis exceeds all future
payments to be received on such Certificate (assuming no future prepayments
occur with respect to the Mortgage Loans).
A Certificateholder generally must include in gross income for any taxable
year the sum of the "daily portions" of the original issue discount that accrue
on the Regular Certificate for each day during the Certificateholder's taxable
year on which the Regular Certificate is held. A calculation will be made of the
portion of the original issue discount that accrues on each Regular Certificate
during each "accrual period," which in general is the period corresponding to
the period between Distribution Dates or other interest compounding periods. The
original issue discount accruing during any accrual period is divided by the
number of days in the period to determine the daily portion of original issue
discount for each day in the period.
For a Regular Certificate, original issue discount accruing in an accrual
period is the excess, if any, of (i) the sum of (a) the present value of the
remaining payments to be made on the Regular Certificate as of the end of that
accrual period and (b) the payments made on the Regular Certificate during the
accrual period that are included in the stated redemption price at maturity of
the Regular Certificate, over (ii) the adjusted issue price of the Regular
Certificate at the beginning of the accrual period. For this purpose, the
present value of the remaining payments to be made on a Regular Certificate is
calculated based on (i) a reasonably determined assumption regarding the rate at
which the Regular Certificate will be prepaid (the "Prepayment Assumption"),
(ii) the yield to maturity of the Regular Certificate as of the Closing Date
(taking into account the Prepayment Assumption) and (iii) events (including
actual prepayments) that have occurred prior to the end of the accrual period.
In general, unless Treasury Regulations promulgated or proposed in the future
otherwise require, the Prepayment Assumption will reflect the assumed level of
prepayments on the Mortgage Loans or the mortgage loans underlying the Mortgage
Securities and the anticipated reinvestment rate (insofar as it may affect the
rate at which payments on a Regular Certificate are made) used in pricing the
transaction. if applicable, the Prepayment Assumption with respect to a Series
of Certificates will be set forth in the related Prospectus Supplement. The
setting forth of a Prepayment Assumption, however, does not constitute a
representation that payments will be made with respect to the Certificates at a
rate based on the Prepayment Assumption or at any other rate. 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 that accrued on that Regular Certificate in all prior
such periods and reduced by the amount of payments included in the stated
redemption price at maturity of the Regular Certificate in prior accrual
periods. In general, the daily portions of original issue discount required to
be included in income by the holder of a Regular Certificate generally will
increase if prepayments on the Mortgage Loans or the Mortgage Securities exceed
the Prepayment Assumption, and generally will decrease (but not below zero for
any period ) if those prepayments are slower than the Prepayment Assumption.
68
<PAGE>
Where the issue price of a Regular Certificate bearing a Variable Rate of
interest equals the stated principal amount of the Regular Certificate and
interest payments on that Regular Certificate are includible in its stated
redemption price at maturity (i.e., to the extent those payments are not treated
as qualified stated interest payments), the amount of original issue discount
that accrues on that Regular Certificate during any accrual period generally
will equal the amount of interest that accrues on the Regular Certificate during
the accrual period. If a regular Certificate provides for interest at a fixed
rate for an initial period of less than one year followed by a variable rate for
a subsequent period, and the value of the variable rate on the issue date is
intended to approximate the fixed interest rate, the fixed interest rate and the
variable rate together constitute a single Variable Rate comprised of qualified
stated interest. A fixed interest rate and a variable rate will be conclusively
presumed to meet the requirements of the preceding sentence if the value of the
Variable Rate on the issue date does not differ from the value of the fixed
interest rate by more than 25 basis points. The amount of OlD is determined by
assuming that the variable rate is a fixed rate equal to the value, as of the
issue date, of the Variable Rate.
A holder of a Regular Certificate that was issued with original issue
discount who purchases the Regular Certificate at a price that exceeds the
"revised issue price" of that Certificate but is less than the unpaid stated
redemption (such excess, an "acquisition premium") price also will be required
to include in gross income daily portions of original issue discount on that
Regular Certificate but will be entitled to reduce the daily portions
proportionately by the amount of the acquisition premium. The revised issue
price of a Regular Certificate is the issue price of the Certificate increased
by the amount of original issue discount previously includible in income by an
original Certificateholder who purchased the Regular Certificate at its issue
price on the issue date. Certain holders of Regular Certificates who acquire
their Certificates at an acquisition premium may elect to treat their
Certificates as having been issued on the date of their acquisition for an
amount equal to the price paid, instead of reducing OID accruals by the
acquisition premium.
If original issue discount on a Regular Certificate is less than 0.25% of
the stated redemption price at maturity of the Regular Certificate multiplied by
the weighted averaged maturity of the Regular Certificate, then under a de
minimis rule provided by the Code, the Regular Certificate will not be treated
as having any original issue discount. The weighted average maturity of a
Regular Certificate is the sum of the amounts determined by multiplying the
number of full years from the issue date until each payment included in the
stated redemption price at maturity of the Regular Certificate is scheduled to
be made by a fraction whose numerator is the amount of the corresponding payment
and whose denominator is the stated redemption price at maturity of the Regular
Certificate. A holder of a Regular Certificate issued with de minimis OID, who
holds the Certificate as a capital asset, will recognize a portion of any de
minimis OID as capital gain as principal payments on the Certificate are
received.
Market Discount. A purchaser of a Regular Certificate may be subject to the
market discount rules of the Code. In general, "market discount" is the amount
by which the stated redemption price at maturity (or, in the case of a Regular
Certificate issued with original issue discount, the revised issue price) of the
Regular Certificate exceeds the purchaser's basis in a Regular Certificate. The
holder of a Regular Certificate that has market discount generally will be
required to include accrued market discount in ordinary income to the extent
payments includible in the stated redemption price at maturity of such Regular
Certificate are received. The purchaser of a Regular Certificate that has market
discount also 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 that accrued to the date of disposition and was not previously
included in ordinary income. Unless otherwise provided in Treasury regulations
that have not yet been issued, it is anticipated that market discount on a
Regular Certificate will accrue at the holder's option (i) on the basis of a
constant interest rate, (ii) ratably based on the ratio of stated interest
payable in the current period to all interest remaining to be paid in the case
of a Regular Certificate issued without original issue discount, or (iii)
ratably based on the ratio of the
69
<PAGE>
amount of original issue discount accrued in the current period to all remaining
original issue discount in the case of a Regular Certificate issued with
original issue discount, in each case computed taking into account the
Prepayment Assumption.
A purchaser of a Regular Certificate that has market discount may be
required to defer recognition of a portion of interest expense attributable to
any indebtedness incurred or continued to purchase or carry the Regular
Certificate. The amount of this deferred interest expense in any taxable year
generally would not exceed the accrued market discount for the year, and the
deferred expense is allowed as a deduction not later than the year in which the
related market discount income is recognized. Alternatively, a Certificateholder
may elect to include market discount in income currently as it accrues on all
market discount obligations that the Certificateholder acquires in that taxable
year or thereafter, in which case the rules described above relating to the
treatment of market discount, as well as the interest deferral rule, will not
apply. A Regular Certificate may be treated as having no market discount under a
de minimis rule that is similar to the de minimis rule applied for purposes of
determining whether a Regular Certificate has original issue discount.
If a holder makes the election to include market discount in income
currently as it accrues on a constant interest rate method, such holder will be
required to compute market discount as though its Certificate was issued on the
date of its acquisition for an amount equal to the price paid. Any election to
currently accrue will also require the holder to include accrued market discount
in income currently for all other debt instruments with market discount acquired
by such holder in the year of the election and thereafter.
Premium. A Regular Certificate, other than a Compound Interest Certificate,
purchased at a cost greater than its currently outstanding principal amount is
considered to be purchased at a premium. A Certificateholder who holds a Regular
Certificate as a "capital asset" (within the meaning of section 1221 of the
Code) may elect under section 171 of the Code to amortize the premium under the
constant interest method. That election will apply to all premium obligations
that the Certificateholder acquires on or after the first day of the taxable
year for which the election is made, unless the Internal Revenue Service permits
the revocation of the election. In addition, it appears that the same rules that
apply to the accrual of market discount on installment obligations are intended
to apply in amortizing premium on installment obligations such as the Regular
Certificates, including the alternatives to the constant interest method
described above under "Market Discount." The portion of the premium deductible
pursuant to an election under section 171 of the Code and allocable to a
particular period will be treated as a reduction in interest payments on the
Regular Certificate during that period. A Certificateholder who neither has in
place nor makes an election to amortize bond premium could be required to
allocate that premium among the principal payments to be received on that
instrument and recognize the premium as a loss (which would be a capital loss if
the Certificate is held as a capital asset) as those principal payments are
received.
Sale or Exchange of Regular Certificates. If a Certificateholder sells or
exchanges a Regular Certificate, the 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 its initial cost, 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 the payments
previously received on the Regular Certificate, other than payments of qualified
stated interest, and by any amortized premium.
In general, except as described above with respect to market discount, and
except for certain financial institutions subject to section 582 (c) of the
Code, any gain or loss on the sale or exchange of a Regular Certificate
recognized 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 more than one year. For
individual taxpayers, all capital gains are subject to a
70
<PAGE>
maximum nominal rate of tax of 28% (although the effective rate may be somewhat
higher in certain circumstances). Gain from the disposition of a Regular
Certificate that otherwise might be capital gain will be treated as ordinary
income to the extent that the 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
the yield on the Regular Certificate were 110% of the applicable Federal rate
under section 1274 (d) of the Code 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.
Treatment of Subordinated Certificates. As described above under "Credit
Support--Subordination," certain Series of REMIC Certificates may contain one or
more Classes of Regular REMIC Certificates that are subordinate to one or more
other Classes of Regular REMIC Certificates (the "Subordinated Certificates" and
"Senior Certificates," respectively). Holders of Subordinated Certificates will
be required to report income with respect to such Certificates on the accrual
method of accounting without giving effect to delays or reductions in
distributions attributable to defaults and delinquencies on the Mortgage Loans
or Agency Securities, except to the extent it can be established that such
amounts are uncollectible. As a result, the amount of income reported by a
holder of a Subordinated Certificate in any period could significantly exceed
the amount of cash distributed to such holder in that period. The holder
generally will be allowed a loss (or will be allowed to report less income)
where either principal or previously accrued interest are determined to be
uncollectible with respect to the Subordinated Certificate, although the timing
and character of such losses (or reductions in income) are uncertain.
TAXATION OF RESIDUAL CERTIFICATES
General. Generally, holders of Residual Certificates ("Residual
Certificateholders") will take into account as ordinary income or loss for
federal income tax purposes, the "daily portions" of REMIC taxable income or net
loss. The daily portions of REMIC taxable income or net loss for a Residual
Certificateholder are determined by allocating to each day in any calendar
quarter its ratable portion of the REMIC's taxable income or net loss for such
calendar quarter, and by allocating such daily portion among the Residual
Certificateholders in proportion to their respective holdings of Residual
Certificates of a Series on that day. A Residual Certificateholder also must
include in income any distributions from the REMIC in excess of the Residual
Certificateholder's adjusted basis in the Residual Certificate. Certain
adjustments to the income of a subsequent holder of a Residual Certificate may
be required when the Residual Certificate was purchased at a price that is
greater or less than the adjusted basis (determined in the manner discussed
below) that the Residual Certificate would have if held by an initial holder.
Nevertheless, in the absence of Treasury Regulations or clarifying legislation,
it is uncertain whether any adjustments would be required.
Method of Computing REMIC Taxable Income. In general, REMIC taxable income
is determined in the same manner as the taxable income of an individual using
the accrual method of accounting, with certain exceptions. For these purposes,
REMIC taxable income generally means the excess of (i) the REMIC's gross income
(including interest, original issue discount and market discount, if any) on the
Mortgage Loans or the mortgage loans underlying the Agency Securities owned by
the REMIC, plus income on reinvestment of cash flows and investment of assets in
the Reserve Fund and amortization of any premium with respect to the Regular
Certificates, over (ii) deductions, including interest and original issue
discount on the Regular Certificates, servicing fees on the Mortgage Loans or
the mortgage loans underlying the Agency Securities, other administrative
expenses, and deduction or amortization of premium, if any, with respect to the
Mortgage Loans or the mortgage loans underlying the Agency Securities.
Investment interest limitations applicable to individuals do not apply to limit
a REMIC's deductions for any interest expense, and for purposes of determining a
REMIC's bad debt deduction, debt owed to the REMIC is not treated as nonbusiness
debt. Moreover, any expenses incurred in connection with the formation of a
REMIC and that relate to the organization of the
71
<PAGE>
REMIC and the issuance of Regular and Residual Certificates are not treated as
expenses of a REMIC for which a deduction is allowed under section 212 of the
Code. Instead, organizational expenses are added to the adjusted bases of the
Regular and Residual Certificates received by the Company at the time of the
REMIC formation and syndication expenses are applied to reduce the amount
realized on the sale of the Regular and Residual Certificates. A REMIC is not
allowed a deduction for expenses and interest allocable to tax-exempt income, as
determined in the manner prescribed in section 265(b) (2) of the Code, without
regard to section 265(b) (3) of the Code. In addition, any gain or loss from the
disposition of any asset, including a qualified mortgage (as defined in section
860G(a)(3) of the Code) or a permitted investment (as defined in section 860G
(a) (5) of the Code) is treated as ordinary gain or loss. For purposes of
determining REMIC taxable income or net loss, the REMIC's aggregate basis in the
collateral is the fair market value thereof immediately after transfer to the
REMIC. That basis is equal to the aggregate of the issue prices of all regular
and residual interests in the REMIC.
Generally, the REMIC'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 "Regular Certificates--Original Issue
Discount." The REMIC will have market discount income in respect of a Mortgage
Loan or a mortgage loan underlying an Agency Security if, in general, the basis
of the REMIC allocable thereto is exceeded by the unpaid principal balance
thereof. In respect of mortgage loans that have market discount, REMIC taxable
income will take into account market discount that accrues during the taxable
year (and the interest deferral rule will not apply to the REMIC). Market
discount income generally should be treated as accruing in the manner described
above under "Regular Certificates--Market Discount." Mortgage Loans or mortgage
loans underlying Agency Securities held by the REMIC may have original issue
discount under the circumstances described below under "Taxation of Non-REMIC
Certificates--Tax Status as a Grantor Trust-Original Issue Discount" and
"Taxation of Non-REMIC Certificates--Tax Status as a Grantor
Trust--Recharacterization of the Servicing Fee." Generally, if the REMIC's basis
allocable to a Mortgage Loan or a mortgage loan underlying an Agency Security
exceeds the unpaid principal balance thereof, the REMIC will be considered to
have acquired the Mortgage Loan or mortgage loan at a premium equal to the
amount of the excess. With respect to Mortgage Loans or mortgage loans
underlying an Agency Security that in either case were originated after
September 27, 1985, premium may be amortized under a constant interest method as
described above under "Regular Certificates--Premium," provided the Mortgage
Loan or mortgage loan is held as a capital asset. Because substantially all of
the mortgagors on the mortgage loans described above are expected to be
individuals, it is not anticipated that the REMIC will be permitted to amortize
premium on mortgage loans originated on or prior to September 27, 1985. Premium
for which current amortization is not permitted may be deductible in accordance
with a reasonable method regularly employed by the holder. The allocation of
premium pro rata among principal payments should be considered a reasonable
method, although it is possible that the Internal Revenue Service could assert
that premium should be allocated in a different manner (such as to the final
payment of principal).
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 and market
discount income (or amortization of premium) with respect to Mortgage Loans or
the mortgage loans underlying the Agency Securities, and the timing of
deductions for interest (including original issue discount) on the Regular
Certificates. Where the Mortgage Loans or the mortgage loans underlying the
Agency Securities bear interest at a fixed rate, mismatching of that timing may
result from the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of the REMIC Regular Certificates, will
increase over time as the earlier Classes of REMIC Regular Certificates are
paid, whereas interest income with respect to any given Mortgage Loan or
mortgage loan underlying an Agency Security generally will remain constant over
time as a percentage of the outstanding principal amount of that loan. When
there is more than one
72
<PAGE>
Class of Regular Certificates that pay principal sequentially, this mismatching
of income and deductions is likely to occur in the early years following
issuance of the REMIC Certificates when principal payments are being made in
respect of the earlier Classes of REMIC Regular Certificates particularly if the
Mortgage Loans or the mortgage loans underlying the Agency Securities were
acquired at a discount. In those circumstances, Residual Certificateholders may
require sufficient other sources of cash to pay any federal, state or local
income or franchise taxes due as a result of the mismatching. The mismatching of
income and deductions described in this paragraph, if present with respect to a
Series of REMIC Certificates, may have a significant adverse effect upon a
Residual Certificateholder's after-tax rate of return.
Losses. The amount of any net loss of the REMIC that may be taken into
account by a Residual Certificateholder is limited to the Residual
Certificateholder's 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. Any loss so
disallowed may be carried over indefinitely, and may be used only to offset any
income generated by the Residual Certificate. The adjusted basis of a Residual
Certificate is equal to the amount paid therefor, increased by the amount of any
income allocated to the Residual Certificateholder and decreased (but not below
zero) by the amount of cash distributed, the fair market value of property
distributed and any loss allocated to the Residual Certificateholder. The
ability of a Residual Certificateholder that is an individual or a closely held
corporation to take into account losses from the REMIC also may be subject to
other limitations under the Code.
Limitations on Offset or Exemption of REMIC Income. A portion of the REMIC
taxable income includible in determining the federal income tax liability of a
Residual Certificateholder will be subject to special treatment. That portion,
referred to as the "excess inclusion," is equal to the excess of the Residual
Certificateholder's allocable share of REMIC taxable income for a calendar
quarter, over the sum of the "daily accruals" with respect to the Residual
Certificate for days during the calendar quarter that the Residual
Certificateholder held the Residual Certificate. The daily accruals for each day
during a calendar quarter generally are determined by allocating to each day in
the calendar quarter its ratable portion of the product of (i) 120% of the
long-term applicable Federal rate that would have applied to the Residual
Certificate (if it were a debt instrument issued on the day the REMIC was
formed) under section 1274(d) of the Code, and (ii) the adjusted issue price of
the Residual Certificate at the beginning of the quarterly period. The adjusted
issue price of the Residual Certificate at the beginning of a quarter is the
issue price of the Residual Certificate (generally determined as if the Residual
Certificate were a debt instrument), increased by the amount of the daily
accruals of REMIC income for all prior quarters and decreased by any
distributions made with respect to the REMIC Residual Certificate prior to the
beginning of the quarterly period.
To the extent provided in Treasury regulations that have not yet been issued
if the aggregate value of the REMIC Residual Certificates is not considered to
be "significant," then a Residual Certificateholder's entire share of REMIC
taxable income will be treated as excess inclusions. The Conference Report
issued in connection with the Tax Reform Act of 1986 indicates that the value of
the Residual Certificates would be considered significant in cases where that
value is at least two percent of the aggregate value of the REMIC Certificates
of the Series. It is unclear whether the test for "significant value" that is
contained in the REMIC Regulations discussed below relating generally to certain
thrift institutions would be applicable. If applicable, the Prospectus
Supplement will set forth whether it is anticipated that the Residual
Certificates will have significant value when issued. However, if Treasury
regulations do not adopt the "significant value" test discussed below it is
possible that those regulations will provide (possibly retroactively) that the
significant value test is a continuing or annual test so that a Residual
Certificateholder's entire share of REMIC taxable income for any year will be
treated as excess inclusion if the relative value of the Residual Certificates
at any particular time is not considered significant.
73
<PAGE>
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the "excess inclusion" may not be offset by other deductions,
including net operating losses or net operating loss carryforwards, on the
Residual Certificateholder's federal income tax return. Further, if the Residual
Certificateholder is an organization subject to the tax on unrelated business
income imposed by section 511 of the Code, the Residual Certificateholder's
excess inclusion will be treated as unrelated business taxable income of the
Residual Certificateholder. If a Residual Certificateholder is a member of an
affiliated group filing a consolidated income tax return, the taxable income of
the affiliated group cannot be less than the sum of the excess inclusions
attributable to all residual interests held by the members of the affiliated
group. In addition, if a real estate investment trust owns a Residual
Certificate. a portion of dividends paid by the real estate investment trust
could be treated as excess inclusions in the hands of its shareholders with the
same consequences as excess inclusions attributed directly to a Residual
Certificateholder. Similar rules will apply to Residual Certificates that are
held by regulated investment companies, common trust funds or certain
cooperative organizations. If a Residual Certificate has "significant value," an
exception from the rule limiting the use of deductions and net operating losses
against excess inclusions applies to organizations to which section 593 of the
Code applies (generally, certain thrift institutions). Such an organization is
treated as having applied its allowable deductions for the year first to offset
the portion of its gross income that is not an excess inclusion and then to
offset the portion of its income that is an excess inclusion. The Residual
Certificates would have significant value if (i) their aggregate issue price of
the Residual Certificates is at least two percent of the aggregate issue prices
of all residual and regular interests in the REMIC and (ii) their "anticipated
weighted average life" is at least twenty percent of the "anticipated weighted
average life" of the REMIC. The anticipated weighted average lives of the REMIC
Residual Certificates are based on the Prepayment Assumption and generally are
determined by (i) multiplying the amount of each anticipated Residual
Certificate principal payment by the number of years (including fractions
thereof) from the day the REMIC issues all of its Regular and Residual
Certificates to the related principal payment date, (ii) adding the results, and
(iii) dividing the sum by the total principal paid on the Residual Certificate.
The anticipated weighted average life of a REMIC is equal to the anticipated
weighted average life of all classes of interests in the REMIC.
Prohibited Transactions and Other Taxes on the REMIC. Income from certain
transactions by the REMIC, called prohibited transactions, will not be part of
the calculation of income or loss includible in the federal income tax returns
of Residual Certificateholders, but rather will be taxed directly to the REMIC
at a 100% rate. In addition, no loss or deduction allocable to a prohibited
transaction is taken into account in determining the taxable income or net loss
of the REMIC, Prohibited transactions generally include (i) subject to certain
limited exceptions (which exceptions include the liquidation of the REMIC, a
"clean-up call" of one class of interests and the repurchase of a defective
Mortgage Loan), the disposition of any Mortgage Loan; (ii) the receipt of income
attributable to any asset that is not a qualified mortgage or other permitted
investment; (iii) the receipt of compensation for services; or (iv) the receipt
of gain from disposition of temporary investments between Payment Dates other
than pursuant to a qualified liquidation. Where the REMIC holds Agency
Securities, it is uncertain whether, for purposes of determining whether the
REMIC has undertaken any prohibited transactions, the REMIC is treated as
holding the Agency Securities themselves or the mortgage loans that underlie the
Agency Securities. In addition, a 100% tax is imposed on the amount of any
contribution of property made to the REMIC more than 90 days after its initial
formation (excluding certain specified contributions such as cash payments in
the nature of guarantees). An additional tax may be imposed on income from
property acquired by the REMIC upon foreclosure of a Mortgage Loan.
Mark-to-Market Regulations. Temporary regulations (the "Temporary
Mark-to-Market Regulations") have been issued by the Internal Revenue Service
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
74
<PAGE>
for investment; the Temporary Mark-to-Market Regulations provide that, for
purposes of this mark-to-market requirement, a "negative value" REMIC residual
interest is not treated as a security and thus may not be marked to market. In
addition, a dealer is not required to identify such "negative value" REMIC
residual interest as held for investment. In general, a Residual Certificate
would have negative value if, as of the date a taxpayer acquires the Residual
Certificate, the present value of the tax liabilities associated with holding
the Residual Certificate exceeds the sum of (i) the present value of the
expected future distributions on the Residual Certificate and (ii) the present
value of the anticipated tax savings associated with holding the Residual
Certificate as the REMIC is expected to generate losses. The amounts and present
values of the anticipated tax liabilities, expected future distributions and
anticipated tax savings are all to be determined using (i) the prepayment and
reinvestment assumptions adopted under Code section 1272(a)(6), (ii) any
required or permitted clean-up calls or required qualified liquidation provided
for in the REMIC's organizational documents and (iii) a discount rate equal to
the applicable Federal rate (as specified in Code section 1274(d)(1)) that would
apply to a debt instrument issued on the date of acquisition of the Residual
Certificate. Furthermore, under the Temporary Mark-to-Market Regulations, any
REMIC residual interest having substantially the same economic effect as a
"negative value" residual interest may be treated by the Internal Revenue
Service as a "negative value" residual interest. The Internal Revenue Service
could issue subsequent regulations, which could apply retroactively, providing
additional or different requirements with respect to such deemed "negative
value" residual interests. Unless indicated otherwise in the applicable
Prospectus Supplement, no view is expressed as to whether any given Residual
Certificate is a "negative value" residual interest or has substantially the
same economic effect as a "negative value" residual interest. On January 3,
1995, proposed regulations were released (the "Proposed Mark-to-Market
Regulations") which provide that any REMIC residual interest acquired after
January 3, 1995 cannot be marked to market regardless of the value of such
residual interest, rendering the Temporary Mark-to-Market Regulations described
above inapplicable to purchasers of Residual Certificates if the Proposed
Mark-to-Market Regulations are adopted as currently drafted. Prospective
purchasers of the Residual Certificates should consult their tax advisors
regarding the possible application of the Proposed Mark-to-Market Regulations
and Temporary Mark-to-Market Regulations.
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 "Losses") of the REMIC Residual Certificate at the time of
the sale or exchange. In addition, a cash distribution to a Residual
Certificateholder from the REMIC is treated as gain from the sale or exchange of
the Residual Certificate to the extent that the amount of the distribution
exceeds such adjusted basis. For individual taxpayers, all capital gains are
subject to a maximum nominal rate of tax of 28% (although the effective rate may
be somewhat higher in certain circumstances).
In addition, in certain circumstances, if a Residual Certificate is
transferred to a "Disqualified Organization" (as defined below), a tax will be
imposed on the transferor. See "Residual Certificates Transferred to or Held by
Disqualified Organizations."
A transfer of a "noneconomic residual interest" to a U.S. Person is
disregarded for all Federal tax purposes unless no significant purpose of the
transfer was to impede the assessment or collection of tax. A Residual
Certificate is treated as constituting a noneconomic residual interest for this
purpose unless, at the time of the transfer, (i) the present value of the
expected future distributions on the Residual Certificate is no less than the
product of the present value of the "anticipated excess inclusions" with respect
to the Residual Certificate and the highest rate of tax applicable to domestic
corporations for the year in which the transfer occurs and (ii) the transferor
reasonably expects that the transferee will receive distributions from the REMIC
in an amount sufficient to satisfy the income tax liability on any "excess
inclusions" at or after the time the liability accrues. The anticipated excess
inclusions are the excess inclusions that are anticipated to be allocated to
each calendar quarter, or portion thereof, following the transfer of the
Residual Certificate, determined as of the date the Residual Certificate is
75
<PAGE>
transferred and based on events that have occurred up to the time of the
transfer and on the Prepayment Assumption. See "Taxation of REMIC
Certificates--Original Issue Discount" and "Limitations on Offset or Exemption
of REMIC Income."
A transfer of a Residual Certificate that has "tax avoidance potential" to a
person who is not a U.S. Person is disregarded for all Federal tax purposes. For
this purpose a Residual Certificate has tax avoidance potential unless at the
time of the transfer (i) the expected future distributions on the Residual
Certificate equal at least thirty percent of the anticipated excess inclusions
with respect to the Residual Certificate and (ii) such distributions from the
REMIC will be made in or before the calendar year following the year of accrual.
A transfer of a Residual Certificate to a person who is not a U.S. Person,
however, is not disregarded if income from the Residual Certificate is subject
to tax under section 871 (b) or section 882 of the Code in the hands of the
transferee. Moreover, if a person who is not a U.S. Person transfers a Residual
Certificate to a U.S. Person or to a person who is not a U.S. Person (if income
from the Residual Certificate would be subject to tax under section 871 (b) or
section 882 of the Code), and if the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, then the transfer is
disregarded and the transferor continues to be treated as the owner of the
Residual Certificate for purposes of sections 871 (a), 881, 1441 and 1442 of the
Code. As used herein, a U.S. Person is a citizen or resident of the United
States, a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust the
income of which is includible in gross income for United States tax purposes
regardless of its source. See "Limitations on Offset or Exemption of REMIC
Income" and "Other Matters Relating to REMIC Certificates--Taxation of Certain
Foreign Investors--Residual Certificates."
Except as provided in Treasury regulations that have not yet been issued,
the wash sale rules of section 1091 of the Code will apply to the disposition of
a Residual Certificate where, during the period beginning six months before the
sale or disposition of the REMIC Residual Certificate and ending six months
after such sale or disposition, the seller of the Residual Certificate acquires
(or enters into any other transaction that results in the application of section
1091 ) any residual interest in any REMIC or any interest in a "taxable mortgage
pool" (such as a non-REMIC owner trust) that is comparable to a Residual
Certificate. Application of these wash sale rules would result in the deferral
of recognition of any loss on the sale of the Residual Certificate.
Residual Certificates Transferred to or Held by Disqualified Organizations
Regardless of whether any gain or loss is recognized on the transfer of a
Residual Certificate, a tax is imposed on the transferor of a Residual
Certificate where the transfer is to certain specified entities generally
including governmental entities or any other entities that are exempt from U.S.
tax including the tax on unrelated business income (collectively, "Disqualified
Organizations"). If a transfer of a Residual Certificate to a Disqualified
Organization is made through an agent for the Disqualified Organization
(including a nominee, broker or middleman), then the tax is imposed on the
agent. The tax is imposed at the highest rate applicable to domestic
corporations based on the present value of expected excess inclusions (see
"Limitations on Offset or Exemption of REMIC Income" above) but the transferor
is relieved of the tax liability if it receives in good faith from the
transferee (i) an affidavit stating that the transferee is not a Disqualified
Organization or (ii) the transferee's social security number and an affidavit
stating that the social security number is that of the transferee. Because a
requirement for qualification as a REMIC is that reasonable efforts must be made
to ensure that Residual Certificates are not held by Disqualified Organizations,
the ability of a Residual Certificate to be transferred is conditioned upon the
Trustee's receipt of an affidavit representing that the proposed transferee is
not a Disqualified Organization.
If a Residual Certificate is held by a "pass-through entity" (such as a
partnership, trust, real estate investment trust, regulated investment company,
or common trust fund ), a tax is imposed on the pass-through entity if a record
holder of interest in the entity is a Disqualified Organization. The tax
76
<PAGE>
would be imposed on the portion of the excess inclusion income relating to the
Residual Certificate allocable to the Disqualified Organization interest holder.
If a nominee holds an interest in a pass-through entity for a Disqualified
Organization, then the tax is imposed on the nominee. No tax, however, will be
imposed during any period if (i) the record holder of an interest in the
pass-through entity furnishes to the pass-through entity an affidavit that the
record holder is not a Disqualified Organization, and (ii) during such period,
the pass-through entity does not have actual knowledge that the affidavit is
false.
Other Matters Relating to REMIC Certificates
Liquidation of the REMIC. If a REMIC adopts a plan of complete liquidation,
and sells all of its assets (other than cash) within the 90-day period beginning
on the date of the adoption of the plan of liquidation, then the REMIC will not
be subject to an entity-level tax on the sale of its assets, provided that the
REMIC credits or distributes in liquidation all of the sale proceeds plus its
cash (other than amounts retained to meet claims) to holders of all REMIC
Certificates within the 90-day period. It is likely that the termination of the
REMIC will be treated as a sale or exchange of a Residual Certificateholder's
Residual Certificate, in which case, a Residual Certificateholder would be
entitled to recognize a gain (or loss) at that time equal to the amount of the
excess (or shortfall) of the cash or fair market value of other property
distributed in liquidation over the adjusted basis in the Residual Certificate
remaining upon termination of the REMIC. The amount of such gain (or loss) may
be treated as a capital gain (or loss) for certain taxpayers, although not for
financial institutions subject to the provisions of section 582(c) of the Code.
Reporting and Other Administrative Matters. For federal income tax purposes,
the REMIC must adopt a calendar year as its taxable year and must file annual
federal information and tax returns and other reports with the Internal Revenue
Service and furnish reports to Certificateholders as specified in Treasury
regulations. Pursuant to the Treasury regulations, reports will be made annually
to the Internal Revenue Service and to holders of record that are not excepted
from the reporting requirements regarding information with respect to the
interest paid or accrued on the Regular Certificates, original issue discount,
if any, accrued on the Regular Certificates, the portion of the Regular
Certificates (and income therefrom) that is eligible for each special tax status
described above, and certain information necessary to compute the accrual of any
market discount or the amortization of any premium on the Regular Certificates.
Quarterly reports will be made to the holders of Residual Certificates with
regard to REMIC taxable income, excess inclusions and allocable investment
expenses of the REMIC required to be taken into account by the holder of the
Residual Certificate. These quarterly reports will be filed with the Internal
Revenue Service on an annual basis. Quarterly reports must be made of the
REMIC's investment expenses to holders of Regular Certificates where such
allocations are required. The REMIC also is subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination of any adjustments to, among other things, items of REMIC income,
gain, loss, deduction or credit by the Internal Revenue Service in a unified
administrative proceeding. In this connection, a holder of a Residual
Certificate may be required to act as the "tax matters person" of the REMIC.
Certain Noncorporate Investors. Under section 67 of the Code, an individual,
estate or trust may deduct certain itemized deductions only to the extent that
the aggregate of these itemized deductions exceeds two percent of the taxpayer's
adjusted gross income. These itemized deductions include expenses paid or
incurred for the production or collection of income, or the management,
conservation or maintenance of property held for the production of income. In
the case of a REMIC, these deductions may include deductions for servicing
expenses with respect to the Mortgage Loans or Agency Securities, compensation
paid to the Company or other administrator of a Series of Certificates, or other
administrative expenses, if any, of the REMIC. In the case of a REMIC that is
similar to a traditional single-class mortgage pass-through arrangement
(including a pass-through arrangement with senior and subordinated interests), a
pro rata portion of the expenses that are deductible under section 212 of
77
<PAGE>
the Code would be allocated among all of the holders of interests in the REMIC
and would be taken into account by holders who are individuals, estates or
trusts (where interests are held either directly or indirectly through certain
pass-through entities) as a "gross-up" to income, against which deductions for
those expenses would be available subject to the limitations of section 67 of
the Code. Nevertheless, for other REMICs, these deductions would be allocated
only to holders of the Residual Certificates.
Taxation of Certain Foreign Investors--Regular Certificates. For purposes of
this discussion, a "Foreign Holder" is a Certificateholder who holds a REMIC
Certificate and who is not (i) a citizen or resident of the United States, (ii)
a corporation or partnership organized in or under the laws of the United States
or any political subdivision thereof or (iii) an estate or trust the income of
which is includible in gross income for United States tax purposes regardless of
its source. Unless the interest on a Regular Certificate is effectively
connected with the conduct by the Foreign Holder of a trade or business within
the United States, the Foreign Holder is not subject to federal income tax on
interest (or original issue discount, if any) on a Regular Certificate (subject
to possible backup withholding of tax, discussed below), provided the Foreign
Holder is not a controlled foreign corporation related to the Company and does
not own actually or constructively 10% or more of the voting stock of the
Company. To qualify for this tax exemption, the Foreign Holder will be required
to provide a statement signed under penalties of perjury certifying that the
Foreign Holder meets the requirements for treatment as a Foreign Holder and
providing the Foreign Holder's name and address. The statement, which may be
made on a Form W-8 or substantially similar substitute form, generally must be
provided in the year a payment occurs or in either of the two preceding years.
The statement must be provided, either directly or through clearing
organizations or financial institution intermediaries, to the person that
otherwise would withhold tax. If the interest on the Regular Certificate is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the U.S., then the Foreign Holder will be subject to tax at
regular graduated rates. Foreign Holders should consult their own tax advisors
regarding the specific tax consequences of their owning a Regular Certificate.
Any gain recognized by a Foreign Holder upon a sale, retirement, or other
taxable disposition of a Regular Certificate generally will not be subject to
United States federal income tax unless either (i) the Foreign Holder is a
nonresident alien individual who holds the Regular Certificate as a capital
asset and who is present in the United States for 183 days or more in the
taxable year of the disposition and either the gain is attributable to an office
or other fixed place of business maintained in the U.S. by the individual or the
individual has a "tax home" in the United States, or (ii) the gain is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States,
A Regular Certificate will not be includible in the estate of a Foreign
Holder who does not own actually or constructively 10% or more of the voting
stock of the Company or the REMIC.
Taxation of Certain Foreign Investors--Residual Certificates. Amounts paid
to Residual Certificateholders who are Foreign Holders are treated as interest
for purposes of the 30% United States withholding tax. The Treasury Department
has promulgated regulations that provide that interest payments to the holder of
a Residual Certificate are treated as having been paid with respect to the
obligations held by the REMIC for purposes of determining whether the payments
are eligible for the portfolio interest exemption. Accordingly, such regulations
appear to make the portfolio interest exemption available for interest payments
based on the percentage of the income derived from Agency Securities or Mortgage
Loans, as the case may be, that represents interest on mortgage loans originated
after July 18, 1984, (assuming all other requirements for the exemption are
met). Such regulations do not allow any payments representing the "excess
inclusion" portion of the REMIC's income to be eligible for the portfolio
interest exemption. In addition, a Residual Certificateholder will not be
entitled to any exemption from the 30% withholding tax or a reduced treaty rate
to the extent of that portion of REMIC taxable income that constitutes an
"excess inclusion." See "Taxation of REMIC Certificates-- Taxation of Residual
Certificates--Limitations on Offset or Exemption of REMIC Income." If the
amounts allocable to Residual Certificateholders who are Foreign Holders are
effectively connected
78
<PAGE>
with the conduct of a trade or business within the United States by such Foreign
Holders, 30% (or lower treaty rate) withholding will not apply. Instead, the
amounts allocable to such Foreign Holders will be subject to United States
federal income tax at regular graduated rates. If 30% (or lower treaty rate)
withholding is applicable, such amounts will be taken into account for purposes
of withholding only when paid or otherwise distributed (or when the REMIC
Residual Certificate is disposed of) under rules similar to those that govern
withholding upon disposition of debt instruments that have original issue
discount. However, the Code grants the Treasury Department authority to issue
regulations requiring that the amounts includible be taken into account earlier
than otherwise provided where necessary to prevent avoidance of tax. This latter
rule may apply where the Residual Certificates do not have significant value.
Backup Withholding. Under certain circumstances interest (and original issue
discount, if any), principal or proceeds of sale of a Regular Certificate may be
subject to "backup withholding" of United States federal income tax at a 31%
rate. Backup withholding does not apply to corporations and certain other exempt
recipients, which may be required to establish their exempt status. Backup
withholding generally applies if, among other circumstances, a non-exempt
Regular Certificateholder who is a U.S. person fails to furnish its taxpayer
identification number or, when applicable, a Form 4224. Backup withholding
generally does not apply to a Foreign Holder if the Foreign Holder provides the
statement necessary to establish the exemption from federal income tax on
interest on the Regular Certificate. Special backup withholding rules may apply
when a payment is made through one or more financial institutions or by a
custodian, nominee, broker or other agent of the beneficial owner of a Regular
Certificate.
TAXATION OF NON-REMIC CERTIFICATES
Tax Status as a Grantor Trust
General. Counsel has advised the Company that in their opinion, assuming
that no REMIC election is made with respect to a Series of Certificates and the
Trust Fund does not constitute a TMP, the Trust Fund will be classified as a
grantor trust under Subchapter J of the Code and not as an association taxable
as a corporation. In such case, the holder of a Non-REMIC Certificate will be
treated as the owner of a portion of the Mortgage Loans, Agency Securities or
other assets of the Trust Fund and as having the same interest in the income
derived from such assets, and, except in the case of Non-REMIC Certificates
treated as "Stripped Certificates" (discussed below), the holder of a Non-REMIC
Certificate will be required to report on its federal income tax return its pro
rata share of the gross income of the assets of the Trust Fund represented by
the Non-REMIC Certificate in accordance with such Non-REMIC Certificateholder's
method of accounting. Gross income of the Trust Fund for this purpose will
include all interest, original issue discount, if any, or any other income
derived from the Mortgage Loans, Agency Securities or other assets held by the
Trust Fund, in each case without reduction by the amount of the Servicing Fee or
other expenses of the Trust Fund. A Non-REMIC Certificateholder generally will
be able to deduct his share of the Servicing Fee and other expenses of the Trust
Fund in accordance with such Non-REMIC Certificateholder's method of accounting,
provided that such amounts represent reasonable compensation for services
rendered to that Trust Fund. However, as discussed above under "Taxation of
REMIC Certificates--Other Matters Relating to REMIC Certificates --Certain
Noncorporate Investors," the ability of investors who are individuals, estates,
or trusts to deduct certain "miscellaneous itemized deductions," may be limited.
As a result, any such investors who own Non-REMIC Certificates directly (or in
certain cases indirectly through a pass-through entity) might have aggregate
taxable income in excess of the aggregate amount of cash received.
79
<PAGE>
Tax Status of Non-REMIC Certificates. Provided the Trust Fund is not a TMP,
the Mortgage Loans and Agency Securities represented by a Non-REMIC Certificate
will be considered to represent (i) "qualifying real property loans" within the
meaning of section 593(d)(1) of the Code, (ii) assets described in Section
7701(a)(19)(C) of the Code and (iii) "real estate assets" within the meaning of
section 856(c)(5)(A) of the Code. Interest income derived from a Mortgage Loan
or Agency Security will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code. Mortgage Loans and Agency Securities will not be considered to be
"Government Securities" within the meaning of section 851(b)(4)(A)(i) of the
Code.
Treatment of Non-REMIC Certificateholders. For purposes of the remaining
discussion of the treatment of Non-REMIC Certificateholders, the term "Mortgage
Loan" will refer both to Mortgage Loans and to mortgage loans underlying Agency
Securities. Subject to the application of the "stripped bond rules" discussed
below, and provided the Trust Fund is not a TMP, a Non-REMIC Certificateholder
will include his proportionate share of income realized on the Mortgage Loans,
including original issue discount, market discount and gain on the prepayment or
other disposition of a Mortgage Loan, and will deduct (subject to the
limitations discussed above) his proportionate share of the Trust Fund's
expenses. Gain on the prepayment of a Mortgage Loan on which the obligor is an
individual will be treated as ordinary income. The treatment of original issue
discount and market discount and premium are discussed below.
Original Issue Discount. Holders of Non-REMIC Certificates will be required
to include original issue discount income on a periodic basis to the extent that
the Non-REMIC Certificate represents interests in Mortgage Loans that have
original issue discount, which Mortgage Loans were either issued by a corporate
mortgagor after May 27, 1969, by a non-corporate mortgagor (other than an
individual) after July 1, 1982, or by an individual after March 1, 1984. As
discussed above under "Taxation of REMIC Certificates--Regular
Certificates--Original Issue Discount," original issue discount is the excess of
the "stated redemption price at maturity" of a debt instrument over its "issue
price." Original issue discount generally must be included as interest in gross
income as it accrues under a constant interest method, in advance of the cash
attributable to such income regardless of the method of accounting otherwise
used. Therefore, in a given taxable year, a Non-REMIC Certificateholder may have
taxable income with respect to its ownership of such Certificate in excess of
distributions on such Certificate.
Market Discount. If the revised issue price of any Mortgage Loan exceeds the
portion of the basis of the Non-REMIC Certificateholder allocable to the
Mortgage Loan, the Non-REMIC Certificateholders also will be subject to the
market discount rules of the Code. Market discount will be determined and will
be reported as ordinary income generally in the manner described above under
"Taxation of REMIC Certificates--Regular Certificates--Market Discount."
Premium. Where the portion of a Non-REMIC Certificateholder's basis
allocable to a Mortgage Loan exceeds the stated redemption price of the Mortgage
Loan, the Non-REMIC Certificateholder will be treated as having acquired the
Mortgage Loan at a premium. The Non-REMIC Certificateholder generally will treat
the premium in the manner described above under "Taxation of REMIC
Certificates--Taxation of Regular Certificates--Premium."
Sale or Exchange of Non-REMIC Certificates. Upon sale or exchange of a
Non-REMIC Certificate, a Non-REMIC Certificateholder will recognize gain or loss
equal to the difference between the amount realized in the sate and its
aggregate adjusted basis in the Mortgage Loans and other assets represented by
the Non-REMIC Certificate. In general, the aggregate adjusted basis will equal
the Non-REMIC Certificateholder's cost for the Non-REMIC Certificate, increased
by the amount of any income previously reported with respect to the Non-REMIC
Certificate and decreased by the amount of any losses previously reported with
respect to the Non-RIEMIC Certificate and the amount of any distributions
received thereon. Except as provided above with respect to market discount on
any
80
<PAGE>
Mortgage Loans, and except for certain financial institutions subject to the
provisions of section 582(c) of the Code, any such gain or loss would be capital
gain or loss if the Non-REMIC Certificate was held as a capital asset.
Recharacterization of the Servicing Fee. The Internal Revenue Service has
indicated that if the Servicing Fee paid to the Servicer exceeded reasonable
servicing compensation, the amount in excess of reasonable servicing
compensation would be considered as an ownership interest of the Company in a
portion of the interest payments on the Mortgage Loans resulting in application
of the "stripped bond" rules described below. In this regard, the Internal
Revenue Service has provided elective safe harbors concerning levels of
servicing compensation that would be considered reasonable for specified types
of mortgage loans. If the Servicing Fee with respect to the Mortgage Loans
exceeds the applicable safe harbors, a recharacterization of any "excess"
Servicing Fee as an ownership interest in the Mortgage Loans should not have any
significant effect upon the timing or amount of income reported by a Non-REMIC
Certificateholder who does not purchase the Non-REMIC Certificate at a
significant discount, except that the income reported by a cash method holder
may be somewhat accelerated, See "Application of the Stripped Bond Rules" below
for a further description of the federal income tax treatment of Certificates
subject to the stripped bond rules.
Application of the Stripped Bond Rules
General. In general, the provisions of section 1286 of the Code (the
"stripped bond rules") apply to all or a portion of those Certificates where
there has been a separation of the ownership of the rights to receive some or
all of the principal payments on a Mortgage Loan from the right to receive some
or all of the related interest payments. Certain Non-REMIC Certificates may be
subject to these rules either because they represent specifically the right to
receive designated portions of the interest or principal paid on the Mortgage
Loans, or as discussed above, because the Servicing Fee is determined to be
excessive (each, a "Stripped Certificate").
Tax Status of Stripped Certificates. Although no specific legal authority
exists and the matter is not free from doubt, Stripped Certificates should be
considered to have the same federal income tax status as the Mortgage Loans or
Agency Securities, as discussed above under "Tax Status of Non-REMIC
Certificates" to the same extent as comparable Non-REMIC Certificates that are
not Stripped Certificates.
Taxation of Stripped Certificates. Each Stripped Certificate will be
considered to have been issued with original issue discount for federal income
tax purposes. Original issue discount with respect to a Stripped Certificate
must be included in ordinary income as it accrues, which may be prior to the
receipt of the cash attributable to such income. For these purposes, under
original issue discount regulations, each Stripped Certificate should be treated
as a single installment obligation for purposes of calculating original issue
discount and gain or loss on disposition. The manner in which the accrual of
original issue discount is to be computed with respect to Stripped Certificates
is unclear. Nevertheless, it is anticipated that if the Company is required to
report original issue discount, computations for Stripped Certificates that
represent the right to receive payments of principal on a Mortgage Loan without
the corresponding right to receive all interest payable on that principal amount
on the Mortgage Loan will be made as described above under "Taxation of REMIC
Certificates- Regular Certificates- Original Issue Discount." However, for these
purposes, the issue price of a Stripped Certificate will be the purchase price
paid by each holder thereof. The Internal Revenue Service has indicated that
with respect to certain mortgage loans, original issue discount would be
considered zero either if (i) the original issue discount did not exceed an
amount that would be eligible for the de minimis rule described above under
"Taxation of REMIC Certificates--Regular Certificates--Original Issue Discount",
or (ii) the annual stated rate of interest on the mortgage loan was not more
than 100 basis points lower than on the loan prior to its being stripped. In
either such case the rules described above under
81
<PAGE>
"Taxation of REMIC Certificates--Regular Certificates- Market Discount"
(including the applicable de minimis rule) would apply with respect to the
mortgage loan.
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 "Taxation of REMIC Certificates--Regular
Certificates--Sale or Exchange of Regular Certificates."
Treatment of Subordinated Certificates
As described above under "Description of the Certificates- General," certain
Certificates of a Series may be subordinate to one or more classes of other
Certificates of the Series (the "Subordinated Certificates" and "Senior
Certificates," respectively). Holders of Subordinated Certificates that are
Non-REMIC Certificates generally will be treated in the same manner as holders
of Subordinated Certificates that are REMIC Certificates with regard to the
treatment of delays in payment on account of delinquencies or defaults on
Mortgage Loans held by the Trust Fund. See "Taxation of REMIC
Certificates--Regular Certificates--Treatment of Subordinated Certificates."
Taxation of Certain Foreign Investors
To the extent that a Non-REMIC Certificate evidences ownership in Mortgage
Loans that are issued before July 19, 1984, interest or original issue discount
paid by the person required to withhold tax under Section 1441 or 1442 of the
Code to Foreign Holders (as defined in "Taxation of REMIC Certificates-- Other
Matters Relating to REMIC Certificates--Taxation of Certain Foreign
Investors--Regular Certificates") 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 Foreign
Holder on the sale or exchange of such a Non-REMIC Certificate also will be
subject to United States income tax withholding at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Company or other withholding agent to Foreign Holders evidencing
ownership interests in Mortgage Loans issued after July 18, 1984, generally will
be considered "portfolio interest" and will be treated in the same manner as
described above under "Taxation of REMIC Certificates--Other Matters Relating to
REMIC Certificates--Taxation of Certain Foreign Investors--Regular
Certificates."
The treatment of a sale or exchange of a Non-REMIC Certificate by a Foreign
Holder generally will have the same consequences as the sale of a REMIC Regular
Certificate discussed above under "Taxation of REMIC Certificates--Other Matters
Relating to REMIC Certificates--Taxation of Certain Foreign Investors--Regular
Certificates."
Reporting Requirements and Backup Withholding
Reports will be made annually to the Internal Revenue Service and to holders
of record that are not excepted from the reporting requirements regarding
information as may be required with respect to interest and original issue
discount, if any, with respect to the Non-REMIC Certificates. The amount
required to be reported by the Company 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. Non-REMIC
Certificateholders may be subject to "backup withholding" as described above
under "Taxation of REMIC Certificates--Other Matters Relating to REMIC
Certificates--Backup Withholding."
Tax Status as Taxable Mortgage Pool
General. If no REMIC election is made, or a valid REMIC election cannot be
made, with respect to a Series of Certificates and the Trust Fund (or a portion
of the Trust Fund or such Series) meets the
82
<PAGE>
criteria of section 7701 (i) of the Code, the Trust Fund (or such Series) will
be classified as a TMP and not as a grantor trust. (Reference hereafter is only
to the Trust Fund, but the discussion is equally applicable to a portion of the
Trust Fund or to a Series. )
A TMP is any entity (other than a REMIC) or portion of such an entity if (i)
substantially all of its assets consists of debt obligations (or interests
therein) and more than 50 percent of such debt obligations (or interests)
consists of real estate mortgages (or interests therein), (ii) such entity is
the obligor under debt obligations with 2 or more maturities, and (iii) under
the terms of the debt obligations referred to in clause (ii), payments on such
debt obligations bear a relationship to payments on the debt obligations (or
interests) referred to in clause (i). If a Series of Non-REMIC Certificates were
so treated, the Trust Fund would be treated as a TMP.
Taxation of the Trust Fund as a TMP. A TMP is treated as a corporation for
federal income tax (and, possibly, state corporate income tax) purposes and is
subject to a corporate-level tax on its taxable income. A TMP may not be
included in an affiliated group filing a consolidated return.
If the Trust Fund is classified as a TMP, the Trust Fund will include in
gross income interest on the Loans and other temporary investments for each
taxable year. The Trust Fund will be entitled to deductions for ordinary and
necessary expenses incurred and for interest accrued during the taxable year on
indebtedness. For purposes of determining accrued interest, it is unclear
whether Non-REMIC Certificates would be classified as indebtedness of the Trust
Fund or as equity interests. If such Certificates were treated as indebtedness
of the Trust Fund, the Trust Fund's deductions for interest accrued with respect
to the Non-REMIC Certificates would offset a like amount of interest income from
the Mortgage Loans.
If, however, Non-REMIC Certificates were treated as equity interests of the
Trust Fund, rather than indebtedness, payments to the Certificateholders would
be characterized as nondeductible distributions. In such case, the Trust Fund
would have substantial taxable income from the interest income from the Mortgage
Loans without any significant corresponding deductions for interest and the
resulting corporate level tax could significantly reduce the amount of funds the
Trust Fund would have available for distribution to Certificateholders.
Taxation of the Non-REMIC Regular Certificateholders
If Non-REMIC Regular Certificates were treated as indebtedness of a TMP
Certificateholders would be taxed in generally the same manner as described
above under "Taxation of REMIC Certificates--Taxation of Regular Certificates."
If Non-REMIC Regular Certificates were treated as equity interests of the
Trust Fund, rather than indebtedness, payments to Regular Certificateholders
would be characterized as dividends, includible in the gross income of such
holders to the extent of the Trust Fund's earnings and profits and then as a
return of capital. Thereafter any distributions would be treated as arising from
a sale or exchange of the Certificates.
Taxation of Non-REMIC Residual Certificateholders
Non-REMIC Residual Certificates would be treated as equity interests of the
Trust Fund with the result that payments to Residual Certificateholders would be
characterized as dividends includible in the gross income of such holders to the
extent of the Trust Fund's earnings and profits and then as a return of capital.
Thereafter any distributions would be treated as arising from a sale or exchange
of the Certificates.
83
<PAGE>
PLAN OF SALE
The Company may sell the Certificates offered hereby to or through one or
more underwriters or agents. The Prospectus Supplement with respect to each
Series of Certificates will set forth the terms of the offering of such Series
of Certificates and each Class within such Series, including the name or names
of the underwriters or agents, the proceeds to and their intended use by the
Company, and either the initial public offering price, the discounts and
commissions to the underwriters or agents and any discounts or concessions
allowed or reallowed to certain dealers, or the method by which the price at
which the underwriters or agents will sell the Certificates will be determined.
Certificates may be offered to the public either through underwriting syndicates
represented by managing underwriters, or directly by one or more firms or others
as designated in the related Prospectus Supplement.
The Underwriting Agreement, as specified in the related Prospectus
Supplement, may provide that underwriters named therein will be obligated to
purchase all of the Series of Certificates described in the Prospectus
Supplement with respect to such Series if any such Certificates are purchased.
Alternatively, the Prospectus Supplement may specify that the Certificates will
be distributed by one or more agents that will receive a selling commission with
respect to each Series of Certificates as specified in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, a Series of
Certificates may be offered in whole or in part in exchange for the Mortgage
Loans or Agency Securities that would comprise the Mortgage Pool or pool of
Agency Securities with respect to such Certificates. In such event, the
Prospectus Supplement will specify the amount of compensation to be paid to the
underwriter or underwriters and expenses, if any, in connection with the
distribution. The Certificates may be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale.
The obligations of any underwriters will be subject to certain conditions
precedent, and such underwriters will be severally obligated to purchase all the
Certificates of a Series described in the related Prospectus Supplement, if any
are purchased.
LEGAL INVESTMENT
The Prospectus Supplement for each Series of Certificates will specify
which, if any, of the classes of Certificates offered thereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Marketing
Enhancement Act of 1984 ("SMMEA"). The appropriate characterization of those
Certificates not qualifying as "mortgage related securities" ("Non-SMMEA
Certificates") under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase such Certificates, may be
subject to significant interpretive uncertainties. Accordingly, investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether and to what extent the Non-SMMEA
Certificates constitute legal investments for them.
Generally, only Classes of Certificates that (i) are rated in one of the two
highest rating categories by one or more nationally recognized statistical
rating organizations and (ii) are part of a Series evidencing interests in a
Trust Fund consisting of loans secured by, among other things, a single parcel
of real estate upon which is located a dwelling or mixed residential and
commercial structure, such as certain multifamily loans, originated by certain
types of obligations as specified in SMMEA, will be "mortgage related
securities" for purposes of SMMEA. As "mortgage related securities", such
Classes will constitute legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including but
not limited to, state-chartered savings banks, commercial banks, savings and
loan associations and insurance companies, as well as trustees and state
government employee retirement systems) created pursuant to or existing under
the laws of the United States or of
84
<PAGE>
any state (including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent that under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof constitute legal
investments for such entities.
Pursuant to SMMEA, a number of states enacted legislation, on or before the
October 3, 1991 cutoff for such enactments, limiting to varying extents the
ability of certain entities (in particular, insurance companies ) to invest in
"mortgage related securities" in most cases by requiring the affected investors
to rely solely upon existing state law, and not SMMEA. Accordingly, the
investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such Securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
Section 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, federal credit
unions should review the National Credit Union Administration ("NCUA") Letter to
Credit Unions No. 96, as modified by Letter to Credit Unions No.108, which
includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities. The NCUA has adopted rules, codified
as 12 C.F.R. Sections 703.5(f)-(k) which prohibit federal credit unions from
investing in certain mortgage related securities (including securities such as
certain Series or Classes of Certificates), except under limited circumstances.
All depository institutions considering an investment in the Certificates
(whether or not the class of certificates under consideration for purchase
constitutes a "mortgage related security" should review the Federal Financial
Institutions Examination Council's "Supervisory Policy Statement on Securities
Activities" (to the extent adopted by their respective regulators) (the "Policy
Statement"). The Policy Statement, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Comptroller of the Currency and the Office of Thrift
Supervision, and by the NCUA (with certain modifications), prohibits depository
institutions from investing in certain "high risk mortgage securities"
(including securities such as certain Series or Classes of the Certificates),
except under limited circumstances, and sets forth certain investment practices
deemed to be unsuitable for regulated institutions. Under the Policy Statement,
it is the responsibility of each depository institution to determine, prior to
purchase (and at stated intervals thereafter), whether a particular mortgage
derivative product is a "high-risk mortgage security", and whether the purchase
(or retention) of such a product would be consistent with the Policy Statement.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or subclasses may be deemed to be
unsuitable investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying", and with regard to any Certificates issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
85
<PAGE>
Except as to the status of certain Certificates as "mortgage related
securities," no representation is made as to the proper characterization of the
Certificates for legal investment purposes, financial institutions regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial regulatory characteristics of the
Certificates) may adversely affect the liquidity of the Certificates. Investors
should consult their own legal advisors in determining whether and to what
extent the Certificates constitute legal investments for such investors.
LEGALITY OF THE CERTIFICATES
The legality of the Certificates will be passed upon for the Company by
Morgan, Lewis & Bockius LLP, New York, New York. The material federal income tax
consequences of the Certificates will be passed upon by Morgan, Lewis & Bockius
LLP.
ADDITIONAL INFORMATION
The Prospectus does not contain all the information set forth in the
Registration Statement (of which this Prospectus is a part) and exhibits
relating thereto which the Company has filed with the Commission in Washington,
D.C. Copies of the information and the exhibits are on file at the offices of
the Commission and may be obtained, upon payment of the fee prescribed by the
Commission, or may be examined without charge at the offices of the Commission.
Neither The Chase Manhattan Corporation nor any of its affiliates, including
the Company, are obligated with respect to the Certificates. Accordingly, the
Company has determined that financial statements of The Chase Manhattan
Corporation and its affiliates, including the Company, are not material to the
offering made hereby.
86
<PAGE>
GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus. The Agreement may contain a more complete definition of certain
of the terms defined herein and reference should be made to the Agreement for a
more complete definition of all such terms.
"Accrual Remittance Amount" means, with respect to the Compound Interest
Certificates of a Series of Certificates providing for sequential distributions
in reduction of the Stated Balance of the Classes of such Series, as of any
Remittance Date, the amount of interest, calculated at the Interest Rate, which
has accrued on such Compound Interest Certificates from the prior Remittance
Date.
"Adjustable Rate Certificates" means Certificates which evidence the right
to receive distributions of income at a variable Remittance Rate.
"Adjustable Rate Loans" means adjustable and variable rate Mortgage Loans
which permit or require periodic changes in the interest rates borne by such
Mortgage Loans.
"Advances" means the advances made by a Master Servicer (including from
advances made by a Sub-servicer) on any Remittance Date pursuant to an
Agreement.
"Agency Securities" means individual mortgage pass-through securities issued
or guaranteed by FHLMC, FNMA or GNMA which are sold and assigned by the Company
to the Trustee and which are the subject of an Agreement and are included in a
Trust Fund.
"Agreement" means each Pooling and Servicing Agreement by and among the
Company, the Trustee and, with respect to a Series of Certificates evidencing
interests in Mortgage Loans, the Master Servicer specified in the related
Prospectus Supplement.
"Alternate Credit Enhancement" means the insurance policy, guarantee, letter
of credit or surety bond used to enhance the credit rating of a Series of
Certificates, as set forth in the related Prospectus Supplement.
"Asset Value" means the Asset Value of the Mortgage Loans or Agency
Securities included in a Trust Fund, determined in the manner set forth in the
related Agreement.
"Available Distribution Amount" means, with respect to each Series of
Certificates, certain amounts on deposit in the Certificate Account on a
Determination Date.
"Available Subordination Amount" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement, as of any Remittance Date, the
excess, if any, of the then applicable Maximum Subordination Amount over the
Cumulative Subordination Payments as of the preceding Remittance Date.
"Certificates" means the Pass-Through Certificates issued pursuant to an
Agreement. "Certificate Account" means the account maintained by the Master
Servicer or the Trustee, as specified in the related Prospectus Supplement.
"Certificate Remittance Amount" means, unless otherwise specified in the
related Prospectus Supplement, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of the
Classes of such Series, as of any Remittance Date, the amount, if any, by which
the then outstanding Stated Balance of the Classes of Certificates of such
Series (before taking into account the amount of interest accrued on any Class
of Compound Interest Certificates to be added to the Stated Balance thereof on
such Remittance Date) exceeds the Asset Value. (as defined in the related
Prospectus Supplement) of the Mortgage Loans or Agency Securities included in
the Trust Fund for such Series as of the end of the related Due Period.
87
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
"Company" means MorServ, Inc.
"Compound Interest Certificates" means a Class or Sub-class of Certificates
on which interest will accrue, but not be paid, for the period set forth in the
related Prospectus Supplement.
"Co-op Loans" means Mortgage Loans secured by stock allocated to dwelling
units in residential cooperative housing corporations.
"Cumulative Subordination Payments" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement, as of any Remittance Date, the
cumulative amount equal to (i) the total of all amounts distributed to the
Senior Certificateholders, exclusive of Advances made by the Master Servicer and
the Initial Deposit to the Reserve Fund, up to and including such Remittance
Date minus (ii) the sum of (a) the Senior Percentage times the Available
Distribution Amount for all Remittance Dates up to and including such Remittance
Date plus (b) the Subordinated Percentage times certain late payments previously
applied to reimburse the Master Servicer for Advances.
"Cut-off-Date" means the date specified in the related Prospectus Supplement
as the date from which principal and interest payments on the Mortgage Loans or
Agency Securities are included in the Trust Fund.
"Determination Date" means, unless otherwise specified in the related
Prospectus Supplement, the later of (i) the sixteenth day of the month in which
the related Remittance Date occurs, or (ii) the seventh Business Day prior to
the related Remittance Date.
"Due Period" means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period beginning on the
second day of the month preceding the month of the Remittance Date and ending on
the first day of the month of the Remittance Date.
"Eligible Investments" means one or more of the investments specified in the
Agreement in which moneys in the Certificate Account and certain other accounts
are permitted to be invested.
"Excess Interest" or "Excess Interest Rate" means, with respect to any
Mortgage Loan or Agency Security, the per annum percentage of the principal
balance from time to time outstanding, which may be retained by a seller, the
Company or the Master Servicer or allocated to a designated Class of
Certificates, as specified in the related Prospectus Supplement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"FHA Mortgage Loans" means Mortgage Loans insured by the FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Remittance Date" means, with respect to a Series of
Certificates providing for sequential distributions in reduction of the Stated
Balance of the Classes of each Series, the date, based on the assumptions set
forth in the related Prospectus Supplement, on which the Stated Balance of all
Certificates of each Class shall have been reduced to zero.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
88
<PAGE>
"Guarantee Fee" means any fee paid for providing credit enhancement for all
or part of the related Trust Fund, Mortgage Pool, or all or any Mortgage Loans
included in the related Mortgage Pool.
"HUD" means the United States Department of Housing and Urban Development.
"Initial Deposit" means, with respect to a Series of Certificates, the
amount, if any, deposited into the Reserve Fund as an advance of funds on the
date of the initial issuance of the Certificates. which amount may be
recoverable as provided in the Agreement.
"Interest Rate" means, with respect to a Series of Certificates providing
for sequential distributions in reduction of the Stated Balance of the Classes
of such Series. the interest payable on the Principal Balance outstanding of
each such Class.
"Late Collections" means, with respect to any Mortgage Loan, amounts
received during any Due Period, whether as late payments of Monthly Payments, or
as Liquidation Proceeds, condemnation awards, proceeds of insurance policies or
otherwise, which represent late payments or collections of Monthly Payments due
but delinquent for a previous Due Period and not previously recovered.
"Loan-to-Value Ratio" means, except as otherwise specified in the related
Prospectus Supplement, the fraction, expressed as a percentage, the numerator of
which is the outstanding principal balance of the related Mortgage Loan at the
time of origination and the denominator of which is the appraised value of the
related Mortgaged Property at origination, or, in the case of a Mortgage Loan
financing the acquisition of the Mortgaged Property, the sales price of such
Mortgaged Property, if such sales price is less than such appraised value.
"Liquidation Proceeds" means cash (including insurance proceeds) received in
connection with the liquidation of defaulted Mortgage Loans.
"Master Servicer" means, with respect to each Series of Certificates
evidencing interests in Mortgage Loans, the Master Servicer specified in the
related Prospectus Supplement.
"Maximum Subordination Amount" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, the amount specified
in the related Prospectus Supplement, representing the maximum amount of
Cumulative Subordination Payments which may be required to be made over the term
of the related Agreement.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Mortgage Loan.
"Mortgage" means the mortgage, deed of trust or other instrument creating a
first lien on a first priority ownership interest in or estate in fee simple in
real property securing a Mortgage Note.
"Mortgage Insurance Policies" means the Primary Mortgage Insurance Policies,
FHA insurance, VA guarantees, and Mortgage Pool Insurance Policies, if any,
obtained with respect to the Mortgage Loans.
"Mortgage interest Rate" or "Mortgage Rate" means, with respect to each
Mortgage Loan, the interest rate specified in the related Mortgage Note.
"Mortgage Loan-to-Value Ratio" means the loan-to-value Ratio at the time of
origination of the Mortgage Loan.
"Mortgage Loans" means the individual mortgage loans which are sold and
assigned by the Company to the Trustee and which are the subject of an Agreement
and included in a Trust Fund.
"Mortgage Note" means the note or other evidence of indebtedness of a
mortgagor secured by a Mortgage.
89
<PAGE>
"Mortgage Pool" means, with respect to each Series of Certificates, the pool
of Mortgage Loans transferred by the Company to the Trustee.
"Mortgaged Properties" means one-to-four family residential properties
consisting of detached individual dwelling units, individual condominiums,
townhouses, duplexes, row houses, individual units in planned-unit developments
and other attached dwelling units.
"Mortgagor" means the obligor on a Mortgage Note.
"Nonrecoverable Advance" means any Advance previously made or proposed to be
made in respect of a Mortgage Loan by the Master Servicer pursuant to the
Agreement, which, in the good faith judgment of the Master Servicer, will not
or, in the case of a proposed Advance, would not be ultimately recoverable by
the Master Servicer from Liquidation Proceeds or otherwise.
"Paying Agent" means, unless otherwise specified in the related Prospectus
Supplement, The Chase Manhattan Bank.
"Record Date" means the date specified in the related Prospectus Supplement
for the list of Certificateholders entitled to distributions on the
Certificates.
"REMIC" means a "real estate mortgage investment conduit" as defined in the
Code.
"REMIC Servicer" means, with respect to each Series of Certificates
evidencing interests in Mortgage Securities, the REMIC Servicer, if any,
specified in the related Prospectus Supplement.
"Remittance Date" means the date specified in the related Prospectus
Supplement for payments on the Certificates.
"Remittance Rate" means, as to a Mortgage Loan or Mortgage Security, the
rate or rates of interest specified thereon less the Servicing Fee and Excess
Interest, if any, specified in the related Prospectus Supplement.
"Reserve Fund" means a fund established and funded by the Company or such
other party specified in the related Prospectus Supplement to make payments on
the Certificates to the extent funds are not otherwise available.
"Senior Certificates" means, with respect to each Series of Certificates,
the Class or Classes which have rights senior to another Class or Classes in
such Series.
"Senior Distribution Amount" means, with respect to a Series of Certificates
having Subordinated Certificates, as of each Remittance Date and for each Class
of Senior Certificates, the amount due the holders of such Class of Senior
Certificates.
"Senior Percentage" means, with respect to a Series of Certificates having
Subordinated Certificates the percentage specified in the related Prospectus
Supplement.
"Senior Shortfall" means, with respect to a Series of Certificates having
Subordinated Certificates, as of any date, to the extent not previously paid,
the aggregate of the amounts by which the Senior Distribution Amount for any
Remittance Date exceeds the amount actually paid on such date.
"Servicing Fee" means the amount of the annual fee paid to the Master
Servicer (including amounts paid to any Sub-servicer), or the Trustee as
specified in the related Prospectus Supplement.
"Single Certificate" means, unless otherwise specified in the related
Prospectus Supplement, for each Class of Certificates of any Series, the initial
principal amount of Mortgage Loans or Mortgage Securities evidenced by a single
Certificate of such Class.
90
<PAGE>
"Special Distributions" means payments received in reduction of the Stated
Balance.
"Specified Reserve Fund Balance" means, with respect to each Series of
Certificates having a Reserve Fund, the amount required to be maintained in the
Reserve Fund as specified in the related Prospectus Supplement.
"Stated Balance" means, with respect to a Series of Certificates providing
for sequential distributions in reduction of Stated Balance of the Classes of
such Series, the maximum specified dollar amount (exclusive of interest at the
related Interest Rate) to which the holder thereof is entitled from the cash
flow of the Trust Fund.
"Subordinated Certificates" means, with respect to each Series of
Certificates, the Class or Classes with rights subordinate to another Class or
Classes of such Series.
"Subordinated Percentage" means, with respect to a Series of Certificates
having Subordinated Certificates, the percentage specified in the related
Prospectus Supplement.
"Sub-servicer" means any party with whom the Master Servicer has entered
into a Sub-servicing Agreement.
"Sub-servicing Agreement" means the written contract between the Master
Servicer and any Sub-servicer relating to servicing and/or administration of
certain Mortgage Loans as provided in the Agreement.
"Trust Fund" means, with respect to each Series of Certificates, the corpus
of the trust created by the related Agreement, to the extent described in such
Agreement, consisting of, among other things, Mortgage Loans or Agency
Securities, such assets as shall from time to time be identified as deposited in
the Certificate Account, property which secured a Mortgage Loan, insurance, a
Reserve Fund and Alternate Credit Enhancement, if any.
"Trustee" means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
"VA" means the Department of Veterans Affairs.
"VA Mortgage Loans" means Mortgage Loans partially guaranteed by the VA.
"Variable Rate Certificates" means Certificates which evidence the right to
receive distributions of income at a variable Remittance Rate.
91
<PAGE>
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE MORSERV, INC.
CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST $203,426,604 (APPROXIMATE)
NOT BE RELIED UPON. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE OFFERED MULTI-CLASS MORTGAGE
CERTIFICATES OFFERED HEREBY, NOR AN PASS-THROUGH CERTIFICATES
OFFER OF THE OFFERED CERTIFICATES IN ANY SERIES 1996-2
STATE OR JURISDICTION IN WHICH, OR TO CLASS IA-1 CLASS IIA-1
ANY PERSON TO WHOM, SUCH OFFER WOULD BE CLASS IA-2 CLASS IIA-P
UNLAWFUL. THE DELIVERY OF THIS CLASS IA-3 CLASS M
PROSPECTUS SUPPLEMENT OR ANY PROSPECTUS CLASS IA-4 CLASS B-1
AT ANY TIME DOES NOT IMPLY THAT CLASS IA-P CLASS B-2
INFORMATION HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE;
HOWEVER, IF ANY MATERIAL CHANGE OCCURS
WHILE THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IS REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY. CHASE MANHATTAN
------------ MORTGAGE CORPORATION
TABLE OF CONTENTS MASTER SERVICER
PROSPECTUS SUPPLEMENT
Terms of the Certificates........... S-3
The Mortgage Pool...................S-14
The Chase Manhattan Bank............S-38
Prepayment and Yield Considerations.S-39
Servicing...........................S-51 ------------------------
Description of the Certificates.....S-55 PROSPECTUS SUPPLEMENT
Federal Income Tax Considerations...S-69 ------------------------
ERISA Considerations................S-70
Legal Investment Matters............S-72
Use of Proceeds.....................S-72
Underwriting........................S-72
Legal Matters.......................S-73
Rating..............................S-73
Other Considerations................S-74
Glossary of Defined Terms...........S-75
PROSPECTUS
Incorporation of Certain Documents by
Reference........................... 2
Summary of Terms.................... 3 DONALDSON, LUFKIN & JENRETTE
Risk Factors........................ 15 SECURITIES CORPORATION
The Trust Fund...................... 16
Use of Proceeds..................... 24
The Depositor....................... 24 CHASE SECURITIES INC.
Mortgage Loan Program............... 24
Yield Considerations................ 27
Maturity and Prepayment
Considerations...................... 28
Description of the Certificates..... 30
Description of Insurance............ 48
Alternative Credit Enhancement...... 58
Certain Legal Aspects of Mortgage
Loans............................... 59
ERISA Considerations................ 64
Certain Federal Income Tax
Consequences........................ 65
Plan of Sale........................ 84
Legal Investment.................... 84
Legality of the Certificates........ 86
Additional Information.............. 86
Glossary............................ 87 AUGUST 23, 1996
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
